Stripe faces $3.5B tax bill as employees' shares expire • Hacker News Board

Re: Stripe faces $3.5B tax bill as employees' shares expire

#121

Post by csomar » Thu, Mar 09, 2023, 2:52 AM UTC

georgelyon wrote: post #75

I've always been curious, what happens if they just let these shares just expire? It wouldn't look great for Stripe, but presumably they would just get back for free (modulo taxes) any shares employees could not afford to exercise. The value of those shares alone could be pretty enticing to the people in charge.

I'm guessing this would affect older/first employees the most. These likely have more political weight around the company.

In a pragmatic world, they'd just let them expire.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#122

Post by renewiltord » Thu, Mar 09, 2023, 2:53 AM UTC

morepork wrote: post #70

throw3823423 wrote: post #48

Earlier quoted context omitted.

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

I wonder whether there could be space here for a bank to come in and specialise in loans to cover the tax bill, using the currently pre-IPO stock as security

That's literally what the Bolt CEO did. He ran a company that offered his employees the loans.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#123

Post by runako » Thu, Mar 09, 2023, 2:58 AM UTC

danielmarkbruce wrote: post #53

olliej wrote: post #27

Earlier quoted context omitted.

I would treat it as a lottery if I thought it was a lottery. But it isn't a lottery. If a startup _chooses_ not to go public then it I cannot realize any compensation from that valuation - given the founders always seem to be able to, why isn't that option available to the rank-and-file employees? Similarly there have been multiple start ups that sold the controlling class of stock off and rendered all other stock wo…

This take isn't right. Stripe has done the right thing here. They've always been honest about what the comp was, what the risks were, and now they are doing the right thing, again. The employees involved recognize it as such and the only people making disparaging remarks are either not involved or don't understand it.

> Stripe has done the right thing here.

Having worked for a company that (indefinitely) delayed its IPO, I can say that they may be doing the right thing today. But also there were plenty of observers who pointed out contemporaneously that there was no need for them to keep putting off the IPO. Sarbanes didn't put a $200B valuation floor on IPO registrants.

I've never taken a company public, so I don't know their rationale for holding out. I do know that had they gone public as early as 2017, they still would have been roughly big enough to be listed in the S&P 500 (so not "small" by any definition that didn't explicitly reference Microsoft or Apple).

Either way, their delay in filing likely deprived their early employees of some of the financial fruits of their joint labor.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#124

Post by iav » Thu, Mar 09, 2023, 2:59 AM UTC

theIV wrote: post #99

xyzzyz wrote: post #90

Earlier quoted context omitted.

No, this is completely incorrect. The issue in question is about stock options, not stocks themselves. If you hold actual stocks, there is no tax bill until you sell these to realize the gains, and you can hold these forever. Instead, the issue at hand is about stock options . For those, the tax bill is due on exercise . For as long as you can hold the options without exercising, you don’t owe any tax, but the proble…

If they are ISOs, tax won't be due _upon_ exercise but will show up on that years tax return. Usually the AMT will hit you (if the exercise was worth it), and you'll owe the following year. This is a slightly longer way of saying I'm not totally sure how what you're saying invalidates what valzam said: as far as the IRS is concerned, you did realize gains (you got something of value), just not on anything "liquid," h…

when the gain shows up is irrelevant - IRS requires taxes to be paid on income in the quarter it is realized. Everyone needs to pay the estimated tax and then file the return for the final adjustment.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#125

Post by samclearman » Thu, Mar 09, 2023, 3:01 AM UTC

yalogin wrote: post #118

This is a very interesting situation. Generally at startups, is there no room to negotiate to get RSUs instead of options? What is the reason they give options instead of options? They want to reduce the amount of stock people own that no longer work at the company over time?

RSU's are taxed on vesting, so it would be worse than options if anything.

Best are options with early exercise, but they're still not perfect (you have a possibly significant upfront cost to exercise them).

Really they should just change the AMT rules.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#126

Post by snotrockets » Thu, Mar 09, 2023, 3:02 AM UTC

MajimasEyepatch wrote: post #73

throw3823423 wrote: post #48

Earlier quoted context omitted.

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

I don't think it really changes the overall point you're making, but these would presumably be ISOs, not RSUs.

According to the story, Stripe has been compensating employees with double triggered RSUs

Re: Stripe faces $3.5B tax bill as employees' shares expire

#127

Post by csomar » Thu, Mar 09, 2023, 3:02 AM UTC

chasebank wrote: post #94

abhv wrote: post #79

Earlier quoted context omitted.

Stripe charges 2.9% + 30c per transaction. From that, about 1.3% + 5c per tx go to interchange + assessment fees. This leaves about 1.6% + 25c for the payment processor. 14.3 on 816b is about 1.7% which is consistent. On 1T, that means about 17b in revenue. Lets assume they have 7000 employees (i've seen 6000-8000 in searches). As rough estimates, these SFO-based SWEs + knowledge workers cost 1m/yr on average (which…

Yes, but stripe is not the actual processor, correct? IIRC they use first data as their processor. Pretty sure there are only like 4-6 actual processors. Fiserv, Chasepaytec, first data, etc. I'm sure their actual revenue after interchange and processor fees is much less than this.

Interesting username and subject you brought up. I looked up Fiserv first on the Internet and

> Fiserv is also the owner of First Data, which connects 2 million ATMs through the STAR network.

The plot is thickening...

Re: Stripe faces $3.5B tax bill as employees' shares expire

#128

Post by nemothekid » Thu, Mar 09, 2023, 3:03 AM UTC

paxys wrote: post #60

olliej wrote: post #16

Oh, look another train wreck caused by a non-public company offering "equity" based compensation.

This article is literally about how a significant number of Stripe employees are going to become multi-millionaires overnight. Where is the "train wreck" exactly?

>multi-millionaires overnight

10 years is a strained definition of overnight

Re: Stripe faces $3.5B tax bill as employees' shares expire

#129

Post by matchagaucho » Thu, Mar 09, 2023, 3:04 AM UTC

noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

IIRC there's still a limit of 2,000 shareholders for private companies.

So if those employee options transfer to outside buyers, they potentially hit the 2K limit really fast.

btw - Nearly this same set of circumstances forced the FB IPO. Dozens of early employees were allowed to sell their shares pre-IPO, triggering the max private shareholder rule.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#130

Post by chii » Thu, Mar 09, 2023, 3:15 AM UTC

samclearman wrote: post #115

cyanydeez wrote: post #114

Earlier quoted context omitted.

Why do people act like the tax's is greater than the cash flow, like it's some unthinkable crime to pay tax.

In this case, the way it works is: 1. You exercise your options, for a paper gain of millions of dollars 2. However, you can't actually sell the shares (there are likely contractual restrictions on selling them, and even if not, there's not a liquid market) 3. So you have to pay millions of dollars of taxes even though your cash flow is zero. And before you say "but they're ISOs", there's no such thing as ISO's under…

> for a paper gain of millions of dollars

which is why this part should never have been taxed. Until there's a sale of those shares, the price is merely an estimate and thus is not and should not be considered the FMV.