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

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

#171

Post by [deleted] »

notyourwork wrote: post #167
sillysaurusx wrote: post #143

Earlier quoted context omitted.

Could anyone translate this into “The early employees will get wealthy from this” or “they’ll get slightly more than they would’ve gotten from getting a job at BigCo over 4 years”? My problem with equity grants is that everyone treats them like they’re so valuable, when in fact the EV is usually close to zero. That wouldn’t be so bad if the upside was really good, but dealing with nonsense like this makes them even l…

> of working very hard, instead of coasting I work at a FAANG, not coasting and make a lot of money and have made a lot of money every year for nearly a decade. I'll continue to make a lot of money and not worry about whether my startup will or won't succeed.

[deleted]

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

#172

Post by fshbbdssbbgdd »

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 absolutely a thing, I know people who did it. However “security” can be expensive, they might demand some of the upside as well.

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

#173

Post by nugget »

sillysaurusx wrote: post #143
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…

Could anyone translate this into “The early employees will get wealthy from this” or “they’ll get slightly more than they would’ve gotten from getting a job at BigCo over 4 years”? My problem with equity grants is that everyone treats them like they’re so valuable, when in fact the EV is usually close to zero. That wouldn’t be so bad if the upside was really good, but dealing with nonsense like this makes them even l…

Based on internal data I have from similar companies my guess would be the first 50 employees average about $15-20m each and the next 100 average about $5-10m each just from their initial 4 year grants, with a lot of variation based on team and seniority. Stripe options have probably grown about 100x in value since the Series B so if you were an engineer who joined around that time, received $100k in RSUs, and left upon fully vesting then you'd be looking at around $10m in value today.

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

#174

Post by [deleted] »

raylad wrote: post #59
yieldcrv wrote: post #9

Earlier quoted context omitted.

Because they didn’t get options. Stripe was flirting with going public for so long that they gave RSUs and people were trading the shares on private secondary markets. Those secondary markets have dried up in the general macroeconomic environment, so now this practice is leaving people with their pants down, complete illiquidity.

If they didn't get options, tax would have had to be paid as each RSU vested if it was not paid with an 83b election. So again, I don't see why Stripe has a tax bill now.

[deleted]

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

#175

Post by koromak »

notyourwork wrote: post #167
sillysaurusx wrote: post #143

Earlier quoted context omitted.

Could anyone translate this into “The early employees will get wealthy from this” or “they’ll get slightly more than they would’ve gotten from getting a job at BigCo over 4 years”? My problem with equity grants is that everyone treats them like they’re so valuable, when in fact the EV is usually close to zero. That wouldn’t be so bad if the upside was really good, but dealing with nonsense like this makes them even l…

> of working very hard, instead of coasting I work at a FAANG, not coasting and make a lot of money and have made a lot of money every year for nearly a decade. I'll continue to make a lot of money and not worry about whether my startup will or won't succeed.

That is the definition of coasting

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

#176

Post by buryat »

caseysoftware wrote: post #142
tyre wrote: post #136

Earlier quoted context omitted.

It’s fair because otherwise you could compensate people for zero tax. For example, you have a CEO that can either be paid: 1) $1m in cash 2) $1m in stock 3) an option grant to buy 1m shares at $0.000001. Each share has a FMV of $1. Without AMT, you could always take (3) and they would get $1m of stock for $1. Tax free.

With (3), they'd be taxed on the gains when they sell. Not "tax free" at all. The difference is that they wouldn't be taxed until the gains were realized not when they were imagined on paper.

you can borrow against this asset and get basically a tax-free loan

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

#177

Post by sillysaurusx »

notyourwork wrote: post #167
sillysaurusx wrote: post #143

Earlier quoted context omitted.

Could anyone translate this into “The early employees will get wealthy from this” or “they’ll get slightly more than they would’ve gotten from getting a job at BigCo over 4 years”? My problem with equity grants is that everyone treats them like they’re so valuable, when in fact the EV is usually close to zero. That wouldn’t be so bad if the upside was really good, but dealing with nonsense like this makes them even l…

> of working very hard, instead of coasting I work at a FAANG, not coasting and make a lot of money and have made a lot of money every year for nearly a decade. I'll continue to make a lot of money and not worry about whether my startup will or won't succeed.

I think I misread your comment, so I deleted my earlier one. Sorry.

You’re right: if you’re going to work hard, you may as well choose the path with the highest rewards. If Stripe can’t make it worthwhile, is there a good reason to trade away what you’d get at FAANG?

So the hard workers have a lucrative path (FAANG), and the ones who want to spend more time away from work have a more lucrative path (BigCo). That doesn’t leave a lot of reasons to choose to be an early startup employee.

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

#178

Post by danielmarkbruce »

xyzzyz wrote: post #165
danielmarkbruce wrote: post #163

Earlier quoted context omitted.

If the stock is given to you as income, you owe tax on the $$ value as though it was income. Ask anyone who works at Google or any of the big corps who give RSUs. The number of them that hit your account is always about 2/3 of the number which actually vested. The rest are withheld as taxes.

Again, you are talking about stocks. Options work completely differently. Unlike with RSUs, you don’t owe any tax on options when they vest, only when you actually exercise. I know how RSUs works, I have actually worked at Google for a number of years. Instead, you should ask someone who works at an earlier stage company how options work.

Yes, I am talking about stock, in response to:

>> If you hold actual stocks, there is no tax bill until you sell these to realize the gains

There are taxes to be paid as soon as you get the stock. If you are at google - have you noticed the number of RSUs which hit your schwab account are less than those which vested according to that chart in your schedule? That's taxes being withheld. The stock vesting is considered income at that moment and taxed as such.

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

#179

Post by sillysaurusx »

nugget wrote: post #173
sillysaurusx wrote: post #143

Earlier quoted context omitted.

Could anyone translate this into “The early employees will get wealthy from this” or “they’ll get slightly more than they would’ve gotten from getting a job at BigCo over 4 years”? My problem with equity grants is that everyone treats them like they’re so valuable, when in fact the EV is usually close to zero. That wouldn’t be so bad if the upside was really good, but dealing with nonsense like this makes them even l…

Based on internal data I have from similar companies my guess would be the first 50 employees average about $15-20m each and the next 100 average about $5-10m each just from their initial 4 year grants, with a lot of variation based on team and seniority. Stripe options have probably grown about 100x in value since the Series B so if you were an engineer who joined around that time, received $100k in RSUs, and left u…

Stripe employee #130 made $5m (after taxes) from 4 years of options? Is there any data to support that?

It sounds mistaken, but exponential curves are hard to reason about.

50 x $15m + 100 x $5m = 1.25B post-tax, so probably north of $1.7B pre tax. Stripe had a post-money valuation of $10B+ in March 2021, so that’s around 15% of the company. I guess that’s in the right ballpark.

Hmm. Thank you for the concrete numbers. That’s a nice payoff for four years of work, even if you do have to wait ten years for it.

Happy to hear the startup reward structure still makes sense in 2023. In that case, it might be a good idea to join one that seems promising. The payoff is rare, but it’s a lot less rare than the lottery: there have been n YC startups, so the odds are around 10 in n. And I think n is something like 2k to 5k. (Edit: yeah, 4k according to Wikipedia.)

1 in 400 chance of $5m is still pretty low odds, though. But you do learn a lot, and you meet a lot of people that have a higher than average chance of being a future founder, so the benefits still seem to make sense. Interesting.

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