191–200 of 396 posts
Earlier quoted context omitted.
Holy shit. Can't believe that didn't make it to HN. You really should price startup equity compensation at zero. Even if the startup becomes successful.
You must be new to startups. Uber and Foursquare are often used as examples on what not to do regarding equity and IPOs
Earlier quoted context omitted.
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.
PS: I feel for these employees. My question is: Did they have the same access to the secondary market as the founder?
Earlier quoted context omitted.
Some start-ups will both help employees exercise 83b as well as even bonus them the amount to cover the strike. Then if an employee leaves, the non-vested shares are clawed back and the bonus is not returned. If Stripe did this, wouldn’t they have avoided much of the tax issues here? It seems they’re only able to raise in this case because of their strong valuation and success. Like, most companies either could not d…
Yeah, but they would have had to have spent a lot more cash upfront, both in the bonus amounts and the payroll taxes on those amounts. ISOs are pretty ideal for early stage companies because they are very cash efficient and very light on taxes pre-liquidity. They begin to get more complicated when the company has non-negligible value. But they're still alright as long as you don't get to the point where the options a…
Performance-based comp could follow the public CEO comp model where the percentage of the package vests as a function of share price and/or milestones like liquidity events. Usually the milestones are also KPI-related, but ignore that for a moment. The packages could be RSUs and/or cash. This way the employees don't have to deal with the risk of options, and the company doesn't have to vest shares until they're actually worth something and taxes can be paid. Not sure how the package could survive after termination. It could end up being regulated the same way AMT was introduced but ... the reason ISOs exist is tradition, not because modern tax risks. Should be open for disruption / competition.
Earlier quoted context omitted.
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.
I may be woefully misunderstanding here but say you exercise your options, sell them then get real cash for the sale all in the same day. Can you use that cash to pay your taxes when tax season comes around?
Earlier quoted context omitted.
> 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
Earlier quoted context omitted.
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
Some companies are doing that, like https://vested.co/ .
(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…
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…
Bankish Corp floats you the tax bill at some mutually beneficial interest rate, and in return gets a signed repayment guarantee for when you can actually cash out?
Earlier quoted context omitted.
Because in this case they're going to be taxed on money they can't, and possibly won't ever, be able to access. It's like being required to pay tax on lottery winnings before you get a chance to enter the lottery.
Why is that even treated as income then? That's like the government asking for more taxes from me because I have the potential to make money in the future if I'm lucky.
The problem unique to folks likely to be reading here is the exponential growth that can happen in early stage start ups. The options might’ve represented 100k in value when they were granted, but grown to 1m in value by the time they vested.
If you exercise you owe ~300k in taxes. Even if you have that cash the exercised shares could become worth 0 and you’ll just be out the money.
Did the CEO/CFO not see this one coming? Or was it a calculated gamble they took and lost on?
(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…
Why do people act like the tax's is greater than the cash flow, like it's some unthinkable crime to pay tax.