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I'm getting screwed with my stock options

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41–50 of 88 posts

Re: I'm getting screwed with my stock options

#41
post #32

Be careful executing your options if you don't trust the company. Execution might not substantially improve your rights as a shareholder. It will, on the other hand, involve you surrendering your own cash. There are startup horror stories of early employees executing and getting zeroed out at acquisition. (I say this as someone who listened to those horror stories, refused to execute options, and lost a low six figur…

Can you explain more about how they can screw you over when they get acquired?

Re: I'm getting screwed with my stock options

#44
So they want you to contribute as much as an initial founder? Well, then they should give you as much equity as an initial founder, say like 30% and then you'll happily give 4% to extend the option pool. That's the upper bound you should start negotiating.

Otherwise it should be prorated, and you shouldn't give more than 1%, otherwise you'll be contributing more than the founders and that doesn't make any sense.

I've experienced shitty moves like that from people who usually wants you to contribute and behave like a founder with a majority share without giving you such a share. I can understand the idea, some people fall for this, but it has no rational justification and the real issue is that the work/trust relationship may end up being damaged beyond repair.

Re: I'm getting screwed with my stock options

#45
post #35

Earlier quoted context omitted.

The guy has no business trying to learn how to be a diplomat when he's already tasked with a day to day job for the founders. If it's gotten this far in the conversation (posting on HN) then the situation is clearly bad, at least on one end. Given it's a situation with unfair dilution, the assumption is that all stakeholders are well aware of the dilution results and are OK with what is being proposed. They are found…

Saying that may make you feel better, but Tony seems to have the better argument. You absolutely can be fired for lawyering up what the founders intended to be a pro-forma restructuring of the shares. You will probably have no recourse when that happens. Assuming you're vesting, like most employees (and founders!) are, getting fired will cost most of your shares. Talking to a lawyer: good. Bringing a lawyer into the…

While these practical considerations are interesting, I think there is another observation worth making as well.

If you really can be fired without cause or notice and at the loss of most/all of your interest in the business, you have no cards and anything you do is a bluff.

If you really are dealing with cofounders who are are willing to push you out of 40% of your interests without offering much of anything in return as soon as the going gets good, then you have no reason to trust they won't push you out of the remaining 60% the day before any lock-up expires.

In that case, your best options may be either to lever the practical value that keeping you on board has right now to get a better, more secure deal immediately -- one where you won't be vulnerable to being kicked out arbitrarily and without proper compensation in the future -- or to assume you're going to get screwed when your lock-up ends and leave now.

It's a good idea to negotiate at this point rather than caving to the (probably very bad) deal being offered as an opening gambit by the cofounders, but the bottom line is that if they can fire you whenever they feel like it and you have no airtight contractual right to compensation if they do, nothing else you negotiate now actually has any value at all.

(Edit: Obviously if you opt for the "apply leverage" option then you do it nicely. I'm not talking about lawyers-at-dawn and threatening to walk if they don't meet your every outrageous demand or anything silly and confrontational like that. But I think it would be perfectly reasonable to expect solid guarantees that your remaining interests will retain meaningful value in exchange for whatever you are willing to give up here, such as accelerated vesting and a condition that if they let you go early then there's something in it for you.)

Re: I'm getting screwed with my stock options

#46

Earlier quoted context omitted.

He can exercise his options. Which means he needs to pay money right now to own actual stock of company. Which is unsellable without a buyer.

Strike price might be really really cheap, though, if he got options before they had funding. It's a little harder for them to screw you out of ownership than out of unexercised options. But just a little.

I don't know how US stocks work but in EU at least if the shares already have a bigger valuation you will need to pay taxes at the point when you exercise your options.

Re: I'm getting screwed with my stock options

#47
post #7

How about "I appreciate your desire to have more stock available to give new hires. You've proposed that I give up 4%, which is 40% of my allocation. I'm amenable to giving up 1%, which is 10% of my allocation and equal to the portion which you're willing to give up, and lets us bring in a whole new engineer." If they counter offered, I might give up another 0.5% in return for "OK, you guys can have 1.5%, but in retu…

Great advice. Always have acceptable alternatives in mind. For instance, propose that they accelerate vesting on your remaining options 50 cents on the dollar. So if they want you to give up 2% they would instantly vest 1%. The term here is "single trigger". Point being, be creative and try to work out a deal. A 4% starting offer isn't unreasonable.

A 4% starting offer isn't unreasonable.

::boggle::

From the description given, it sounds like there are two suits running the show with control of the business and the overwhelming majority of the financial interest. I'm assuming from context that the OP is the technical guy who dug the cofounders out of a mess when their initial outsourced product development was not of an adequate standard, and did so in return for only a 10% stake and poor immediate compensation. Apparently this got them to the point where they could start hiring more staff and taking serious investment.

It sounds like the OP was probably already shortchanged on both the equity and the direct compensation. I don't see any way a 4% offer is anything but a cheap shot/insult in this scenario.

Re: I'm getting screwed with my stock options

#48

The instant your partners know you're involving a lawyer is when the relationship becomes adversarial (possibly permanently). This is not the lawyer moment. The lawyer moment is "after a lot of discussion, these guys refuse to do what me and the rest of the world thinks is fair". Has there been a lot of discussion? Get on a call with them ASAP. Tell them you think that pro-rata is both what's FAIR and WHAT IS DONE 99…

Employment laws between the US and EU are vastly different and firing the OP may not be a readily available option to the founders.

Re: I'm getting screwed with my stock options

#50
post #7

How about "I appreciate your desire to have more stock available to give new hires. You've proposed that I give up 4%, which is 40% of my allocation. I'm amenable to giving up 1%, which is 10% of my allocation and equal to the portion which you're willing to give up, and lets us bring in a whole new engineer." If they counter offered, I might give up another 0.5% in return for "OK, you guys can have 1.5%, but in retu…

Great advice. Always have acceptable alternatives in mind. For instance, propose that they accelerate vesting on your remaining options 50 cents on the dollar. So if they want you to give up 2% they would instantly vest 1%. The term here is "single trigger". Point being, be creative and try to work out a deal. A 4% starting offer isn't unreasonable.

It's totally unreasonable, even as a starting offer. These guys just signaled that they are not serious people.
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