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Dear Unicorn, Exit Please

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Re: Dear Unicorn, Exit Please

#71

Post by scurvy »

7Figures2Commas wrote: post #56
scurvy wrote: post #46

Earlier quoted context omitted.

I've heard from several sources that the company has no say in the matter. That it's basically rule by fear. That said, thrusting 83b paperwork upon a company that doesn't "allow" it isn't the best way to start your new job. Also, Peter Thiel always told his portfolio companies to allow 83b elections. It's smart for the employee and the employee. I guess it's a changing of the guard from the Founders Fund types to th…

I don't know who your sources are, but you can talk to an attorney about this. A company does not have to permit employees the early exercise of options that have not yet vested. Founders and key early hires, who may be receiving restricted stock (not options), are in a different camp because they're receiving stock, not options.

Indeed, the company isn't forced to allow it. They could simply not cash your check.

Re: Dear Unicorn, Exit Please

#72

Post by sulam »

ryandrake wrote: post #52
nemo44x wrote: post #44

Earlier quoted context omitted.

Capital gains taxes. When the "fair market value" of the company increases away from your strike price, when you exercise your options you have to pay tax on the difference between your strike price and the fair market value. And it will be a short term capital gain so it isn't cheap. If those .20 options of your have a fair market value of 5.00 now, you will owe tax on 4.80 of capital gains. 4.80 * 100,000 is 480,00…

Then, simply don't exercise your options--you won't have any taxes to worry about.

As the article states, you typically have 90 days after leaving a company to exercise your options or you lose them entirely. Yes, that avoid taxes, at the risk of eliminating any potential upside.

Re: Dear Unicorn, Exit Please

#73

Post by balls2you »

ryandrake wrote: post #55
nathan_f77 wrote: post #48

Earlier quoted context omitted.

The company's valuation increases fifty-fold. Now you decide to exercise your stock options, and you pay $20,000. You have just paid $20,000 for stock that is now worth $1,000,000. The IRS now expects you to pay tax on your $980,000 in income. However, your stock is not liquid, so you can't sell it. This is why you can need "millions" to acquire your options.

Why would you exercise a stock option to receive stock you can't sell? If you can't sell it, it's not worth $1,000,000--it's a piece of paper that might one day be worth more or less than $1,000,000.

Why work for a startup then ?

Re: Dear Unicorn, Exit Please

#74

Post by dragonwriter »

api wrote: post #61
bkjelden wrote: post #24

Earlier quoted context omitted.

It's more than just overhead - going public forces you to think in terms of quarterly earnings reports. It's very hard for a tech company to thrive in that kind of environment - capital expenditures required to develop new products or enter new markets will often not be profitable for several years, and getting the public market to understand that is impossible.

So public markets essentially make long-term thinking impossible?

Well, that's overly binary; it creates strong pressures to focus on short-term results rather than making long-term thinking impossible. (If enough of your stock is held by arms-length investors interested primarily in maximizing short-term returns, it could become impossible for management to manage based on long-term thinking where that conflicts with perceived near-term optimality -- since they will be replaced if they do -- but most IPOs don't actually produce that kind of distribution of stock.

Re: Dear Unicorn, Exit Please

#75

Post by s73v3r »

scurvy wrote: post #31

Another glaring issue that the article doesn't mention is option lifetime. Most options have a lifetime of 7 years from grant. Companies are delaying going public longer and longer. There's a very real chance that early employees can't sell shares, don't have the money to exercise their shares, and will watch their options expire from old age because the company thinks it's cooler to be private. This is a very real s…

Have you tried speaking to someone at the company about it?

Re: Dear Unicorn, Exit Please

#76

Post by ryandrake »

ryan-c wrote: post #70
ryandrake wrote: post #55

Earlier quoted context omitted.

Why would you exercise a stock option to receive stock you can't sell? If you can't sell it, it's not worth $1,000,000--it's a piece of paper that might one day be worth more or less than $1,000,000.

Because you'd like to do something new and if you leave you must either exercise within 90 days or lose your options.

So if you want to leave, your choices are:

1. Exercise your options, pay potentially huge taxes on it, and be left holding stock that is practically worthless because you can't sell it

OR

2. Give up your options and move on with your life

I know what I'd do.

Re: Dear Unicorn, Exit Please

#77

Post by s73v3r »

joshjkim wrote: post #54

Missing from the article: the fact that employees are discouraged from seeking buyers because there is an unspoken implication that this means the employee is "losing faith" or "believes less" in the company, or is getting ready to leave. If the party line is: "hey, we are going to be a billion dollar company!" and then one employee says "hey, I want to sell at this $100M valuation", even if the $100M is a solid upsi…

""hey, why would you sell at this valuation if we all know we are going to unicorn?""

Because I want to buy a house with a fire pole.

Re: Dear Unicorn, Exit Please

#78

Post by ryandrake »

balls2you wrote: post #69
ryandrake wrote: post #52

Earlier quoted context omitted.

Then, simply don't exercise your options--you won't have any taxes to worry about.

So if you don't exercise your options, then why take the pay cut and work twice as hard for a startup ? The whole thing reeks of a scam against early employees.

Exactly.

Re: Dear Unicorn, Exit Please

#79

Post by scurvy »

beagle3 wrote: post #63
scurvy wrote: post #18

Allowing employees to make 83B elections on their options immediately after starting would help this situation a lot. Most companies don't "allow" you to do this. I've heard conflicting things on the subject. Some say the company has no say in the matter and it's purely in the IRS' court (exercise and notify IRS). Others say the company must allow you to do it. Second, the bogeyman of "letting some strange interloper…

> The myth that "having lots of shareholders increases costs too much" is also just a myth. No, it isn't a myth. I used to work for a company which had to re-incorporate for various reasons, and had three shareholders too many; They managed to buy them out before the reincorporation, but it was a big problem (with lots of drama), and if an agreement wasn't reached, the company might have had to fold, and would defini…

It's a myth. The US JOBS act removed the 500 shareholder disclosure trigger. It's 500 unaccredited or 2000 total now.

You might have been forced to fold for reasons, but having 500 shareholders wasn't one of them. Going out on a limb here, but it sounds like there were lots of other serious problems and cap table length was a minor one.

Re: Dear Unicorn, Exit Please

#80

Post by ryandrake »

sulam wrote: post #72
ryandrake wrote: post #52

Earlier quoted context omitted.

Then, simply don't exercise your options--you won't have any taxes to worry about.

As the article states, you typically have 90 days after leaving a company to exercise your options or you lose them entirely. Yes, that avoid taxes, at the risk of eliminating any potential upside.

You have a choice though. The exercise price + taxes is the price you pay for potential upside. Not willing to take that risk? Just walk away from your options and pay nothing.
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