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Dear Unicorn, Exit Please

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Re: Dear Unicorn, Exit Please

#81

Post by angersock »

birken wrote: post #16

I think that if you held a secret poll of founders of these companies, the majority of them would say they don't want this to change. Retention is really hard, and this is an incredibly powerful retention device at a fast growing company. As an employee though, you can always vote with your feet. When considering a job at a startup, you should go over the stock option plan and ask hard questions. Remember... the foun…

Would you (or anyone else so inclined) mind just spelling out a list of these "hard questions" in a reply here? I, for example, actually didn't know about the 83b stuff.

Re: Dear Unicorn, Exit Please

#83

Post by apalmer »

api wrote: post #2

Unicorns feel like an artifact of making it a little too hard to go public.

Unicorns, do not exist. by the time they get to this size, scale, they are 'just' corporations, or a vaporcorp. The free market operates on the principal of a products value is whatever the market is willing to pay for it. Going public or being acquired provides a value. Everything else as far as valuations, even for a profitable company that has been around 50 years are just estimates.

Unicorns and Valuations are like Schrödinger's cat... until you open the box they are neither dead or alive, not worth 10Billion or Zer0

Re: Dear Unicorn, Exit Please

#84

Post by jalonso510 »

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…

It's not a matter of a company choosing to allow an 83(b) election. It's a personal tax election that you make by mailing a filing in to the IRS and you can do it without the company's involvement or permision.

The problem is that 83(b) elections just aren't applicable unless (i) you own stock, not options, and (ii) that stock is subject to vesting.

Longer explanation: When you buy something, if you are paying less than the fair market value for that thing, then the spread is taxable income to you. Typically this spread is calculated at the time of the sale, so if you're buying shares at $0.0001 per share and they are currently worth $0.0001 per share, you'd think there would be no problem. But the IRS says that if shares are subject to vesting then the spread is actually calculated at the time that the shares vest. So a common case would be that you buy shares now for $0.0001/share, next year you hit your cliff and a bunch of shares vest, and at that point the price has gone up to say $0.001/share, and you would then owe taxes on the difference between $0.0001 and $0.001 per share. The 83(b) election gets you out of this trouble by letting you say at the very beginning that you want to be taxed on all shares up front, so the spread is calculated on day one, and is 0, and there's no tax liability.

So if you own shares and they are subject to vesting, either by a purchase of restricted stock or an option exercise, then yeah, make an 83(b) election and you can do that with or without the company's permission. But if you just own an option that you haven't yet exercised then an 83(b) election just doesn't apply and it's not something the company chooses to allow or not allow.

Re: Dear Unicorn, Exit Please

#85

Post by bkjelden »

ryandrake wrote: post #47
j_baker wrote: post #11

At most private companies, stock options aren't worth the paper they're written on. Unless of course the company sells, in which case they're worth slightly more than the paper they're written on. And besides that, to exercise them you usually have to pay a pretty hefty sum. I generally don't consider equity as a part of my compensation package when I work for a private company.

Best response so far. Your equity compensation is worth what you can currently sell it for. If you can't sell it, it's worth nothing. You should consider it an extremely fortunate and lucky turn of events should your equity become both liquid and in the money--you shouldn't expect it as a given.

This just seems too black and white for the current environment, though.

A seed stage startup? Sure. But if Uber made you an offer tomorrow, would it really be prudent to value the equity at $0?

Re: Dear Unicorn, Exit Please

#88

Post by Flammy »

enum_write3 wrote: post #58
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…

The only faith developers should have is that the owners will fuck them, it just depends how hard and if lube is used, or they are tossed out without a dime!

... Thanks for that enlightening, well thought out data point. You really added to this discussion.

Man I wish I could downvote...

Re: Dear Unicorn, Exit Please

#89

Post by s73v3r »

7Figures2Commas wrote: post #27

> This is why companies with skyrocketing valuations are particularly dangerous for employees. Shelling out tens or hundreds of thousands of dollars is hard enough for most. You can imagine needing to pay millions of dollars to acquire your options when you don’t have it. Huh? The exercise price for options is established when employees are granted stock options, which almost always occurs at the beginning of employm…

You're forgetting that there's much more in the cost of exercise than just the stock price. There's taxes as well.

And even just thinking about the stock price, $20,000 can be a lot of money to spend on something you can't sell.

Re: Dear Unicorn, Exit Please

#90

Post by ryandrake »

bkjelden wrote: post #85
ryandrake wrote: post #47

Earlier quoted context omitted.

Best response so far. Your equity compensation is worth what you can currently sell it for. If you can't sell it, it's worth nothing. You should consider it an extremely fortunate and lucky turn of events should your equity become both liquid and in the money--you shouldn't expect it as a given.

This just seems too black and white for the current environment, though. A seed stage startup? Sure. But if Uber made you an offer tomorrow, would it really be prudent to value the equity at $0?

I would truly, honestly treat that equity as I would a portion of my compensation being paid with lottery tickets. Unless there's a liquid secondary market for it, it's not worth anything to me.
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