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Dear Unicorn, Exit Please

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Re: Dear Unicorn, Exit Please

#101

Post by mahyarm »

jalonso510 wrote: post #84
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 t…

With vesting options, can you still exercise all of your options all at once even though you haven't vested yet?

It's just you have to return the unvested stock when you leave?

Re: Dear Unicorn, Exit Please

#102

Post by mahyarm »

joshjkim wrote: post #34
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…

you're right on the disclosure issue and cost issue - but I've always been more concerned with voting rights, which a strange interloper would certainly have. Especially in the context of M&A, the risk of a rogue common shareholder can be significant. I don't think it's a show stopper, but it is an issue.

Often your shares come with proxy voting agreements that go to the CEO / Founder. So the employee stock pool becomes the founder voting pool, until IPO.

Re: Dear Unicorn, Exit Please

#103

Post by aetherson »

bkjelden wrote: post #24
chrisco255 wrote: post #3

Earlier quoted context omitted.

Exactly, no one wants the additional overhead, requirements, and legalities that go along with going public.

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.

Come on, capital expenditures to develop new products or enter new products have been a part of business since forever, and indeed the cost to develop a new product for a traditional company (say, a car company) is probably orders of magnitude higher than the cost to develop a new pure-software product.

I mean, is there some kind of truth that it's harder for public companies to do ultra-long-range moonshot stuff? Maybe. But the idea that this is what's keeping Uber or AirBnB or Palantir from going public is ridiculous.

Re: Dear Unicorn, Exit Please

#104

Post by kevinpet »

mahyarm wrote: post #101
jalonso510 wrote: post #84

Earlier quoted context omitted.

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 t…

With vesting options, can you still exercise all of your options all at once even though you haven't vested yet? It's just you have to return the unvested stock when you leave?

It's up to the company writing the options agreement.

Re: Dear Unicorn, Exit Please

#105

Post by nostrademons »

ryandrake wrote: post #80
sulam wrote: post #72

Earlier quoted context omitted.

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.

If that's the truth and the employee's best guess as to the company's outcomes are that their options will either be worth nothing or the taxes will be too expensive to afford with the cash available to him, the employee should rationally value any option grant at zero. Startups may find it a little hard to recruit employees if everyone starts valuing options at zero. This isn't in anyone's interests.

Re: Dear Unicorn, Exit Please

#106

Post by mahyarm »

birken wrote: post #53
iaw wrote: post #22

Earlier quoted context omitted.

I think what's challenging in the current environment is that the most vested employees came on to a set of implicit promises made in the early stages of the company about long-term exit strategies. A decade ago the idea of a unicorn was unheard of so the equity grants seemed to have a closer date of execution than it was in reality.

The truth is that most companies in the unicorn zone will probably have some sort of stock sales plans set up that go through the company. It isn't black and white between private/no liquidity and public/full liquidity. However, the private market liquidity is always controlled by the company, and that can create artificial boundaries on timing and volume, which can be trouble if an employee wants to leave on their o…

It's often only %10 of vested equity, once every one or 2 years.

Also remember that if your $5mm company becomes a $1b unicorn after 4 years, and you got %0.5 at the start, then through dilution your %0.5 stake can become a %0.05 stake. Which means you get $500k / 4 years = $125k/yr in stock. But you cannot sell that stock, so it would of been better to go work at apple. It's very rare that a startup will pay better for an employee better than the big cos.

Re: Dear Unicorn, Exit Please

#107

Post by mahyarm »

s73v3r wrote: post #75
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?

You'll get a loan program, with the loan due in full at the end of employment.

Re: Dear Unicorn, Exit Please

#108

Post by mahyarm »

robotresearcher wrote: post #99
ryan-c wrote: post #60

I worked at a company for about five years. It became a unicorn while I worked there and I saw the value of my initial grant increase tremendously (something like 35x) over the years. I was significantly in debt and very nearly out of savings when I started there, so early exercise, while available, was not affordable to me. By the time I had money to exercise my shares, the potential AMT liability plus lack of liqui…

Cash is very cheap right now, and has been for several years. Is it difficult or expensive to obtain loans to cover these expenses against the shares themselves?

It's very difficult, and not recommended unless they are ESO fund style loans, where you don't pay anything if the stock goes to zero. People did similar shit as getting HELOC loans in the dot com bubble, and it did not turn out well for them at all.

Cash is cheap for a few large banks and other organizations rolling in money. Not for the middle class / upper middle class employee.

Capital losses are only allowed to offset your normal taxes by a small amount in the USA.

Also companies drag their feet in getting you the proper documents that you might be missing. It can take months and those 2-3 months later, ESO isn't interested anymore. It's happened to me.

Re: Dear Unicorn, Exit Please

#109

Post by exelius »

apalmer wrote: post #87
tptacek wrote: post #17

Earlier quoted context omitted.

Other employees, the management team, and the board.

which is exactly the problem.

Yep, all of those people stand to gain from setting as low a price as possible given that a liquidity event will reset the share price anyway. Not to mention that any buybacks would hit your run rate, because run rates are about operating cash flows and not valuation numbers (and buybacks are just a way to convert operating cash into equity).
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