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Handcuffed to Uber

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Re: Handcuffed to Uber

#121

Post by encoderer »

steven2012 wrote: post #45
scurvy wrote: post #34

Earlier quoted context omitted.

You can do 409A however you want which is why I said it was a joke. I've worked in 2 places that based it off of last round after accounting for full dilution. You can use black Scholes, last round, or your finger in the air it doesn't matter. If it had to be accurate they wouldn't allow Black Scholes which has been all but disproven. Also there are lots of secondary markets for private companies right now. What make…

Okay thanks for confirming you don't know what you're talking about. Black scholes is options valuation and never used in 409A valuation. You can't just make stuff up, you have to justify it to your auditors.

Black Scholes is used to value options, eg to set the strike price on options. So, it is used for this purpose by companies who need to set option strikes at fmv. I have no idea why he says it's been repudiated. As far as I know, it is still used in public market option pricing. Most people buying or selling options are not pricing them, but accepting the market makers price. How would you have any clue how they're coming to that value?

Re: Handcuffed to Uber

#122

Post by streblo »

steven2012 wrote: post #45
scurvy wrote: post #34

Earlier quoted context omitted.

You can do 409A however you want which is why I said it was a joke. I've worked in 2 places that based it off of last round after accounting for full dilution. You can use black Scholes, last round, or your finger in the air it doesn't matter. If it had to be accurate they wouldn't allow Black Scholes which has been all but disproven. Also there are lots of secondary markets for private companies right now. What make…

Okay thanks for confirming you don't know what you're talking about. Black scholes is options valuation and never used in 409A valuation. You can't just make stuff up, you have to justify it to your auditors.

> Black scholes is options valuation and never used in 409A valuation

'never' is wrong, depending on your meaning. It's definitely used in many 409A valuations. Typically a 409A will use a couple different approaches to come up with the initial valuation -- it will look at the discounted cash flow, the value of assets and liabilities, and generally will look at 'guideline companies' and their public valuations or cash value upon sale. Once one or more (often times all) of these methods are used for the initial valuation, the value is fed into a Black-Scholes model. That price (after applying discounts for non-marketability) is used as the fair market value for the common stock.

Re: Handcuffed to Uber

#123

Post by argonaut »

jbrukh wrote: post #119

This is why what is happening with the digitization of private equity through blockchain technologies is going to make this kind of thing completely obsolete. https://blog.coinfund.io/explaining-blockchain-to-traditiona...

No amount of blockchain technology is going to stop a company from suing you when they find out you sold stock.

Re: Handcuffed to Uber

#124

Post by dwaltrip »

scurvy wrote: post #67
_9vpl wrote: post #55

Earlier quoted context omitted.

Can you expand on that? How would one be able to render the equity worthless? My best understanding of a typical "right of first refusal" clause is that it gives the company the right to match any offer by a third-party buyer. This would add some friction to the transaction, in that the company could have some specified period to consider the offer, leaving the pending transaction with a third-party buyer in limbo (o…

There's almost never a timeliness clause in the right of first refusal (ROFS) section. They can simply choose to ignore your request...indefinitely.

That seems like a pretty lame loophole. Is that the crux of the method for preventing secondary markets?

Re: Handcuffed to Uber

#125

Post by scurvy »

redshirtrob wrote: post #111
scurvy wrote: post #64

Earlier quoted context omitted.

It depends on what the actual market value of your stock is upon exercise, not just 409A. Sure, it might be the 409A value, or it could be the last sales price on something like SecondMarket. If there's a secondary private market, that will trump whatever your company says the 409A value was. If your company says the 409A is $1.50/share but people are selling on secondary markets for $4/share, you must use $4/share w…

This is an interesting conversation. I wish someone with readily verifiable credentials could weigh in. I'm not saying the parent, or GP do not have the credentials, just that they've not been established. I'd love to hear from an accountant or tax attorney on the topic. From what I can tell, taxes will be based on the values in Form 3921 (for ISOs and ESPPs), which is delivered by the employer.[0] Here's a sample 39…

If you get a 3921, use what's there; the burden of accuracy is on the company.

I worked at a place that didn't issue 3921's (in the .com go round). I had a hell of a time reaching someone still at the company who could give me that information almost a year later (and after several rounds of devastating layoffs). I really don't know what she based the figure on.

Re: Handcuffed to Uber

#126

Post by scurvy »

encoderer wrote: post #121
steven2012 wrote: post #45

Earlier quoted context omitted.

Okay thanks for confirming you don't know what you're talking about. Black scholes is options valuation and never used in 409A valuation. You can't just make stuff up, you have to justify it to your auditors.

Black Scholes is used to value options, eg to set the strike price on options. So, it is used for this purpose by companies who need to set option strikes at fmv. I have no idea why he says it's been repudiated. As far as I know, it is still used in public market option pricing. Most people buying or selling options are not pricing them, but accepting the market makers price. How would you have any clue how they're c…

I previously wrote software at a major market maker. I can't say (NDA) what they use, but most professionals consider Black Scholes to be mickey mouse. If you're using it in the public market, you're not going to fare well on American style options.

As for real world proof of Black Scholes being garbage, it doesn't get any better than Long Term Capital Management.

Re: Handcuffed to Uber

#127

Post by giaour »

redshirtrob wrote: post #115
giaour wrote: post #108

Earlier quoted context omitted.

I don't think anyone believes that the issue with indentured servitude is that it was enforced by contract. As a society, we have decided that there are certain things you can't sign away (e.g., your freedom) and there are certain things you can (e.g., your right to exchange an illiquid asset for cash). The GP's point is that calling this arrangement "indentured servitude" is more than a little dramatic.

I read it as hyperbole for the sake of making a point. I don't think the OP meant it literally. But, debating that term seems to be getting away from the main point--that an employee could have an option on a sizable asset with no way to assert ownership of the asset, despite having fulfilled the vesting requirements set forth in the stock option agreement.

I'm not sure it is getting away from the main point. The OP's original assertion was that Uber is acting unethically, and calling the arrangement "indentured servitude" was meant to highlight how Uber's actions are morally wrong. I disagree.

The employees who are saddled with options they can't exercise are adults who agreed to the terms of their employment. They are free to quit Uber and work somewhere else if they want. There are a number of other ways options can become worthless while you're waiting for them to vest. The employees gambled on options and are finding out that there is yet another way to lose that bet.

Re: Handcuffed to Uber

#128

Post by _9vpl »

scurvy wrote: post #67
_9vpl wrote: post #55

Earlier quoted context omitted.

Can you expand on that? How would one be able to render the equity worthless? My best understanding of a typical "right of first refusal" clause is that it gives the company the right to match any offer by a third-party buyer. This would add some friction to the transaction, in that the company could have some specified period to consider the offer, leaving the pending transaction with a third-party buyer in limbo (o…

There's almost never a timeliness clause in the right of first refusal (ROFS) section. They can simply choose to ignore your request...indefinitely.

That may be standard, I'm not really sure, just remember everything is negotiable.

Re: Handcuffed to Uber

#129

Post by williamscales »

giaour wrote: post #106
xiaoma wrote: post #75

Earlier quoted context omitted.

You disagree in terms of diction. It was an analogy, after all. History doesn't repeat itself. It rhymes. Do you actually support the practice from an ethical standpoint? Employees are recruited to start-ups with equity. That's a core part of their compensation for their work (for which they likely could have received more salary from Google, Amazon, Facebook, etc). Then after they've already done the work , that com…

Options are inherently risky and should be accepted as compensation with the knowledge that there is a non-zero chance that they might turn out to be worth nothing. What's described in the article is an interesting way for those options to be effectively worthless, but it's not materially different (for an option-holding employee without unlimited means) from Uber going bankrupt or having all unvested options cancell…

The twist here is that the options end up worthless despite the hard work of the employee that leads the company to be successful. The options are supposed to incentivise this. Something about the incentive structure is wonky---in the case of Uber going bankrupt then the options "should" be worthless. But if Uber succeeds, then the incentive should pay out.

Re: Handcuffed to Uber

#130

Post by superuser2 »

redshirtrob wrote: post #112
home_boi wrote: post #98

Earlier quoted context omitted.

What happens when private RSUs vest? Do companies withhold some RSUs and the government considers the tax bill paid by the withheld amount?

That depends on the stock plan agreement. One possibility is to make an IPO a vesting requirement. This guarantees a public market to sell them into.

Sure, but what about the lockup period between IPO and actual liquidity?
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