131–140 of 586 posts
Remember all those evil VCs who ousted founders, meddled in companies, and endlessly pushed for bigger and bigger risks in the hope of a massive one in a million IPO?
Turns out some of that was good for employees. No one who makes decisions needs liquidity events like they used to.
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This is correct. To put some concrete numbers on it, I'm in my 6th year at a startup. In 2016, I spent $6,400 to exercise ~50,000 options that had a total FMV of ~$60,000. This is going to add over $7,000 to my 2016 taxes due to AMT. If you're single and your income is over $115K, or if you're married and your total income is over $150K, there will be tax implications for exercising your options, unless you exercise…
That's not quite how AMT works. AMT is not added to your taxes, it's an entirely alternative tax system (hence the A in AMT). You'll pay the larger of the two values (AMT vs ordinary tax), and given the taxation rates, you may not have made enough to actually trigger AMT. The rate for AMT is lower than ordinary tax, and there's an exemption for the first $N (where N varies based on several factors).
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This advice is often given but it's easier said than done. Let's say you work at a unicorn for 3 years and in that time it goes up 10x in VC fantasy land valuation. On paper you have a lot of money and the company reasonably might go public a couple years after you leave. Let's say you're granted about a year's salary in shares when you first join so you've vested $100K for a round number. When you leave that equity…
Don't take the risk. Treat is as a lottery ticket. A good friend joined a late startup company in 1999, and in 2000 he was worth 40 million, of which he managed to cash out 10 million before the stock crashed. But that was in the days of IPOs, now the investors prefer to keep the rise in equity to themselves. So you chances of winning the lottery are much less.
That is literally the structure of your comment. You said, don't do it, you mentioned your friend as for why not, and the punchline to his sad story is he only cashed out 25%, or $10 million, of what he thought he had.
By positioning this as your example of a loss, I don't think you could have made a stronger argument for doing it if you had tried. Anyone who has $10M is set for life and independently very wealthy: they're rich. They could fly every two weeks for thirty years, for example (780 trips) staying at a four star hotel every day of that entire time (100 euros * 365 * 30 years still gets to only $1M). I mention these because they're luxuries. He's loaded.
It has always baffled me the way founders treat employees and investors so vastly asymmetric. Ive been involved in rounds close enough to see how just the "hint" of a potential investment and all the numbers, financials, cap tables are sent in one big email to their analyst, while some early employees (who controversially have worked just as hard as the founders) have no clue who owns what and whats going on. I get i…
I agree. I worked for one startup which got bought. The founders made money. All of the employees lost money. One of the founders reached out to me a few years later, asking me to join his new startup as employee #2. I said "yes", but only if I made 10% of what he made. The answer was "No". OK... maybe 1% of what he makes? "No". Thanks, but no thanks. If you admit that you're not going to share the benefits, I have n…
I think this is far more common than you'd think. Take YC for example. I'd be really curious to compare SamA's outcome vs. employee #5's outcome (for example). Even when companies "fail", founders do just fine for themselves via acquihire, and it's generally not tied to their stock (acquirer values stock at $0, pays off investors, employees get retention bonuses of ~$50-100k over 4 years, founders get quite a bit more than that).
Earlier quoted context omitted.
Don't take the risk. Treat is as a lottery ticket. A good friend joined a late startup company in 1999, and in 2000 he was worth 40 million, of which he managed to cash out 10 million before the stock crashed. But that was in the days of IPOs, now the investors prefer to keep the rise in equity to themselves. So you chances of winning the lottery are much less.
You basically just said, totally straight-faced: "Don't do it man, it's not worth it! My friend thought he was worth $40 million but was never able to cash more than $10 million out." That is literally the structure of your comment. You said, don't do it, you mentioned your friend as for why not, and the punchline to his sad story is he only cashed out 25%, or $10 million, of what he thought he had. By positioning th…
I was so naive when I joined my first startup. When we were purchased, it came to light that the main guy never got around to signing my stock option agreement. He is a fucking mensch and signed it after the fact. Character buys a unique, abiding respect.
At my first startup, the share option terms and conditions had a clause allowing the company to arbitrarily change any condition in the contract. Of course we signed it and didn't think much about it. At the IPO this clause was very predictably used to extend all the employees'[1] vesting schedule to many years after the IPO event. By that time the options were worthless because the company was acquired in a fire sal…
Seriously, I can't figure out why this doesn't immediately escalate into noisy public events that tank the stock before the founders cash out (e.g., strike / unionization).
> Your options have a strike price and private companies generally have a 409A valuation to determine their fair market value. Is this exactly accurate? My understanding was that you owe gains tax on the difference between the 409A and (strike price + wages traded for options). In other words, if you take a $1000 / month cut for one year in exchange for options, you get to add $12,000 to your cost basis for the purpo…
Salary doesn't come into play when calculating gains taxes in the USA. In other words, the article has it correct.
So, what if you work 100% for equity? Even then, you don't get to declare any part of that?
It has always baffled me the way founders treat employees and investors so vastly asymmetric. Ive been involved in rounds close enough to see how just the "hint" of a potential investment and all the numbers, financials, cap tables are sent in one big email to their analyst, while some early employees (who controversially have worked just as hard as the founders) have no clue who owns what and whats going on. I get i…
You flatly cannot build a company without capital.
On the other hand, you might be able to build a company by treating good employees badly, because the employees are either a little naive or they really do value working at your cool startup over money.
You might also be able to simply build a reasonably successful company with not very good employees (in fact this is most companies)
> Founders (and favored lieutenants) can arrange take money off the table while raising rounds and thus become independently wealthy How does this work?
One example of this is IVP leading a round in Snapchat, and the two co-founders splitting $10M in exchange for some amount of personal stock.