Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

If you have startup stock options, check your option plan

blog.conspire.com

Post reply on HN
Print view View original

131–140 of 168 posts

Re: If you have startup stock options, check your option plan

#131

Post by bagels »

busyant wrote: post #46
tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

It's red flag. I asked the same question of one startup and was told that i didn't need to know the answer. Fast forward 10 years ... The company tried to go public and they had to do a 5760 to 1 REVERSE split to shore up their share price. People who naively thought they had 100k shares ended up w less than 20. Thecompany had to cancel the planned ipo, too.

I agree with this. An offer I didn't accept wouldn't disclose the numbers, ran out of funds and shut down a year or two after I declined.

Re: If you have startup stock options, check your option plan

#132

Post by tieTYT »

dmitrygr wrote: post #56
tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

"nobody has ever asked these questions about the options they were getting" -> "company is full of idiots - run (dont't walk) away"

Actually it was an external recruiter. He was saying that all the programmers they've interacted with have never asked those questions.

Re: If you have startup stock options, check your option plan

#133

Post by prostoalex »

AndrewKemendo wrote: post #11

I read a lot about how employees get screwed over with stock options, so what we decided to do was to just give employees vesting stock straight up as a buy through. Basically the way this works is that we give new employees an up front lump sum in the amount of how much it costs to purchase the shares of the company. The employee then purchases those shares from us in line with a vesting agreement. All warrants and…

Do you cover the purchase and tax liability, or just the purchase?

Also, are you not worried about reporting requirements once you reach a certain number of shareholders?

Re: If you have startup stock options, check your option plan

#134

Post by prostoalex »

cj wrote: post #92
harryh wrote: post #85

Earlier quoted context omitted.

So what you're saying is if you give an employee say, 10k shares at $2/share strike price you give them a 20k signing bonus? Then the idea is that they pay, say, 6k in taxes on the bonus. Then they write you a check for 20k to early exercise the options and file and 83b. So they're out 6k in taxes but on the other hand they've early exercised so they actually own the stock (subject to 4 years of vesting). 1) What hap…

1) Company could offer more than exercise cost, so it also covers any tax liability. If I'm not mistaken, this is how [Google|Facebook|Apple] RSUs work. 2) Cash bonus would be dependent on employe exercising the grant.. it probably shouldn't be presented as a bonus, so the employee doesn't have to select between the bonus or the stock. If they prefer a cash heavy compensation package, that should probably be discusse…

> If I'm not mistaken, this is how [Google|Facebook|Apple] RSUs work.

For FB specifically, they just pre-sell 40% of issued RSUs. The amount then shows up on paystub as income tax withheld.

There's no extra money to be had on top of the RSU grant - for a global company it would be unfair to treat employees at high tax burden locations differently from employees in low tax burden countries.

Re: If you have startup stock options, check your option plan

#135

Post by harryh »

Iftheshoefits wrote: post #126
harryh wrote: post #114

Earlier quoted context omitted.

This is the best comment in this entire thread. People see 1% and immediately think small when that is not, in fact, the case. They have almost never thought through the fact that it generally takes a lot of people to build a successful company so that 100% needs to get divided up into a lot of little pieces.

It's pretty tiny when the expectation is that one will be treated like a regular employee with respect to compensation and benefits but expected to behave like a 20% (or more)-equity founder with respect to passion and (especially) effort.

That's not the expectation.

Re: If you have startup stock options, check your option plan

#136

Post by prostoalex »

sxp wrote: post #26
bluehex wrote: post #5

Another thing to understand (and this will sound obvious to many of you) is that your options may be worth nothing, even after a multi-million dollar acquisition if there are priority stock holders (the investors) ahead of you in line. As a young and naive engineer I learned of this fact the day the first startup I worked for was acquired. First I read the big number that was to be paid for the company, was ecstatic,…

The segregation between common and priority stock can be painful. I learned about it the hard way after I left the startup and paid money to exercise the vested options. When the company was acquired, all the common stock was worthless (but the execs with voting power got millions of dollars of bonuses so they didn't care) which meant I had lost the money required to exercise the options. What annoyed me more than th…

Another trick is hidden dividend accrual for preferred stock. The dividends are triggered at liquidity event, so the cap table you thought you were looking at suddenly gets diluted with a bunch of freshly issued stock which is still senior to common.

Re: If you have startup stock options, check your option plan

#138

Post by sib »

harryh wrote: post #109
bradleyjg wrote: post #82

Earlier quoted context omitted.

The implicit question is—where the acquisition allocates $0 to common, in what sense are the board of directors fulfilling their fiduciary duty to common shareholders in approving the deal?

You're not understanding the situation. The board isn't choosing where to allocate the money from the acquisition. The money goes to different classes of shareholders based on previously signed contracts.

Yes, but...

The board decides whether or not to take an offer and that offer includes a set of destinations of funds. In particular, the offer may be $Z = $X1 for retention bonuses and $Y1 for purchasing the equity. Or, the offer may be $Z = $X2 for retention and $Y2 for purchasing the equity. The management - who are likely on the board - may want more of the money to go to retention bonuses for senior execs, while the external board members may want more of the money to go to shareholders. And, in many cases, a board member may be involved in negotiating the deal with the acquirer and may push for a particular deal structure.

tl;dr - The board can have significant impact on how the funds get split up, regardless of the previously signed contracts.

Re: If you have startup stock options, check your option plan

#139

Post by prostoalex »

iykwimthrowaway wrote: post #44
mcdoug wrote: post #9

Why worry about stock options at all? There is a spectrum of outcomes. On one end the startup flops, or is bought for so little that your share, even if paid out, is close to 0. On the other end you have Google, Facebook, Instagram, etc. Companies where 0.5% is worth quite a bit of money. The problem is that the majority fall in-between, where your stock options will be worth nothing, yet the company will sell for a…

I'm very curious about the middle part of this spectrum, since I'm currently in it: I'm an early employee with a significant chunk of options (high single-digit %), and the company is profitable and valued at (to my understanding) somewhere well over 10x the total amount of funding we took (I've heard talk of 40-50x). Management is explicitly not looking for an exit: they just want to keep building this company for t…

Late-stage rounds that offer employee buyouts are somewhat typical lately.

Also, if you exercise and leave, some places like SecondMarket, Equidate, MicroVentures and a few others provide a chance to offload some of that equity.

In regards to salary, your company should be approaching a maturity point where salaries are defined in bands, by HR (by someone titled "Compensation Analyst" or similarly), not decided on a case-by-case basis.

Re: If you have startup stock options, check your option plan

#140

Post by prostoalex »

Iftheshoefits wrote: post #6

Do you know what I call a 1%/4-year vestment "equity" plan? I call that an ESPP (employee stock purchase plan) by another name, with inflated valuations due to startup hype. Why would anybody agree to that? At least insist the first half percent vest proportionally over the first year with each paycheck.

Your strike price stays fixed so any bump in valuation is your gain. Of course, if you're a late employee at a start-up that has just experienced stratospheric growth, the probability of further upside declines, but if you're in that position, you're likely to get RSUs anyways.
Post reply on HN