Someone could probably make a nice bit of money on the side helping new engineers in SF review/deal with their stock options. You'd have to know this stuff well, but I don't think that's a big hindrance to anyone. Think of it as both giving back and pushing back on what can be predatory treatment of employees.
A bunch of Silicon Valley CPAs do this as well as financial advisors/planners. This is a high-class problem to have though, which is also the point where one comes across the need to hire a financial advisor or have a professional CPA do some tax planning.
I assure you I do, and if I didn't you would be able to elaborate.
If investors were buying common stock instead of preferred stock what would happen to valuations?
You don't need to explain to me why the current 'standard' arrangement is designed to please and protect VCs at the expense of engineers. But that's exactly why we have a proliferation of VCs and startups and a 'shortage' of engineers willing to work for them. The classic argument for liquidation preference is because VCs are putting up money, but so is the engineer if he's taking a salary cut, and the only reason you find it ridiculous that I suggest engineers get preferred stock is because you are stuck in an old school mindset where financial professionals are in charge, and they loop in a few chosen engineers (founders) to bamboozle the rest into bad deals, and "work hard because we're a startup and have ping-pong tables". Not surprisingly, you are VP of engineering and trying to hire, so you're invested in the status quo that rewards founders and VCs. I think the echo chamber has made startups so 'cool' that I decided to bet against the herd mentality and get a good deal from a big tech company. I'd love to re-enter the startup industry at some point in the distant future, I just want to challenge the status quo and see an arrangement where engineers are actually partners and true, first-class owners. If this scares away some VC money, good, there are a lot of questionable startups out there already, it would be better for the industry as a whole if some of these startup engineers started collaborating instead of every single one needing to be founder or at least VP of engineering, because the only engineers willing to work for less than that are naive or inexperienced.
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…
It used to be common to loan the employee the money to purchase the stock. This avoids both the tax and early termination problems.
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…
And even that might be deceiving.
First, with the dilution trick (like Facebook did against a founder). Second, the voting vs. non-voting stock.
Also, if you happen to leave the company you likely have to buy the options. If you don't have the cash, you're screwed. If you have the cash, you might end up in unsellable-stock limbo for years. In their case, about a decade and still counting.
100% correct. We hope that we will be able to float those amounts to the employees (as bonus) as we get to later stages of growth, but what I have discussed with our GC looks closer to the conversion bonus when and if that happens. The boundary cases where there is a contentious firing will have to be taken case by case but then whatever that portion of the taxes are due for the percentage vested we would compensate…
I was thinking about the exact same model the other day (even to the point of paying new hires a signing bonus to cover the stock purchase + tax liability). The wall I ran into was how long I would be able to continue such a model -- how big of a bonus would I be willing to dole out? 20k? 50k? 100k? If switching to a stock options at some point, what is the proper time? Post-A/B round? (obviously a nice problem to ha…
Remember, the part of the bonus used to buy the stock comes right back to the company, it's just one pocket to the other.
The tax piece is out the door (and is mostly a dead-weight loss if the company doesn't make it, one of the rationales behind options.)
I joined a startup around 2009 as an early employee, left after a couple years, and bought the vested stock. (The company is based in the US, and I'm not a US citizen, FYI). I've been holding on to these stocks so far. Compoany has rasied a small series A just around the time I joined. The company has raised a few rounds of funding since I left.
It now looks like the company may IPO/ or be privately acquired. I have not been in touch with anyone in the company over the past couple years.
What steps do I take now to ensure I don't get screwed as part of the exit, and/or my stocks diluted to become meaningless? I'm looking for general advice.
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…
You are not doing anything wrong. You do not have a misunderstanding of how these things work. You should not go work for a company that will not tell you the total number of outstanding shares (so you can calculate your % ownership). It's basically the same thing as saying that they're going to pay you 100,000 a year but not bothering to mention the currency.
Why isn't the relevant number the valuation per share? (which they have to tell you, because that's information for your tax return, right?)
In other words, if I have an option for N shares that are currently valued at $X, why do I care whether N is 10% or .0001% of the company. The "value" of the grant is the same in either case, no?
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…
It used to be common to loan the employee the money to purchase the stock. This avoids both the tax and early termination problems.
A loan of the exercise price + 40% to cover taxes sounds like the best of all worlds to me.
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…
One way to avoid the whole stock option / RSU mess is to structure your company as a C-corp that is wholly owned by an LLC, and give your employees membership units in the LLC. This is a very unusual setup and it'll take a good lawyer to help you get it right; but the benefits are huge for employees who own stock, because there are zero tax liability and zero purchasing price until the ownership produces a return.