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

Former Uber employees have gone into debt to exercise options they can’t sell

qz.com

Post reply on HN
Print view View original

151–160 of 190 posts

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#151

Post by rrix2 »

gamblor956 wrote: post #104
ryandrake wrote: post #86

Earlier quoted context omitted.

> This has been discussed many times on HN. The purpose of the law isn't to prevent "poor people" from doing anything. The purpose of the law is to prevent companies from making unregistered sales of stock to people who aren't (1) saavy enough to evaluate the risks of their investment or (2) wealthy enough to survive a financial loss if the investment does not bear fruit. This is all true, however laws should be judg…

This law effectively allows rich people to do things that poor people can't. You're still not getting it. The law does not stop poor people from investing in a private company. It simply prevents the company from advertising its stock to "poor people" unless the company registers with the SEC and demonstrates at least a minimal level of financial controls. A company can sell its stock to poor people as long as it doe…

The only entity buying stock here is Softbank (AFAIK), who is definitely not a "poor person".

Outside of the handful of companies who have previously invested in the company (who are surely accredited), most entities who would qualify for this tender would be individual early employees. The accreditation requirement is also being held to those individual stock holders and option holders at the company who want to tender a sale of them to Softbank. Many are random engineers on this forum and other early-ish employees. Many may not meet the requirements for SEC accreditation, rules which specifically delineate around the wealth of the entity.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#152

Post by ubernostrum »

LeifCarrotson wrote: post #141
gfodor wrote: post #115

Earlier quoted context omitted.

if you are optimizing for regret minimization I'd probably argue that it's way less regrettable to end up in $200-300k in debt due to a crazy, unexpected snafu occurring (like an economic crash or company crash) than have to know for the rest of your life you could have been a millionaire if you just had bet on the (at the time) reasonably high probability event of eventual liquidity, by exercising options that you w…

I was following you for a while...but can you explain how this is different than taking out a home equity loan, going $200-300k in debt, and buying lotto tickets for a chance to become a millionare? Aside from the fact that you wouldn't know whether you would or would not have won that lotto.

There have been cases of lotteries where the expected value of a ticket, though low, was still sometimes positive. And there have absolutely been cases of people who figured that out and organized investors to buy large quantities of tickets for the return.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#153

Post by alexeldeib »

mlazos wrote: post #113
influx wrote: post #103

Earlier quoted context omitted.

I probably can't say a lot due to NDA, but does it make sense to you that AWS or Google Cloud can't scale to the level of Uber, such that Uber has to build their own datacenters and write their own Lambda equivalent? Further, does it make sense that you'd rather buy hardware up front to scale for Halloween and New Years instead of being able to dynamically surge your infrastructure?

Does it make sense that managing your own hardware and data center is extraordinarily expensive? Why do you think public cloud providers are so popular? I don’t buy your scalability argument either. Netflix has about 100m users and moved from having their own data centers to AWS and is extremely profitable. Uber has 40m. Given they might have different requirements for a system it might make sense but if scalability…

OP mentioned below, but for clarity you are in complete agreement with the comment you replied to.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#154

Post by iamcasen »

chii wrote: post #147
gshulegaard wrote: post #142

Earlier quoted context omitted.

Disclaimer: This a lay-man's understanding... So you join a shiny new "start up" and they offer you some stock options as part of their compensation package. This is typically done to improve compensation without requiring additional liquidity which is typically a limited resource for a start up. These "ISOs" (Incentive Stock Options) are usually option agreements where the company agrees to let you "purchase" shares…

The strange thing to me is why you get taxed before the sale of the asset (i.e., at the time of purchase).

You're right to think it's strange, because it is. It's a tax that was created long ago to try and close a loophole used by executives, but in today's world, it functions as a barrier to participation in the wealth created by young companies.

One could view the AMT as explicitly serving as a way to prevent poor/middle class people from becoming wealthy by way of stock options.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#156

Post by dionidium »

ChuckMcM wrote: post #15

This -- "One of those former employees paid about $100,000 to exercise more than 20,000 incentive stock options (ISOs), plus a tax bill of over $200,000. The other paid about $70,000 to exercise about 5,000 ISOs, and then about $160,000 in taxes. Both former employees took out loans from family members to make the payments, and requested anonymity to discuss their personal financial situations." Is how many many Sili…

"Both former employees took out loans from family members to make the payments"

This isn't the point of the story, but it may be a good bubble-check for some to hear that the idea of having family members in a position to lend this kind of money is mind-boggling to this reader of working-class roots.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#157

Post by caseysoftware »

abalone wrote: post #120
ChuckMcM wrote: post #15

This -- "One of those former employees paid about $100,000 to exercise more than 20,000 incentive stock options (ISOs), plus a tax bill of over $200,000. The other paid about $70,000 to exercise about 5,000 ISOs, and then about $160,000 in taxes. Both former employees took out loans from family members to make the payments, and requested anonymity to discuss their personal financial situations." Is how many many Sili…

Yeah, this always existed but the magnitude is so much greater for so many more people now because companies are staying private longer. I think it's healthy to just let vesting mean you get to take it with you, period, no catch. But it's worth noting this means there will be fewer options returned to companies in comparison to the last boom. Scott Kupor made this point although he framed it in a poor way.[1] He note…

> I think it's healthy to just let vesting mean you get to take it with you, period, no catch.

This sounds great in concept but in practice acquiring the shares is the taxable event. So if a company just gives you shares, that's the taxable event. And since you get taxed on the delta between your strike price and the "fair market value" (even though there isn't one), it would happen on the company's schedule, not your own.

If you extended the exercise window for N years, that would mitigate most of it because you could wait to execute until it's liquid. Or not execute at all if it goes under.

* I've been through two IPOs in the last couple years.. good planning shielded me from having major tax liabilities.

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#158

Post by caseysoftware »

dionidium wrote: post #156
ChuckMcM wrote: post #15

This -- "One of those former employees paid about $100,000 to exercise more than 20,000 incentive stock options (ISOs), plus a tax bill of over $200,000. The other paid about $70,000 to exercise about 5,000 ISOs, and then about $160,000 in taxes. Both former employees took out loans from family members to make the payments, and requested anonymity to discuss their personal financial situations." Is how many many Sili…

"Both former employees took out loans from family members to make the payments " This isn't the point of the story, but it may be a good bubble-check for some to hear that the idea of having family members in a position to lend this kind of money is mind-boggling to this reader of working-class roots.

They may not have the money but they may have equity in their homes to borrow.

(I still wouldn't do it but it's possible.)

Re: Former Uber employees have gone into debt to exercise options they can’t sell

#159

Post by astura »

caseysoftware wrote: post #157
abalone wrote: post #120

Earlier quoted context omitted.

Yeah, this always existed but the magnitude is so much greater for so many more people now because companies are staying private longer. I think it's healthy to just let vesting mean you get to take it with you, period, no catch. But it's worth noting this means there will be fewer options returned to companies in comparison to the last boom. Scott Kupor made this point although he framed it in a poor way.[1] He note…

> I think it's healthy to just let vesting mean you get to take it with you, period, no catch. This sounds great in concept but in practice acquiring the shares is the taxable event. So if a company just gives you shares, that's the taxable event. And since you get taxed on the delta between your strike price and the "fair market value" (even though there isn't one), it would happen on the company's schedule, not you…

>So if a company just gives you shares, that's the taxable event.

Unless they put them in your 401k, which is exactly what many (most?) companies do.

Post reply on HN