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Our Stock Option pledge

blog.clearbit.com

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Re: Our Stock Option pledge

#21

Post by hkmurakami »

loumf wrote: post #13
jaz46 wrote: post #10

This is a great trend that I'm seeing a lot of YC companies do. Early Exercise + 83b is an absolute must for all seed stage companies. I really like the notion of helping employees exercise their options too with cash compensation and it's something we're looking into too at Pachyderm as we just started hiring. What's the legal structure of that cash repayment? Is it a bonus or can the company just pay the exercise p…

You can do whatever you want. If your FMV is much higher than the strike, the bigger problem is the tax bill.

That's why it makes sense if you're at the seed round and the FMV is still peanuts.

Post-A round makes it much harder.

Re: Our Stock Option pledge

#22

Post by gwintrob »

hkmurakami wrote: post #20
gwintrob wrote: post #2

I'm glad more companies are removing the stock option golden handcuffs. Pinterest made a similar move last year: https://medium.com/@michaeldeangelo/unlocking-the-golden-han...

Don't forget Quora (who are often forgotten in this conversation), who were the first ones to implement such a plan and set the number at the maximum 10 year exercise period allowed by law.

Good point. sama points that out here: http://blog.samaltman.com/employee-equity

Re: Our Stock Option pledge

#27

Post by floatrock »

ErikVandeWater wrote: post #11
nazka wrote: post #6

I came across a very good article on HN about funding. It gives you a complete explanation to know what happen to your stocks through each series. The charts and the dynamic ones at the end are making it even better: http://dlopuch.github.io/venture-dealr/

Loved this. They are also creating a tool for those actually designing rounds: "Like what you saw? Send some social love and encouragement for Venture Makr: a full editor to create your own rounds with custom valuations and equity distributions. Turn the knobs on your own creations and see how scenarios might unfold differently."

Author of that thing here, glad you guys found it helpful!

There's an original HN thread with some discussion on it around here somewhere, but if you have anything on your wishlist, let me know!

Re: Our Stock Option pledge

#29

Post by throwaway1124 »

zaroth wrote: post #17
throwaway1124 wrote: post #5

I appreciate the thinking here and message but am concerned about this line "This will cost a few hundred dollars at most". Clearbit has raised a $2M seed round from top-tier investors implying a post-money valuation likely over $6M. A conservative FMV of the common shares would suggest a $1.2M valuation. To exercise a 0.5% of total equity grant would cost $6,000. Something doesn't add up here. If I am correct, will…

I think the problem is with your $1.2M valuation. You have a company with $2m in preferences or debt which is first in line before any common stockholder, and most likely their liquid assets are less than $2m, and they have negative net income. That makes the common stock effectively worthless at this time. Also, if you keep reading; Once our valuation rises and the cost becomes prohibitive, we’ll move to an extended…

I'm not suggesting that the valuation is truly worth $1.2M but if they did a 409A valuation or had their board decide on the FMV to determine strike price, the value would be at least 15% of the post-money valuation. My point is simply that if they've issued a reasonable number of options (over 0.25% of the total authorized shares), there is no way that their employees would only pay a few hundred dollars to exercise.

In an extended exercise period model, there's still the issue of Alternative Minimum Tax on exercise or long-term vs. short term capital gains. There will also likely be lockups on those shares whether inherently built in or in an eventual IPO.

Re: Our Stock Option pledge

#30

Post by throwaway1124 »

beambot wrote: post #7
throwaway1124 wrote: post #5

I appreciate the thinking here and message but am concerned about this line "This will cost a few hundred dollars at most". Clearbit has raised a $2M seed round from top-tier investors implying a post-money valuation likely over $6M. A conservative FMV of the common shares would suggest a $1.2M valuation. To exercise a 0.5% of total equity grant would cost $6,000. Something doesn't add up here. If I am correct, will…

I believe it depends on how they raised the seed round. If it's $2M in debt (with a $6M cap), then technically the value of the company has not been determined yet -- and won't be until there is a proper priced round. This affords them some flexibility... but they still need to determine the Fair Market Value of the options.

Even if they raised a convertible note or pure debt (which is atypical of a First Round Capital led round), it is unlikely that their 409A led to an extremely low FMV. Even a company that raises $2M in debt at a $6M cap would likely have a common share valuation over $500K.

Source: I'm a previous founder of a startup that raised a $1.5M convertible note and have done a 409A valuation based on it.

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