Wow. Employees get hurt, and the CEO gets awarded "CEO of the Year"
http://finance.yahoo.com/news/good-technology-chairman-ceo-c...
When a Unicorn Startup Stumbles, Its Employees Get Hurt
241–250 of 274 posts
Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt
#242Earlier quoted context omitted.
The best articles of incorporation I saw had preferred stock for the founders, but any acquisition or liquidity change would convert all preferred shares to common 1:1 and instantly vested all options. It did cause some interesting tax issues for people when we were bought, but I don't think I'd sign any other set of terms now. But then, the founders were very classy.
By having multiple classes of stock, the founders were unable to take advantage of pass-through taxation via S-Corp Designation. The losses incurred by a company at early stages offset personal tax liabilities by a significant amount. Having an acceleration clause isn't anything out of the norm though. I negotiated an acceleration clause if upon we took qualified investment of a certain dollar amount.
This wasn't a US firm, so US tax laws wouldn't have applied. I'd definitely consult a local accountant when setting up a company.
Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt
#243I'm going to keep repeating this comment until the world hears it--I think most people joining startups are being taken advantage of without realizing it. Sorry to be repeating myself: If you're primarily interested in making money, or if you love the startup but not the compensation, you should NOT work at that startup. If you're a good developer, you can get a better deal by working at an established company and si…
> If you're a good developer, you can get a better deal by working at an established company and simply investing.
This cannot be emphasized strongly enough. Even if you suck at investing, take a look at the max fluctuations for Valley's finest - AAPL, GOOG, FB or NFLX. Starting as a very late employee at any of those places with companies well past IPO stage with original equity package pegged at 1.5x-3x the annual salary, with annual/biannual refreshers and occasional performance bonuses yields a very secure future.
Of course, there's a bit of survivor bias here, but employees of a publicly traded company generally have a better idea of the company direction.
Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt
#244Very glad the NYTimes ran this piece. The only part they underplayed is they made it sound like the startup "stumbled." No, it sounds like it went exactly as planned. Blackberry got the acquisitions, investors got their money, execs got their bonuses, and the rank-and-file got nothing. That isn't stumbling, that's the playbook. Tech employees need to wake up about common vs preferred shares, and that the former are w…
Investors made ~no money on this deal. That's not the playbook. Most of your comment is just wrong. EDIT: Ah yes. Downvotes. On Hacker News you get to pick your own facts. Lolz.
Sure, the primary objective is a huge IPO. It's the playbook in the sense of it was plan B to break even by cutting employees out. Investors might have not made out, but they broke even, and scratched the back of execs who can repay the favor in other contexts.
Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt
#245Earlier quoted context omitted.
> If you don't want a union, pay your employees well (well above market), or have a great working environment Third option seems to move the jobs out of the country, which is what happened to highly unionized manufacturing sector.
It isn't about not wanting them. It's about them being constructive as opposed to destructive in the long term.
Right. I'm just pointing out proponents of unionization usually pretend that unionization costs zero to the workers' wallets. Well, there's the dues, but in theory they pay for themselves in increased benefits, therefore any rational employee should join the union.
The elephant in the room is the migration strategies the employer starts exploring when faced with an added cost (offshoring, moving to a right-to-work state, increasing automation, switching from vertical integration to third-party contractors).
Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt
#246Earlier quoted context omitted.
You earn a union. You earn a union by not treating your employees well, if you knew the history of the labor movement in the 30's you'd better understand how things got to be the way they are, and why the relationship is adversarial, instead of cooperative. If your employees are trying to unionize its because of longstanding grievances held by a significant minority if not majority of your workforce - grievances that…
> if you knew the history of the labor movement in the 30's News flash: We are nearly one hundred years away from the 30's. Just because things made sense then (and they absolutely did) does not mean they make sense today. What I am putting on the table is a verifiable mathematical fact. No opinions here. Fire-up Excel and do the math. Not sustainable. And that's the point. I didn't say unions need to evaporate, I sa…
In other countries, they do work, just not here in a bunch of cases (the auto workers are a worst case).
I'm not trying to justify the adversarial relationship the UAW takes with the big three - but as the old saying goes, it takes two to tango, and for a long time, neither side was willing to change the status quo. Not all unions are the same, many have what could more be described as a partnership.
I don't have much in the way of sympathy with the Big Three however, they rather than really negotiate when times were good, they agreed to absurd contract provisions - a little pain now, can save a whole lot of pain later.
The reason GM as you pointed out had 4.6 pensioners for every worker, is General Motors used to be a much much larger company - in 1970, GM had 395,000 UAW workers, in 1998, 210,000 and in 2007 had around 75,000, today (February of 2015) it has around 50,300. So in, 1998, it was roughly 1/2 its 1970 size, 2007, it was around 1/5th - today its around 1/7th.
1/5th is awful close to the 1:4.6 ratio you pointed out.
As far as the 20 years and you're out provisions? I have a friend who worked for GM for 20 years, he has - bad hearing, bad knees, bad ankles, bad feet - plus 15 years of exposure to chemicals in the paint booth - then another 5 of working in a stamping plant. He earned every dime of his pension, and paid for it with ill health, and a diminished quality of life for his remaining 20-30 years on the planet, because essentially he's a man in his early 40's with a body of someone 15 years his senior.
Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt
#247Earlier quoted context omitted.
Investors made ~no money on this deal. That's not the playbook. Most of your comment is just wrong. EDIT: Ah yes. Downvotes. On Hacker News you get to pick your own facts. Lolz.
Sure, the primary objective is a huge IPO. It's the playbook in the sense of it was plan B to break even by cutting employees out. Investors might have not made out, but they broke even, and scratched the back of execs who can repay the favor in other contexts.
What do you mean cutting employees out? Cutting them out of what? Their were no returns made on the investor's capital. There's nothing to be cut out from.
Taking investor's money and building a company that is only worth the value of what the investors put in and then being pissed you didn't get rich in the process is pretty nuts.
Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt
#248Earlier quoted context omitted.
Over a 4 year grant? This is just a guess, I don't have the IRS database at my hands. Maybe $200-300k after-tax sounds more reasonable? Like I said above -- "with some luck"
You have not yet actually made a guess you've just kept asserting that "a lot of money" is "a lot of money" and I agree. A lot of money is a lot money. I just think that modulo nobody is actually seeing a lot of money from start-up employee equity.
The problem is that it's not an easy thing to estimate. I know I've had equity grants that I thought were worth $x but turned out to be worth $x * 4. But you don't sell all of it at once, and you don't pay all of the tax bill when you sell, so it's a very hard thing to know. $200-300k after taxes is, I'm sure, not a rare outcome over a 4-year vest.
Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt
#249Earlier quoted context omitted.
I'm not arguing, but I would like to point out that you've just fallen into the same trap I was discussing. According to the article the employees had a chance to sell shares at $3 a share, later it came out that an outside firm felt the shares were worth less. The trap is using information from later to beat yourself up about what you didn't do then. It is an easy trap to fall into, you're in your own future looking…
The article details examples of 'information asymmetry' between employees and execs, at the same point in time. According to the article: -June 30: outside firm values common stock at $0.88 -'Late July': Board knows they only have 30-60 days of cash -'August': Some employees buy common stock at $3.34/share
There is always information asymmetry, sometimes situational and sometimes regulatory, its the foundation of the insider trading regulations.
The point is to know that there is information that you can't know which could swing the decision either way, and information you do know which could be true or false. And then objectively looking at your choices and deciding how much risk you're willing to take and then owning that decision, no going back later and beating yourself up for it because of something you didn't know.
As a startup employee, you need to be mindful of opportunities to convert your non publicly traded stock (or options) into cash. And then decide when (and if) those opportunities arise, what to do about it.
While some folks advise people to exercise their option when it vests so that later when they sell it they can get long term capital gains treatment, I advise them to not do this. My advice is based on looking at the four scenarios:
1) Don't exercise your options, stock is worthless
Total win, you didn't lose any money in the process.
2) Exercise early, stock is worthless
Total lose. AMT tax paid which can only be recovered $3,000 per year, money paid to exercise is all lost.
3) Don't Exercise, stock is worth 10x what you paid for it
Partial win, you get to pay for exercising the stock and the tax out of the proceeds of exercising and selling it, but you are taxed at the ordinary income rate and if you get into a high enough tax bracket a lot of deductions get taken away.
4) Exercise early, stock is worth 10x what you paid for it
Total win, you sell your stock and pay a minimum of tax on it.
Three "win" scenarios, and 1 total lose scenario. You remove the total lose by not exercising your option which leaves you with two "win" scenarios but not winning as much as you might have (lower risk, there is no "lose" scenario)
Re: When a Unicorn Startup Stumbles, Its Employees Get Hurt
#250Earlier quoted context omitted.
I disagree because it is not true all startups offer less than market-base salary. If a startup has VC backing then there is absolutely no reason for the startup to offer less than market salary. If a startup does not have money to pay employees then founders should raise more. Or sell more. Employees are not VCs. Simple. Also look this way: if start up is not offering market salary, then think this way: how that sta…
You bring up a good and interesting point. From what I've seen, startups almost always pay less than market, but they make up for it in four different ways: 1. Quality of life and work: employees at startups get to touch more things, work on more exciting projects, eat free food, play ping pong, be a part of a tight-knit culture, etc. A lot of people highly value this, and I don't blame them! 2. Employees mistakenly…
> 1. Quality of life and work: employees at startups get to touch more things, work on more exciting projects, eat free food, play ping pong, be a part of a tight-knit culture, etc. A lot of people highly value this, and I don't blame them!
It's not worth 10s of thousands of dollars a year when you can get a lot of that (or all it) at a company that will pay you more.