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Our Stock Option pledge

blog.clearbit.com

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Re: Our Stock Option pledge

#31

Post by iykwimthrowaway »

hkmurakami wrote: post #21
loumf wrote: post #13

Earlier quoted context omitted.

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.

I would ask the OP to consider going even further and figuring out a way to facilitate some liquidity so the employees could sell enough to cover their taxes even if they don't do early exercise.

You have employees who own shares but need a nontrivial amount of cash to cover taxes. You have investors who may be interested in acquiring more shares (or the company may want to buy them itself). You have a notion of a current valuation of the shares. Broker a sale at a price that's beneficial to both parties.

What is the company's incentive to block such a transaction?

I'd love to see this become standard.

Re: Our Stock Option pledge

#32

Post by hamburglar »

floatrock wrote: post #27
ErikVandeWater wrote: post #11

Earlier quoted context omitted.

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!

Very cool visualizations. It would be interesting in the last interactive one (illustrating liquidation preference) to see how a liquidation multiplier affects things. I'm a little unclear on the calculations for the preferred stock holders continuing to get money after their liquidation preferences are fulfilled.

Re: Our Stock Option pledge

#33

Post by tlrobinson »

iykwimthrowaway wrote: post #31
hkmurakami wrote: post #21

Earlier quoted context omitted.

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.

I would ask the OP to consider going even further and figuring out a way to facilitate some liquidity so the employees could sell enough to cover their taxes even if they don't do early exercise. You have employees who own shares but need a nontrivial amount of cash to cover taxes. You have investors who may be interested in acquiring more shares (or the company may want to buy them itself). You have a notion of a cu…

"Once our valuation rises and the cost becomes prohibitive, we’ll move to an extended exercise period model instead, where you will have 10 years to purchase your options. By that time we’ll either have had an exit (in which case you can do a cashless exercise), or we will have arranged some other form of liquidity."

The 10 year exercise window likely makes this unnecessary, but if not he says they will arrange for some form of liquidity.

Re: Our Stock Option pledge

#34

Post by blazespin »

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…

Yeah, if you're handing out 50 basis points to all of your employees. you would rapidly run out of equity to give out. I think paying a signing bonus of 6K to those who you do hire at 50 basis points (maybe with reduced salary spread out over 4 years) is not out of the question.

Re: Our Stock Option pledge

#35

Post by OliverJones »

This is obviously good for recruiting. BUT: It would be helpful for employees relying on the representations in this letter to have the commitment of the lead investors to this policy. It would also be helpful to see an accounting set-aside to cover the costs of the policy.

The problem here is that the CEO is "fighting the good fight" on behalf of insiders, but he may be fighting that fight against the investors.

Guess who wins in that case?

Re: Our Stock Option pledge

#36

Post by iykwimthrowaway »

tlrobinson wrote: post #33
iykwimthrowaway wrote: post #31

Earlier quoted context omitted.

I would ask the OP to consider going even further and figuring out a way to facilitate some liquidity so the employees could sell enough to cover their taxes even if they don't do early exercise. You have employees who own shares but need a nontrivial amount of cash to cover taxes. You have investors who may be interested in acquiring more shares (or the company may want to buy them itself). You have a notion of a cu…

"Once our valuation rises and the cost becomes prohibitive, we’ll move to an extended exercise period model instead, where you will have 10 years to purchase your options. By that time we’ll either have had an exit (in which case you can do a cashless exercise), or we will have arranged some other form of liquidity." The 10 year exercise window likely makes this unnecessary, but if not he says they will arrange for s…

Yeah, that seems good, but I'm suggesting the plan for "some other form of liquidity" be a little more explicitly stated. I know this isn't what plays well with the HN crowd, but there are other paths to success besides the explosive exit, and one of those is spending a long time building a good solid business, which can take more than 10 years.

If there's a good path to the employee owning their shares (or some fraction thereof) outright, that is more desirable in some ways than an outstanding option agreement with a ticking clock.

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