I feel like you almost need a business degree as a work-seeking technologist to understand all the financial structures and future implications at play, here
Startup Stock Options – Why a Good Deal Has Gone Bad
371–380 of 391 posts
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#372Earlier quoted context omitted.
Threaten to shut down the company. Then your shares are worth zero.
But then it makes wonder, why would anyone get themselves into startups anyway? Especially when you consider the relatively low compensation and high risk.
A few reasons:
* Access to decision makers
* Greenfielding a product
* Excitement / fast pace
* Novelty
* Great learning experience before launching your own venture
It's not for everyone, but I've interviewed dozens of developers who only want to work at startups for these reasons.
And for founders, obviously there's the upside of owning a business, the status of being funded, the ability to be your own boss and the potential for massive impact and wealth.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#373Earlier quoted context omitted.
A startup clearly has value even though it isn't a public company yet. Figuring out that value just has more steps. IANAL, but MobileVet's situation may have been illegal, running afoul of minority shareholder rights, if the situation was accurately described. I imagine what happened was the CEO divided the company then paid a pittance for the portion without the debt to the portion with the debt. You can't do this,…
You are totally right with respect to the fact that it isn't aboveboard, but one of the biggest problems with our legal system is that you need money to protect your money. Other wise you'll go bankrupt while their attorneys file delay motions causing you to have to pay your attorney more and more. I was the CTO of a company and built its entire infrastructure for 4% of the business. One day I came into work and the…
What happened then?
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#374Earlier quoted context omitted.
You are totally right with respect to the fact that it isn't aboveboard, but one of the biggest problems with our legal system is that you need money to protect your money. Other wise you'll go bankrupt while their attorneys file delay motions causing you to have to pay your attorney more and more. I was the CTO of a company and built its entire infrastructure for 4% of the business. One day I came into work and the…
What happened then?
I think they decided that it was infeasible to continue using my system without fully knowing how it all worked. I intentionally made parts of it opaque (ie hidden in DLLs) until my contract was resolved. This is part of the reason why they let me go. I insisted that they purchase the rights to those opaque code blocks as part of my contract since they were in fact developed by me for a different project long before I joined the company. (It was a proprietary web server written in c++ designed for high-performance web services and since it was 1 of a kind it had a degree of security through obscurity and therefore I didn't want to release the code for free)
I guess a part of me knew things weren't right but I ignored the signs because I loved what I was doing and I was good at it.
Oh, also they tried to claim that they didn't withhold any taxes by not giving me a W2. So now I can't e-file my taxes but they mistakenly reported my income to the department of employment back in Q2 so I'm sure the IRS will be calling them.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#375I made a bunch of money from ISOs at large, established companies. I made zero (well, negative, really) from startup stock options, even before things got really shifty in the 2000s. One startup that I left, that is now a billion dollar company, simply decided to "extinguish" the shares I bought a few years after I resigned. I was probably cheated, but it's not worth the effort to go after them and they know it. Trea…
>Treat startup options as wastepaper.
I must ask - is there a hint of hyperbole here or are you dead serious? I currently work for a startup, and let's just say... I could've negotiated better on options when I joined. It's been on my mind to bring that up during my performance review.
Is that a fool's errand then? What is your advice when working at startups?
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#376Earlier quoted context omitted.
Maybe this used to happen earlier, but I only really saw this after the DotCom bust. In my case it was founders/execs issuing themselves new/preferred stock and diluting all their coworkers into oblivion on an exit. Granted, these were small shops ~30 people and the exits were small ~$100M, but the effects were devastating. Everyone who could quit, did. People for whom an extra few $100k would have been a big deal wo…
Could you/should you ask founders if they have such unilateral dilution powers? How do you check for this when joining a startup? Should this be explicitly written in the offer letter you get?
In general a majority stock holder(s) can rewrite the rules any way they like. You could have a poison pill written into your offer letter (requiring an immediate payout for certain events), but I don't think any founder/VC would sign it.
But I AM NOT A LAWYER.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#377The article is right but misses the biggest problem with options: the need to spend money you may never get back in order to have a chance to be paid anything. There are two ways this happens: - You leave the company after 4 years and have 30-90 days to exercise. The exercise will cost you $20,000. The company is nowhere near an exit. Do you do it? - When you exercise you are either immediately hit with a tax bill fo…
A number of startups screw over their employees with options. 90 days is a terribly short exercise window. Kinda like a scam in a way. But not all startups are like that. Where I work (Mixpanel), that window is 5 years. Which I feel is a much generous and fair offer. With stock options, I pay no tax. If the company liquidates, then I convert the options to real stock (yeah i’ll have to pay money to do that). If thing…
But you have NSOs though, not ISOs right? From what I understand, ISOs are required by law to have a 90 day exercise window, so companies that offer more than 90 days after leaving a company are having ISOs converted to NSOs. When you exercise the NSOs, you still will have a tax bill.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#378To his suggestions, I have another. Offer internal Dutch auctions on a regular basis to provide an opportunity for investors/the company/etc to buy stock from employees at a reasonable price. This makes the value of the company, from the point of view of the employee, not "funny money" but something very tangible. With an opportunity to cash out long before it is public.
Don’t think an auction makes sense when there is essentially only one buyer. Better would be to just offer a pool of money to buy up shares at each fundraising round at whatever price is set.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#379Earlier quoted context omitted.
What would you sue for in a startup that doesn't yet have value? Later on, if the company became worth something then yea you could sue but how do you work with the people to build something successful when you know that they are screwing you? It sucks because you sign on to something and change your whole career but once you do that they kind of have you trapped in a way. They can change the deal arbitrarily once yo…
A startup clearly has value even though it isn't a public company yet. Figuring out that value just has more steps. IANAL, but MobileVet's situation may have been illegal, running afoul of minority shareholder rights, if the situation was accurately described. I imagine what happened was the CEO divided the company then paid a pittance for the portion without the debt to the portion with the debt. You can't do this,…
Yea, I figured it was unethical at best, illegal at worst. I could have pursued it but chose not to. I should have at least talked with a couple other former employees to see if we could go after it together, but I didn't want to be blackballed from the startup space. This is a very well known individual... though their reputation isn't exactly stellar.
Maybe I should have, but it wasn't going to be life changing money either way and it would have required a lot of time, money and emotional energy.
Re: Startup Stock Options – Why a Good Deal Has Gone Bad
#380I was part of a very well know incubator and a very early employee at a flagship company. Founder blew tons of cash and dilutions but that is part of it and I didn’t mind. What was ethically shady was shortly after I left with 4yrs vested they decided to restructure the entire company so they could attract investment. They took all the debt from the original company and put that in a shell company that then owned a p…
Curious why you don't mention their name? Feels like there's little recourse against this sort of thing other than reputation risk, why not out them publically?
I don't know... not a fan of speaking ill of others even if they deserve it. Besides, I don't know for sure that it was illegal and it was a while back. It isn't worth the energy to dredge it up.