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

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

#41

Post by hkmurakami »

foo101 wrote: post #24

Can someone tell me what the rules are from companies who are already listed on NASDAQ and trading publicly? For example say if I join company X today (where X could be Intel or Cisco or a similar company) and I have 40 RSUs vesting over 4 years. After 2 years I decide to leave X. 20 RSUs would have been vested. I clearly understand that I am going to lose the 20 unvested RSUs completely. My question is about the 20…

You can keep them in perpetuity.

UBS is only holding those shares for you under your own name (a key distinction from having a structure where the shares are actually owned by UBS and you legally own a part of UBS' contract with you).

In the worst case you can ACATS transfer your position to another brokerage (I did this with stock resulting from exercised options). I imagine there are federal laws regarding protecting your equity holdings (cash is more at risk than equity in this regard since they lend it away I think?)

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

#42

Post by lhorie »

influx wrote: post #19
sockgrant wrote: post #12

Earlier quoted context omitted.

How's the eng culture?

They hired too many, too fast. When I was there, the whole thing was chaos. Instead of using a cloud provider, they are building basic infrastructure because engineers have to do something. Beyond the obvious HR issues that Susan Fowler exposed, it was a bad place to work for almost any engineer. I would stay far away if you get an offer there.

> Instead of using a cloud provider

As I understand, we tried using AWS to power key infrastructure but ran into scalability/cost issues. We still use 3rd providers for various things but my understanding is that a lot of this eng work is to reduce the costs incurred from these services.

I do agree though, as a new hire, that the culture here is quite a bit on the NIH side, compared to a more traditional software shop.

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

#43

Post by JumpCrisscross »

hkmurakami wrote: post #36
JumpCrisscross wrote: post #14

Uber is specifically and wilfully shitty when it comes to employees’ stock. Large investors have always been able to sell, in part because they hold their shares in LLCs. Smaller investors, however, get blocked. When the price started crashing, the big guys got out. The little guys remain locked inside. Something similar happened at Palantir. When a big little guy sued, things changed [1]. [1] https://www.bloomberg.c…

Palantir is worse. Far worse. They are still on options when they're valued at $10B+. They're smart though. This reduces their employee comp cost significantly through cheap internal buybacks.

There is a diversity of approaches. Some companies let anything through. Some want to speak to the newcomer first. Some aggressively exercise their rights of first refusal, or outright block sales, while providing internal tenders for employees. Uber stands somewhat alone in doing none of those things.

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

#44

Post by ghaff »

foo101 wrote: post #24

Can someone tell me what the rules are from companies who are already listed on NASDAQ and trading publicly? For example say if I join company X today (where X could be Intel or Cisco or a similar company) and I have 40 RSUs vesting over 4 years. After 2 years I decide to leave X. 20 RSUs would have been vested. I clearly understand that I am going to lose the 20 unvested RSUs completely. My question is about the 20…

Typically, when RSUs vest, shares (which you can sell just like any other shares) go into a brokerage account with some percentage of shares automatically sold to cover your estimated tax liability.

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

#45

Post by hkmurakami »

abalone wrote: post #29

This reflects one of the more notable changes of late in the basic SV startup template. More companies are going with so-called "extended" exercise windows, converting from 90-day-window ISOs to multi-year-window NSOs upon exit. Zach Holman (ex-Github) wrote a short, fun post on this a couple years ago.[1] Y Combinator has made it their standard around when Pinterest did it as well.[2] It was fun to watch Andreessen…

RSUs vs ISOs > before a priced round (83b is cheap at this point), and after you're a massive company, say $2-5B range (option upside is too small so you put a double trigger vest clause in to protect employees from taxes on illiquid shares)

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

#46

Post by JumpCrisscross »

gamblor956 wrote: post #38
JumpCrisscross wrote: post #14

Uber is specifically and wilfully shitty when it comes to employees’ stock. Large investors have always been able to sell, in part because they hold their shares in LLCs. Smaller investors, however, get blocked. When the price started crashing, the big guys got out. The little guys remain locked inside. Something similar happened at Palantir. When a big little guy sued, things changed [1]. [1] https://www.bloomberg.c…

Uber isn't publicly traded, so its stock price couldn't have "started crashing." Large investors aren't able to sell because they hold their shares in LLCs. They're able to sell because selling rights are part of the terms they negotiated as part of their agreement to invest. The form of ownership has nothing to do with it, and indeed the use of an LLC as a holding company for corporate stock usually complicates the…

> Uber isn't publicly traded, so its stock price couldn't have "started crashing"

"Crashing" is a function of value, not registration status. For example, CDOs "crashed" in the crisis [1].

> Large investors aren't able to sell because they hold their shares in LLCs

With all due respect, this is wrong. Selling SPVs (or stakes therein) containing the shares of a single company is a common institutional tactic.

[1] https://www.bloomberg.com/news/articles/2016-06-14/goldman-s...

Disclaimer: I am not a lawyer. This is not legal nor tax advice.

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

#47

Post by gamblor956 »

mabbo wrote: post #25

> To qualify for the tender offer, participants must have at least 10,000 Uber shares and be “accredited investors,” an SEC designation (pdf) for wealthy individuals. From the SEC link: > An accredited investor, in the context of a natural person, includes anyone who: > earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the cur…

Wow. There are actually laws in place that say the rich are able to do things that poor people can't.

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.

In a nutshell, the law requires companies wishing to sell to the general public to register with the SEC and meet certain financial disclosure requirements, such as disclosing financials using standardized accounting practices, so that the people buying their stock can judge the financial condition of the company they're investing in.

Startups choose not to register or adhere to these disclosure requirements so they can peddle their BS financial "metrics" to investors using magical unicorn fairy dust bookkeeping.

But to address the direct issue: there are few, if any, Uber stockholders who hold 10,000 shares of the company but would somehow not qualify as an accredited investor. The tender offer isn't intended for small stockholders with de minimis ownership, it's intended for stockholders with enough stock to represent significant fractions of the ownership of Uber.

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

#48

Post by rsynnott »

bob_theslob646 wrote: post #2

>Until this year, Uber gave former employees 30 days to exercise their options, an unusually short window of time. Is this the standard time window for exercise?

Huh. Not in the US, but I get 7 years, which is pretty normal around here.

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

#49

Post by hkmurakami »

JumpCrisscross wrote: post #43
hkmurakami wrote: post #36

Earlier quoted context omitted.

Palantir is worse. Far worse. They are still on options when they're valued at $10B+. They're smart though. This reduces their employee comp cost significantly through cheap internal buybacks.

There is a diversity of approaches. Some companies let anything through. Some want to speak to the newcomer first. Some aggressively exercise their rights of first refusal, or outright block sales, while providing internal tenders for employees. Uber stands somewhat alone in doing none of those things.

Imo at least Uber offers RSUs where your "$200k in equity" is actually $200k in equity if/when they do exit.

"200k in equity in option strike value for a very late stage startup is very unlikely to be ever be worth $200k even if an exit event happens.

I suppose that there are many different ways to be evil in this game, and we're just arguing which tactic is worse.

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

#50

Post by rb808 »

bsimpson wrote: post #26
sockgrant wrote: post #10

Yet another reason why taking startup stock sucks. Oh? You managed to actually get stock in a startup that seems to be worth something? And you didn't get diluted to a pittance? And the board / founders didn't try to fire you or ask you to give stock back to the pool? Lucky you, you're one of the 1% of the 1%. Now stay there until the company sells or goes public. Wait -- they got bought? Congratulations, you just wo…

Another detail that's not well-known unless you know someone who's gone through it: buying your shares comes with a huge tax bill. As I understand it, you have to pay tax on the difference between the option price and the value at the time you buy them. So if you have a bunch of options to buy at $10 per share, and the company grows to $90 per share by the time you quit/have to buy your shares, you're taxed on $80 a…

I dont understand this. if they're worthless & you can't sell, why do you pay tax as if the stock is worth $90?

Edit: Can someone point me to IRS docs? or blog explaining?

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