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Should you buy your stock options when you quit?

nealshyam.com

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Re: Should you buy your stock options when you quit?

#41

Post by _puk »

kingnothing wrote: post #30
imroot wrote: post #15

I worked for CollabNet from 2005-2010. When I left, I bought my stock options. I got a friendly letter in the mail a few years later telling me that the company had been restructured, and that my shares are now worthless. If I'm getting shares as a part of equity, then I'll consider that as part of my comp package...however, if they're stock options, I generally completely disregard them: I haven't yet met a startup…

Can anyone chime in as to how it is legal to remove someone's ownership from a company like that?

From experience..

Old company is renamed something like "legacyabc"

A new company is formed with the old company's name. All personnel and IP is moved to the new company", all debt is left in the old company. Original share holders get a big payout.

The old company is now worthless. Shares are now worth less than the original strike price. Original company is likely dissolved.

Bad luck.

Generally you'll have to sign a new contract in the new company to keep working.

If you're really unlucky, your L1 (or w/e) visa is tied to the old company, you now have to leave the country, and can't easily transfer to this new company.

Re: Should you buy your stock options when you quit?

#42

Post by Blackstone4 »

Stock options are often for common stock and if its in a VC backed company, the VC's will invest in the form of preffered equity which is like permanent debt with no interest payments. If the company is sold for 20% less than the last round, the VCs will be paid first and the common equity gets what is left over which could be 20%, 50%, 100% lower than what you thought you might get. So be careful....

Re: Should you buy your stock options when you quit?

#44

Post by pbrb »

kingnothing wrote: post #30
imroot wrote: post #15

I worked for CollabNet from 2005-2010. When I left, I bought my stock options. I got a friendly letter in the mail a few years later telling me that the company had been restructured, and that my shares are now worthless. If I'm getting shares as a part of equity, then I'll consider that as part of my comp package...however, if they're stock options, I generally completely disregard them: I haven't yet met a startup…

Can anyone chime in as to how it is legal to remove someone's ownership from a company like that?

It happened to me as an employee - during an acquisition we were force liquidated at a price that was just above strike. A few people made some money, but most people made a couple thousand dollars. A couple years later we all got checks in the mail for reimbursement on overage from tax withholding.

Re: Should you buy your stock options when you quit?

#45

Post by [deleted] »

kingnothing wrote: post #30
imroot wrote: post #15

I worked for CollabNet from 2005-2010. When I left, I bought my stock options. I got a friendly letter in the mail a few years later telling me that the company had been restructured, and that my shares are now worthless. If I'm getting shares as a part of equity, then I'll consider that as part of my comp package...however, if they're stock options, I generally completely disregard them: I haven't yet met a startup…

Can anyone chime in as to how it is legal to remove someone's ownership from a company like that?

[deleted]

Re: Should you buy your stock options when you quit?

#46

Post by jusob »

whymsicalburito wrote: post #36

Are there tax benefits to exercising early? Hypothetically say I have some options with a pretty cheap exercise price, and I think the company will be taking on PE money in the near future, AND I have faith that the company will successfully exit in the future, will exercising early save me some taxes?

If the company qualifies as Small Business (see QSBS,, Qualified Small Business Shares) at the time you buy your shares (not vest), then there is no federal taxes at all (up to 10 millions).

Re: Should you buy your stock options when you quit?

#47

Post by yalogin »

If you are at a startup and decide to leave doesn't that also mean that you don't believe in the company anymore? I understand that there are always cases like better position or other personal issues that make people move but for the most part the original statement holds true. So you don't buy out the stock options and move on.

Re: Should you buy your stock options when you quit?

#48

Post by JumpCrisscross »

zaroth wrote: post #33

One factor for me would be if the company was aggressive enough in its 409a valuations of common stock. If they are valuing the common stock based on the last funding round which sold preferred shares, you are likely significantly overpaying both for your exercise price and in AMT tax, and that makes the investment significantly riskier. If common share FMV is discounted appropriately, IMO a 409a valuation will refle…

> One factor for me would be if the company was aggressive enough in its 409a valuations of common stock

Another factor is transfer restrictions. Most companies let their shareholders sell stock in the private markets. Some, however, are curmudgeons. The latter knock shareholders twice: once, by taking away a liquidity option, and again, by producing a selling rush at potential future liquidity events.

Re: Should you buy your stock options when you quit?

#49

Post by JumpCrisscross »

yalogin wrote: post #47

If you are at a startup and decide to leave doesn't that also mean that you don't believe in the company anymore? I understand that there are always cases like better position or other personal issues that make people move but for the most part the original statement holds true. So you don't buy out the stock options and move on.

> If you are at a startup and decide to leave doesn't that also mean that you don't believe in the company anymore?

No. Companies that are terrible workplaces can be great investments and vice versa.

Re: Should you buy your stock options when you quit?

#50

Post by akchin »

zaroth wrote: post #33

One factor for me would be if the company was aggressive enough in its 409a valuations of common stock. If they are valuing the common stock based on the last funding round which sold preferred shares, you are likely significantly overpaying both for your exercise price and in AMT tax, and that makes the investment significantly riskier. If common share FMV is discounted appropriately, IMO a 409a valuation will refle…

This is not fully accurate.

You have to pay AMT on the difference between your strike price and the current 409a price of common. It doesn't have much to do with where preferred is valued, other than the fact that a high preferred value, means that the updated 409a common might be higher.

So let us say, your strike price is $0.50 and you are fully vested after 4 years. The company recently does a round where preferred is at $3.00 per share and the new 409a is $1.25/share. When you leave this is what will happen - You need to pay the company $0.50 * number of options you have - You have to pay AMT on (1.25-0.5) * number of shares

With last year's tax law, one good thing is that AMT rules changed, so AMT might not apply. You should, of course, talk to your accountant/tax professional for the proper advice :-)

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