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If you have startup stock options, check your option plan

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Re: If you have startup stock options, check your option plan

#71

Post by saryant »

Domenic_S wrote: post #66
tieTYT wrote: post #29

The last two companies I've gotten offers from gave me very, very heavy pushback when I tried to figure out what % of equity they were giving me. They told me they were giving me 5,000 shares (for example). OK... 5,000 of how many? What % of all the shares is 5,000? My understanding is you need this information to know if the equity is worth something or nothing. Yet, they really don't want to give me this informatio…

> the recruiter I was going through literally told me nobody has ever asked these questions about the options they were getting. Whenever someone says something like that during a negotiation, you can be sure it's because they don't want to answer the question. Other good ones: -"This is totally standard" -"That form is industry standard" -"Nobody else has ever had a problem with that"

Sort of like the common response to questions about non-competes: "Oh, we never enforce that!"

"...then why can't we take it out?"

Re: If you have startup stock options, check your option plan

#72

Post by AndrewKemendo »

cj wrote: post #43
AndrewKemendo wrote: post #11

I read a lot about how employees get screwed over with stock options, so what we decided to do was to just give employees vesting stock straight up as a buy through. Basically the way this works is that we give new employees an up front lump sum in the amount of how much it costs to purchase the shares of the company. The employee then purchases those shares from us in line with a vesting agreement. All warrants and…

Founders stock works well for early employees. Since valuations of pre-series A companies is effectively $0, the cost for employees to buy their shares upfront is minimal (literally a few dollars for a few percent). But as a company raises capital, it's legally required to have a "409a valuation", which establishes the "fair market value" of the stock. Once this happens, it can cost $x,xxx's of dollars for employees…

100% correct. We hope that we will be able to float those amounts to the employees (as bonus) as we get to later stages of growth, but what I have discussed with our GC looks closer to the conversion bonus when and if that happens.

The boundary cases where there is a contentious firing will have to be taken case by case but then whatever that portion of the taxes are due for the percentage vested we would compensate the bonus as though it was 100% vested based on the agreement.

Re: If you have startup stock options, check your option plan

#73

Post by bbcbasic »

mcdoug wrote: post #9

Why worry about stock options at all? There is a spectrum of outcomes. On one end the startup flops, or is bought for so little that your share, even if paid out, is close to 0. On the other end you have Google, Facebook, Instagram, etc. Companies where 0.5% is worth quite a bit of money. The problem is that the majority fall in-between, where your stock options will be worth nothing, yet the company will sell for a…

Then why work at a start-up at all?

Re: If you have startup stock options, check your option plan

#74

Post by AndrewKemendo »

triplesec wrote: post #23
AndrewKemendo wrote: post #11

I read a lot about how employees get screwed over with stock options, so what we decided to do was to just give employees vesting stock straight up as a buy through. Basically the way this works is that we give new employees an up front lump sum in the amount of how much it costs to purchase the shares of the company. The employee then purchases those shares from us in line with a vesting agreement. All warrants and…

I wish more companies were so transparent and decent as yours. Why do others prefer not to do it this way, if it's not just sheer greed and obfuscation?

In 99% of cases my guess is they just don't know it is an option because it takes extra work on the company side and is not typically something that a GC or accountant would offer.

Re: If you have startup stock options, check your option plan

#75

Post by AndrewKemendo »

choppaface wrote: post #52
AndrewKemendo wrote: post #11

I read a lot about how employees get screwed over with stock options, so what we decided to do was to just give employees vesting stock straight up as a buy through. Basically the way this works is that we give new employees an up front lump sum in the amount of how much it costs to purchase the shares of the company. The employee then purchases those shares from us in line with a vesting agreement. All warrants and…

Does this system effectively make employees do 83b early exercises? or is it more like a custom RSU program?

Yes, an 83b election is required.

Re: If you have startup stock options, check your option plan

#76

Post by JoachimSchipper »

iykwimthrowaway wrote: post #44
mcdoug wrote: post #9

Why worry about stock options at all? There is a spectrum of outcomes. On one end the startup flops, or is bought for so little that your share, even if paid out, is close to 0. On the other end you have Google, Facebook, Instagram, etc. Companies where 0.5% is worth quite a bit of money. The problem is that the majority fall in-between, where your stock options will be worth nothing, yet the company will sell for a…

I'm very curious about the middle part of this spectrum, since I'm currently in it: I'm an early employee with a significant chunk of options (high single-digit %), and the company is profitable and valued at (to my understanding) somewhere well over 10x the total amount of funding we took (I've heard talk of 40-50x). Management is explicitly not looking for an exit: they just want to keep building this company for t…

Consider (diplomatically!) talking to your boss.

If the company is successful-but-not-spectacularly-successful for a long time, one way to handle such issues is by structuring the flow of money from the company to the founders as dividends - that way, you'll get paid some fraction of what they get paid, indefinitely. Note that there are other ways to structure that particular money flow, though, and there's very little you can do to influence the choice.

For a select few companies, secondary markets exist that trade in illiquid stock. I understand that many equity agreements forbid selling on those markets and/or quickly selling on those markets. However, this only works if the buyers have a reason to believe that the stock will ever be worth anything at all.

You mention valuations, which suggest that some fairly savvy people have decided to exchange money for shares in this company. Do you know how the investors expected to get paid back? It's possible for founders to screw investors, of course, but this may be another thing worth looking into.

Re: If you have startup stock options, check your option plan

#77

Post by ted2004 »

ditonal wrote: post #50
iykwimthrowaway wrote: post #44

Earlier quoted context omitted.

I'm very curious about the middle part of this spectrum, since I'm currently in it: I'm an early employee with a significant chunk of options (high single-digit %), and the company is profitable and valued at (to my understanding) somewhere well over 10x the total amount of funding we took (I've heard talk of 40-50x). Management is explicitly not looking for an exit: they just want to keep building this company for t…

Are you invited to board meetings? If not, considering yourself a "potential owner" when you're not invited to the meetings where owners decide things means you are very confused about things. There's a reason why when a company goes public, the quarterly minutes at board meetings become public as well, because you aren't really an owner if you're excluded from even learning about the biggest of decisions. What you s…

>>> If you have the options to buy common shares, which you probably do, they're worthless so don't even bother exercising them.

I was in the exact same position as the OP, with expiring options on common shares in a company with no immediate plans to IPO. I (fortunately) didn't take your advice, exercised the options and 3 years later, when we were acquired, I was $500k richer. Of course, everyone's situation is different but I wouldn't take such an absolute position.

Re: If you have startup stock options, check your option plan

#78

Post by URSpider94 »

This happened to me. My employer got sold, and only about half of my outstanding ISO's were vested at the time. However, I'd been there a pretty long time, and getting more ISO grants as time went on, so I wasn't too bent out of shape about it.

In my opinion, you should think about instruments such as RSU's and options as accruing to you at the date of vest, not the date of grant. From an accounting standpoint, that's how the company is viewing it, or at least should be.

Re: If you have startup stock options, check your option plan

#79

Post by mahyarm »

iykwimthrowaway wrote: post #61
ditonal wrote: post #50

Earlier quoted context omitted.

Are you invited to board meetings? If not, considering yourself a "potential owner" when you're not invited to the meetings where owners decide things means you are very confused about things. There's a reason why when a company goes public, the quarterly minutes at board meetings become public as well, because you aren't really an owner if you're excluded from even learning about the biggest of decisions. What you s…

> considering yourself a "potential owner" when you're not invited to the meetings where owners decide things means you are very confused about things Well gosh, I don't think there's any need to get nasty about it. I may be naive but give me a break. When I refer to ownership I'm obviously simply referring to being a shareholder. No, I am not invited to board meetings, but as far as I know, neither is anybody else w…

If it's a profitable company that you've been at almost 10 years, that you want to stay at, can't you ask them for a raise, and ask them for help with the stock option problem? They probably would want to work with you if you've been there that long.

Re: If you have startup stock options, check your option plan

#80

Post by saryant »

mattgreenrocks wrote: post #59

Someone could probably make a nice bit of money on the side helping new engineers in SF review/deal with their stock options. You'd have to know this stuff well, but I don't think that's a big hindrance to anyone. Think of it as both giving back and pushing back on what can be predatory treatment of employees.

Isn't that what lawyers are for? I paid mine a small fee to review my equity agreement before I signed and I made it clear to my potential employer that I couldn't sign until my lawyer signed off on it.
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