9 ms·

Gilt Groupe Is a Cautionary Tale for Startup Employees Banking on Stock Options

102 points by coloneltcb 11y ago

exolymph 11y ago
IMO it's best to regard stock options as worthless, even though that's not technically true.
- kevingadd 11y ago
  Unless the company is already public (so you can sell the shares), cashing in your options as an ordinary employee is a catastrophically bad decision. Even when it goes public you can be in for a world of hurt - a couple folks I know held Zynga shares at the point where the company went public and they ended up with a massive tax bill that they couldn't sell shares to pay off.
  - Florin_Andrei 11y ago
    > a couple folks I know held Zynga shares at the point where the company went public and they ended up with a massive tax bill that they couldn't sell shares to pay off. What exactly is the combination of factors that produces that outcome?
    - kevingadd 11y ago
      When you convert your options to shares you pay the taxes. I'm not sure precisely why they converted at that point in time; it's possible it was in their employment agreements or part of the terms of the IPO. It may have been as simple as 'this stock price is going to go up after we go public, so it's in your best interest to buy the shares now'.
      - Florin_Andrei 11y ago
        > It may have been as simple as 'this stock price is going to go up after we go public, so it's in your best interest to buy the shares now'. That's what I thought. Exercised too early.
    - jpdaigle 11y ago
      Could be a 6 month lock-up period during which the employees who exercised and now hold stock (and thus have a huge tax liability) cannot trade (buy or sell) in the stock. So for 6 months you can be entirely at the mercy of the public markets, watching helplessly from the sidelines as the price crashes. (And yes, the solution is to not exercise until you're able to sell.)
      - georgemcbay 11y ago
        I have no knowledge of Zynga, but this is exactly what I've seen happen in other instances. Lock-up period combined with people exercising ASAP to optimize for reduced capital gains taxes due to the one year window between exercising and selling. The fear of paying more taxes (or waiting longer for the 1 year period after exercising) causes a significant amount of people to expose themselves to a potentially devastating downside by exercising ASAP. While this seems like a silly thing to do (and it is, IMO) it has to be seen in the context of a company full of people experiencing (often for the first time) what seems like it will be a very successful "exit" and everyone in the company is in euphoria mode, counting their Lamborghinis before they are hatched. Of course, after you see the results of this happening the first time you get to be the Debbie Downer who warns people of the possible downside in subsequent companies. IME this is a tough position to be in because you look like a negative asshole when everyone else is in party mode (often being egged on by upper management selling the dream).
      - lutorm 11y ago
        Well, in this case arguably the solution is not to exercise if you can't pay the tax bill, absent selling your stock. Exercise early, pay little tax because the FMV is low. Exercise late, pay lots of tax because the FMV is high. Exercise late and sell, pay lots of short-term cap gains tax. Exercising late, while still unable to immediately sell some shares to cover the tax bill you know will come seems like taking a huge risk.
    - bwoj 11y ago
      I worked for a company that went public at $18/share in 2000. During the lockup period the price of the stock went as high as $202/share. Over the next two years, the price trended downwards to around $20/share. Pre-IPO employees were encouraged to pay for shared before they vested. The idea here is that you can hold those options for 5 years and get capital gains rates on that appreciation which for small companies was 10%. I.E, you pay now, shares vest later. According to the AMT, you will owe taxes on those shares equal to the market price when they become yours minus what you paid for them. That is, when the stock vests. Not when you pay for it, and not when you sell it. So you can buy 1000 pre ipo shares for $1 each. Company goes public hits $100/share. You think it's going higher so you hold. Shares drop to $10. Now you're in a pickle. You owe taxes on 1000 shares * $99 of gain. But you're only sitting on 1000 shares * $9 of gain. When somebody finds themselves in this situation, they must sell those shares before that tax year ends, which means you're now paying income taxes instead. If your tax year has ended you are out of luck. The one thing that stops this from being a real problem for most founders is the IRS 83(b) form, which is to notify the IRS that you want to recognize the income associated with your option when you buy it as opposed to the default which is when it vests. Why doesn't everyone file their 83(b)? Clearly, the risk here is too complicated for many to understand and it's a very unusual situation to arise. Here is the story of how our CFO(!) at that company ran into this exact problem to the tune of $316,040 tax liability for shares he bought with money borrowed from the company(!): https://www.washingtonpost.com/archive/business/2000/07/02/keep-the-tax-man-away-from-your-stock-option-gains/7070006d-f6ee-47c1-97d9-ae98c540e2c7/ https://www.washingtonpost.com/archive/business/2000/07/02/k... Some references: https://www.nceo.org/articles/stock-options-alternative-minimum-tax-amt https://www.nceo.org/articles/stock-options-alternative-mini... https://blog.wealthfront.com/always-file-your-83b/ https://blog.wealthfront.com/always-file-your-83b/
- chasing 11y ago
  Well, they're financial instruments. And like any financial instruments, they need to be understood. I'm not sure most people understand how stock options work.
  - w1ntermute 11y ago
    Exactly, it's silly to say they're worth nothing. That's like staying stocks you buy are worth nothing because the value could drop to 0. It's a matter of understanding what the probable outcomes are.
    - walshemj 11y ago
      quit right some times they have a negative value (after tax)
    - exolymph 11y ago
      Agreed. However, the human mind doesn't cope well with probabilities, so I think letting yourself believe that stock options are worth nothing is a good intellectual shortcut.
      - khuey 11y ago
        The real disaster scenarios come not from when they're worth nothing, but when they're worth less than nothing.
    - codeonfire 11y ago
      They are probably worth nothing. In a couple jobs the company had two sets of options with different strike prices. The high priced ones went to employees and the low priced ones went to execs and investors. Of course the stock was offered at a price in between and employees got to wipe their ass with the worthless options.
  - superuser2 11y ago
    I think in those context "consider them worthless" means "budget as if they don't exist, mentally allocate them if and only if you successfully cash them out."
- angryasian 11y ago
  not worthless but the entire system that is meant to reward early employees, is set up to make that as hard as possible.
- reality_czech 11y ago
  It's best to regard money as worthless, too, since its value could drop at any point. In fact nothing has any worth except the bowl of soup you are currently eating, and the cardboard box above your head to keep out the rain. Just ask this homeless guy outside. Just ask him, seriously.
joshmn 11y ago
I've always seen equity/stock as an incentive to work my ass off, nothing more. They equate to nothing more often than not.
- sundaeofshock 11y ago
  I've found cash to be an acceptable incentive to work my ass off. Stock options are the equivalent of lottery tickets.
  - cmrdporcupine 11y ago
    I've always found a cool project, friendly and open team members, good project planning, and an atmosphere of fun as the only effective incentive to work my ass off. Money is great but has never been sufficient to induce inspiration for me.
    - rifung 11y ago
      Why are those things an incentive to work your butt off? I see why those would lead to you being happy at your job, but I don't really see why being happy at your job means you should work extra hard. Just curious, as it seems to me those are things which would make someone stay at their job for a long time but not necessarily work extra hard. After all, it's not like your not working extra hard would lead to losing to those things.
      - icebraining 11y ago
        Some people work extra hard when they really enjoy what they're doing, such as those athletes that dedicate their whole lives to a given sport.
    - jschwartzi 11y ago
      I'm this way too, but I also need to feel mentally challenged by the work. When it becomes effortless I'm ready to move on. This usually takes a year or two for me.
  - 11y ago
zekevermillion 11y ago
The real problem is 409A -- the provision should only apply to options in publicly traded stock and other similarly liquid comp. In the long-ago times, companies apparently could hand out options with nominal strike prices without any bad tax consequences. Now we have to set the strike price at least equal to "fair market value" on the grant date, even if there's no market for the stock. This imposes a transaction cost toll on early-stage companies, while simultaneously penalizing startup founders and employees.
- Animats 11y ago
  That was imposed because companies would reprice stock options for their executives when the stock dropped. Shareholders hate that; they don't get a bailout like that. The pre-IPO valuation thing is a mess. It's probably going away; investors are tired of being clobbered when the price goes down on a company that's supposedly successful.
  - zekevermillion 11y ago
    Makes sense for a public company, but why impose 409A on startups? While we're at it, why do we tax startup founders on restricted stock grants -- should just tax when they sell the stock, or maybe when it is listed on a public market...? These changes ("reforms" in my view) may never happen, or may take a loooong time though.
- walshemj 11y ago
  It should only apply on a real liquidity event why every on isn't in SV lobbying there congress and senator reps amazes me.
  - hkmurakami 11y ago
    >lobbying Well it only affects VCs and founders at a secondary or tertiary level. Even early employees at the seed stage aren't that badly affected by it if the founders structure things to minimize capital gains (ex: allow early exercise with a buyback clause). Who is hits the hardest is the post Series A employee. Those with the strongest muscles likely aren't going to go bat for them in Washington quite yet.
ChuckMcM 11y ago
If you are new to stock options, it would be good for you to pay attention here. I am not qualified to offer tax advice, so this is all fiction based on my experiences of paying taxes in the Bay Area while working at startups and larger companies ... It used to be that you could buy your options and hold them without any tax hit. After holding them for a year, if you could sell them, any gain was taxed at the long term capital gain rate. Since the long term capital gains rate (LTCGR) was much much lower than the short term gain, this strategy reduced the amount of taxes you paid. It was deemed a "loop hole" that the rich used and it needed fixing. The fix was something called "Alternative Minimum Tax" or AMT. The way AMT works is it ignores the fact that you cannot sell your stock, and asks you to compute if you had sold the stock options you just exercised and treated all of that gain as ordinary income, how much tax would you have owed in that fictional scenario? Then it asks you to compare your tax bill in that fictional universe, and your bill without considering that fiction, and which ever is higher? That is how much you owe in taxes. It doesn't matter how you came by the stock, it could be through restricted stock plans (no cost to you to vest) or incentive plans. The difference between how much you paid, versus how much that stock is theoretically "worth" is treated like ordinary income. What that means from a practical standpoint is that you are screwed either way. But if the stock becomes worthless you are doubly screwed. First you lose all the money you paid to exercise (the value is now zero) and second, while you can claim a capital loss, that loss can only be applied against an offsetting gain of "like" kind. So back when it was an AMT calculation you had to treat it like ordinary income, but now as a capital loss you can only offset other capital gains. The small concession is that you can consider up to $3,000 as a loss against your income (so you adjust your income down by $3,000 and you end up not having to pay the marginal rate income tax on that $3,000. If you're in California and an engineer making $100K+ annually that means you are probably in the 28% tax bracket paying 28% federal and 11% CA state tax, (39%) so you get to "keep" 39% of $3,000 or $1,170 that you would have paid in taxes. So are you keeping score? You paid $3,000 in tax on an asset you could never sell, and you got to offset your income by $3,000 so you got "back" $1,170 of it, letting $1,830 of it evaporate into smoke. You can get it back, dollar for dollar, if you have some capital asset that you're selling and seeing a gain on, then you can apply every dollar of your loss against that gain, up to all of your loss, and not pay any tax on that gain. (that doesn't work for offsetting AMT but does work for an actual capital gain, like sale of property or equity you were already holding). The system is designed to take money you might have otherwise been entitled to out of your pocket and to put it into the general fund of the government so they can spend it poorly on their own programs (ok that is a bit cynical but seriously, I would be totally ok if they told me I had to give some to charity.) If you don't have capital gains you want to offset, don't exercise your options until you can actually sell them. If they are going to expire before you can sell them, the safe play is to let them expire.
bchjam 11y ago
"We're gonna party like it's 1999 ..." I guess some things never change, oy vey
deleted 11y ago
[deleted]
poof131 11y ago
My main takeaway is to not work for any startups that don’t extend the window to exercise options.[1] Employees deserve to get what they earned without having to take on additional risk. Especially with the extended time to IPO these days. Why not do this as a company? http://www.businessinsider.com/pinterest-will-let-employees-exercise-options-for-seven-years-after-leaving-2015-3 http://www.businessinsider.com/pinterest-will-let-employees-...
andriesm 11y ago
If you buy listed shares on the nasdaq, and they fall you lose money. duh? No reason to think it works any differently in a private company - in fact private shares often carry a much higher risk of becoming worthless. There is no certain guarantee that shares in your current or past employer "is gonna pay for your house". If you have such an attitude you really should be thinking twice. This whole "share options for everyone" mentality is a problem. Share options are for risk/reward seekers - which means you accept the RISK just as eagerly as the reward. Options are not supposed to be some sort of freebie lottery ticket for everyone. Its meant as incentive for people with an entrepreneurial spirit who may be taking risks in terms of job security, or those who bring highly specialized knowledge to a startup at below market salary, or as an incentive for employees to work far harder than they would normally be expected to be working. Tax considerations - definitely get real expert advice And see what others have said below.
- kortox 11y ago
  You don't owe taxes at the time you buy publicly traded stocks and if you were exercising options on a publicly traded stock you could sell some percent to cover your taxes, that's different than owning a completely illiquid asset yet still having taxes on it.
dredmorbius 11y ago
The part of this story that caught my eye was who bought Gilt: the Hudson's Bay Company. Yes, that Hudson Bay Company. Founded in 1670. Among the oldest joint-stock companies in existence, I'd warrant.

102 points by coloneltcb 11y ago

exolymph 11y ago

IMO it's best to regard stock options as worthless, even though that's not technically true.

kevingadd 11y ago
Unless the company is already public (so you can sell the shares), cashing in your options as an ordinary employee is a catastrophically bad decision. Even when it goes public you can be in for a world of hurt - a couple folks I know held Zynga shares at the point where the company went public and they ended up with a massive tax bill that they couldn't sell shares to pay off.
- Florin_Andrei 11y ago
  > a couple folks I know held Zynga shares at the point where the company went public and they ended up with a massive tax bill that they couldn't sell shares to pay off. What exactly is the combination of factors that produces that outcome?
  - kevingadd 11y ago
    When you convert your options to shares you pay the taxes. I'm not sure precisely why they converted at that point in time; it's possible it was in their employment agreements or part of the terms of the IPO. It may have been as simple as 'this stock price is going to go up after we go public, so it's in your best interest to buy the shares now'.
    - Florin_Andrei 11y ago
      > It may have been as simple as 'this stock price is going to go up after we go public, so it's in your best interest to buy the shares now'. That's what I thought. Exercised too early.
  - jpdaigle 11y ago
    Could be a 6 month lock-up period during which the employees who exercised and now hold stock (and thus have a huge tax liability) cannot trade (buy or sell) in the stock. So for 6 months you can be entirely at the mercy of the public markets, watching helplessly from the sidelines as the price crashes. (And yes, the solution is to not exercise until you're able to sell.)
    - georgemcbay 11y ago
      I have no knowledge of Zynga, but this is exactly what I've seen happen in other instances. Lock-up period combined with people exercising ASAP to optimize for reduced capital gains taxes due to the one year window between exercising and selling. The fear of paying more taxes (or waiting longer for the 1 year period after exercising) causes a significant amount of people to expose themselves to a potentially devastating downside by exercising ASAP. While this seems like a silly thing to do (and it is, IMO) it has to be seen in the context of a company full of people experiencing (often for the first time) what seems like it will be a very successful "exit" and everyone in the company is in euphoria mode, counting their Lamborghinis before they are hatched. Of course, after you see the results of this happening the first time you get to be the Debbie Downer who warns people of the possible downside in subsequent companies. IME this is a tough position to be in because you look like a negative asshole when everyone else is in party mode (often being egged on by upper management selling the dream).
    - lutorm 11y ago
      Well, in this case arguably the solution is not to exercise if you can't pay the tax bill, absent selling your stock. Exercise early, pay little tax because the FMV is low. Exercise late, pay lots of tax because the FMV is high. Exercise late and sell, pay lots of short-term cap gains tax. Exercising late, while still unable to immediately sell some shares to cover the tax bill you know will come seems like taking a huge risk.
  - bwoj 11y ago
    I worked for a company that went public at $18/share in 2000. During the lockup period the price of the stock went as high as $202/share. Over the next two years, the price trended downwards to around $20/share. Pre-IPO employees were encouraged to pay for shared before they vested. The idea here is that you can hold those options for 5 years and get capital gains rates on that appreciation which for small companies was 10%. I.E, you pay now, shares vest later. According to the AMT, you will owe taxes on those shares equal to the market price when they become yours minus what you paid for them. That is, when the stock vests. Not when you pay for it, and not when you sell it. So you can buy 1000 pre ipo shares for $1 each. Company goes public hits $100/share. You think it's going higher so you hold. Shares drop to $10. Now you're in a pickle. You owe taxes on 1000 shares * $99 of gain. But you're only sitting on 1000 shares * $9 of gain. When somebody finds themselves in this situation, they must sell those shares before that tax year ends, which means you're now paying income taxes instead. If your tax year has ended you are out of luck. The one thing that stops this from being a real problem for most founders is the IRS 83(b) form, which is to notify the IRS that you want to recognize the income associated with your option when you buy it as opposed to the default which is when it vests. Why doesn't everyone file their 83(b)? Clearly, the risk here is too complicated for many to understand and it's a very unusual situation to arise. Here is the story of how our CFO(!) at that company ran into this exact problem to the tune of $316,040 tax liability for shares he bought with money borrowed from the company(!): https://www.washingtonpost.com/archive/business/2000/07/02/keep-the-tax-man-away-from-your-stock-option-gains/7070006d-f6ee-47c1-97d9-ae98c540e2c7/ https://www.washingtonpost.com/archive/business/2000/07/02/k... Some references: https://www.nceo.org/articles/stock-options-alternative-minimum-tax-amt https://www.nceo.org/articles/stock-options-alternative-mini... https://blog.wealthfront.com/always-file-your-83b/ https://blog.wealthfront.com/always-file-your-83b/
chasing 11y ago
Well, they're financial instruments. And like any financial instruments, they need to be understood. I'm not sure most people understand how stock options work.
- w1ntermute 11y ago
  Exactly, it's silly to say they're worth nothing. That's like staying stocks you buy are worth nothing because the value could drop to 0. It's a matter of understanding what the probable outcomes are.
  - walshemj 11y ago
    quit right some times they have a negative value (after tax)
  - exolymph 11y ago
    Agreed. However, the human mind doesn't cope well with probabilities, so I think letting yourself believe that stock options are worth nothing is a good intellectual shortcut.
    - khuey 11y ago
      The real disaster scenarios come not from when they're worth nothing, but when they're worth less than nothing.
  - codeonfire 11y ago
    They are probably worth nothing. In a couple jobs the company had two sets of options with different strike prices. The high priced ones went to employees and the low priced ones went to execs and investors. Of course the stock was offered at a price in between and employees got to wipe their ass with the worthless options.
- superuser2 11y ago
  I think in those context "consider them worthless" means "budget as if they don't exist, mentally allocate them if and only if you successfully cash them out."
angryasian 11y ago
not worthless but the entire system that is meant to reward early employees, is set up to make that as hard as possible.
reality_czech 11y ago
It's best to regard money as worthless, too, since its value could drop at any point. In fact nothing has any worth except the bowl of soup you are currently eating, and the cardboard box above your head to keep out the rain. Just ask this homeless guy outside. Just ask him, seriously.

joshmn 11y ago

I've always seen equity/stock as an incentive to work my ass off, nothing more. They equate to nothing more often than not.

sundaeofshock 11y ago
I've found cash to be an acceptable incentive to work my ass off. Stock options are the equivalent of lottery tickets.
- cmrdporcupine 11y ago
  I've always found a cool project, friendly and open team members, good project planning, and an atmosphere of fun as the only effective incentive to work my ass off. Money is great but has never been sufficient to induce inspiration for me.
  - rifung 11y ago
    Why are those things an incentive to work your butt off? I see why those would lead to you being happy at your job, but I don't really see why being happy at your job means you should work extra hard. Just curious, as it seems to me those are things which would make someone stay at their job for a long time but not necessarily work extra hard. After all, it's not like your not working extra hard would lead to losing to those things.
    - icebraining 11y ago
      Some people work extra hard when they really enjoy what they're doing, such as those athletes that dedicate their whole lives to a given sport.
  - jschwartzi 11y ago
    I'm this way too, but I also need to feel mentally challenged by the work. When it becomes effortless I'm ready to move on. This usually takes a year or two for me.
- 11y ago

zekevermillion 11y ago

The real problem is 409A -- the provision should only apply to options in publicly traded stock and other similarly liquid comp. In the long-ago times, companies apparently could hand out options with nominal strike prices without any bad tax consequences. Now we have to set the strike price at least equal to "fair market value" on the grant date, even if there's no market for the stock. This imposes a transaction cost toll on early-stage companies, while simultaneously penalizing startup founders and employees.

Animats 11y ago
That was imposed because companies would reprice stock options for their executives when the stock dropped. Shareholders hate that; they don't get a bailout like that. The pre-IPO valuation thing is a mess. It's probably going away; investors are tired of being clobbered when the price goes down on a company that's supposedly successful.
- zekevermillion 11y ago
  Makes sense for a public company, but why impose 409A on startups? While we're at it, why do we tax startup founders on restricted stock grants -- should just tax when they sell the stock, or maybe when it is listed on a public market...? These changes ("reforms" in my view) may never happen, or may take a loooong time though.
walshemj 11y ago
It should only apply on a real liquidity event why every on isn't in SV lobbying there congress and senator reps amazes me.
- hkmurakami 11y ago
  >lobbying Well it only affects VCs and founders at a secondary or tertiary level. Even early employees at the seed stage aren't that badly affected by it if the founders structure things to minimize capital gains (ex: allow early exercise with a buyback clause). Who is hits the hardest is the post Series A employee. Those with the strongest muscles likely aren't going to go bat for them in Washington quite yet.

ChuckMcM 11y ago

If you are new to stock options, it would be good for you to pay attention here. I am not qualified to offer tax advice, so this is all fiction based on my experiences of paying taxes in the Bay Area while working at startups and larger companies ... It used to be that you could buy your options and hold them without any tax hit. After holding them for a year, if you could sell them, any gain was taxed at the long term capital gain rate. Since the long term capital gains rate (LTCGR) was much much lower than the short term gain, this strategy reduced the amount of taxes you paid. It was deemed a "loop hole" that the rich used and it needed fixing. The fix was something called "Alternative Minimum Tax" or AMT. The way AMT works is it ignores the fact that you cannot sell your stock, and asks you to compute if you had sold the stock options you just exercised and treated all of that gain as ordinary income, how much tax would you have owed in that fictional scenario? Then it asks you to compare your tax bill in that fictional universe, and your bill without considering that fiction, and which ever is higher? That is how much you owe in taxes. It doesn't matter how you came by the stock, it could be through restricted stock plans (no cost to you to vest) or incentive plans. The difference between how much you paid, versus how much that stock is theoretically "worth" is treated like ordinary income. What that means from a practical standpoint is that you are screwed either way. But if the stock becomes worthless you are doubly screwed. First you lose all the money you paid to exercise (the value is now zero) and second, while you can claim a capital loss, that loss can only be applied against an offsetting gain of "like" kind. So back when it was an AMT calculation you had to treat it like ordinary income, but now as a capital loss you can only offset other capital gains. The small concession is that you can consider up to $3,000 as a loss against your income (so you adjust your income down by $3,000 and you end up not having to pay the marginal rate income tax on that $3,000. If you're in California and an engineer making $100K+ annually that means you are probably in the 28% tax bracket paying 28% federal and 11% CA state tax, (39%) so you get to "keep" 39% of $3,000 or $1,170 that you would have paid in taxes. So are you keeping score? You paid $3,000 in tax on an asset you could never sell, and you got to offset your income by $3,000 so you got "back" $1,170 of it, letting $1,830 of it evaporate into smoke. You can get it back, dollar for dollar, if you have some capital asset that you're selling and seeing a gain on, then you can apply every dollar of your loss against that gain, up to all of your loss, and not pay any tax on that gain. (that doesn't work for offsetting AMT but does work for an actual capital gain, like sale of property or equity you were already holding). The system is designed to take money you might have otherwise been entitled to out of your pocket and to put it into the general fund of the government so they can spend it poorly on their own programs (ok that is a bit cynical but seriously, I would be totally ok if they told me I had to give some to charity.) If you don't have capital gains you want to offset, don't exercise your options until you can actually sell them. If they are going to expire before you can sell them, the safe play is to let them expire.

bchjam 11y ago

"We're gonna party like it's 1999 ..." I guess some things never change, oy vey

deleted 11y ago

[deleted]

poof131 11y ago

My main takeaway is to not work for any startups that don’t extend the window to exercise options.[1] Employees deserve to get what they earned without having to take on additional risk. Especially with the extended time to IPO these days. Why not do this as a company? http://www.businessinsider.com/pinterest-will-let-employees-exercise-options-for-seven-years-after-leaving-2015-3 http://www.businessinsider.com/pinterest-will-let-employees-...

andriesm 11y ago

If you buy listed shares on the nasdaq, and they fall you lose money. duh? No reason to think it works any differently in a private company - in fact private shares often carry a much higher risk of becoming worthless. There is no certain guarantee that shares in your current or past employer "is gonna pay for your house". If you have such an attitude you really should be thinking twice. This whole "share options for everyone" mentality is a problem. Share options are for risk/reward seekers - which means you accept the RISK just as eagerly as the reward. Options are not supposed to be some sort of freebie lottery ticket for everyone. Its meant as incentive for people with an entrepreneurial spirit who may be taking risks in terms of job security, or those who bring highly specialized knowledge to a startup at below market salary, or as an incentive for employees to work far harder than they would normally be expected to be working. Tax considerations - definitely get real expert advice And see what others have said below.

kortox 11y ago
You don't owe taxes at the time you buy publicly traded stocks and if you were exercising options on a publicly traded stock you could sell some percent to cover your taxes, that's different than owning a completely illiquid asset yet still having taxes on it.

dredmorbius 11y ago

The part of this story that caught my eye was who bought Gilt: the Hudson's Bay Company. Yes, that Hudson Bay Company. Founded in 1670. Among the oldest joint-stock companies in existence, I'd warrant.