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There will be a new 409a value following the round. The 409a value is the price of common shares that an independent valuation firm determines. An increasing 40
by chrdlu 10y ago
There will be a new 409a value following the round. The 409a value is the price of common shares that an independent valuation firm determines. An increasing 409a means that future stock options will have a higher strike price. For existing option holders who have options but haven't exercised, a rising 409a means a larger tax bill.
If the option holder decides to exercise, they will have to pay tax on the spread between the strike price and the 409a value at the time of exercise. This can be painful if the 409a value jumps significantly. There are a few companies like Uber, Airbnb, etc where the price jumped so much that many employees were stuck with massive tax bills.
If you find yourself in a similar situation, some funds like the ESOFund can help cover the up front cost and allow you to keep future upside.
- ryanSrich 10y agoWouldn't you just sell your stock immediately and use that cash to pay the tax? Perhaps I'm missing something.
- smeyer 10y agoI think you're missing that the stock might not be liquid. If you're an employee at a pre-IPO startup, you might not be able to just exercise your options and immediately sell some of the stock (since there's no public market and you may be restricted from various private sales). But you may still want to exercise the options (because you're leaving the company, you're worried about a larger tax bill down the road, etc.)
- chrdlu 10y agoAs smeyer pointed out, for most startups, employees are not allowed to sell/transfer the shares. Startups like to keep the cap table locked down and have no incentive to allow their employees sell. Sometimes, the company will allow a new investor to buy a % of the common shares from employees (usually when the company does not want additional dilution). For the average startup (ones that are not as well known as Uber, Unity, etc), there is little to no secondary market.
- twright0 10y agoIt might be a good idea with comments like this to disclose that you're professionally involved with ESOFund - most people won't click through to your profile to discover that.