> Moral: When money is growing on trees, pick it. The problem is that taxes can quite literally cause you to lose money. For example, exercising options (at a

> Moral: When money is growing on trees, pick it. The problem is that taxes can quite literally cause you to lose money. For example, exercising options (at a gain) is a taxable event whether or not the options are actually liquid. In fact, if you're an early employee and your startup has been very successful, you could literally be looking at a tax liability of tens or even hundreds of thousands of dollars, even if your strike price is only a couple thousand dollars. (That would be the case if you were a very early employee and the company was very successful - ie, the exact situation we think of as the "upside"). If you leave the company (voluntarily or not), you have 90 days to decide whether or not to exercise those options and pay the taxes immediately, even though you won't get to actually sell the underlying shares until a liquidity event happens. There's no guarantee that the liquidity event will give you the same (or higher) price, and even if those options tank, you don't get your taxes back. So, if those options subsequently tank to "only" double what they were worth when you joined the company as employee #1, you might think "hey, that's great - I made a 200% return on my equity". Except, you didn't - because the taxable amount was 100 times that - so you're deeply in the red. (These numbers are all made up, but the orders of magnitude I'm talking about are quite realistic under the parameters I described.)