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Thanks! I really appreciate the feedback. The price of the options eating into returns is reflected in the number we present (we assume a consistent valuation
by bethly 9y ago
Thanks! I really appreciate the feedback.
The price of the options eating into returns is reflected in the number we present (we assume a consistent valuation growth by stage and at exit), but taxes aren't and those can 40%+ in the US, which people don't necessarily expect. Limited exercise windows are one of the things we have in the list of ways this can go horribly wrong, but you are right that it is something that you can plan for if you know it's coming.
Thinking about it, that and early exercise might both be candidates for some sort of "list of questions to ask" tool...
- lafay 9y agoEarly exercise / 83(b) has another benefit that most people aren't aware of -- if the exit is at least 5 years out, you can exclude 100% of your gain from federal cap gains tax under IRS Section 1202. See here for more: https://blog.wealthfront.com/qualified-small-business-stock-2016/ https://blog.wealthfront.com/qualified-small-business-stock-...
- pmiller2 9y agoAren't 83(b) elections only really available to founders, though?
- yojo 9y agoNo, it's at the discretion of the company. I asked for an 83(b) option at a 10 person startup I worked at and the CEO made it happen. The startup still went under so it didn't matter in the end, but management definitely did what they could for the employees.
- morgante 9y agoEarly employees (<25) can often negotiate them as well. I've done 83(b) at every startup I joined.