9 ms·

Update on Stock Options/RSUs Vesting Issue

91 points by runesoerensen 9y ago

hardwaresofton 9y ago
I wonder who, where and how pressure was applied. There certainly was no groundswell of citizen support or mass calling of representatives (except for maybe in the heart of SV, and the fringes of HN/Reddit/Slashdot maybe)... That said, can anyone give me a compelling reason why Options/RSUs are better than getting the equivalent amount of straight cash (even with tax considerations) from an employees point of view?
- t_fatus 9y ago
  When you're a small company which hope to grow it can be a win-win for both you and your employees (if they understand correctly how options work) : you may be short on cash, but confident in your growth, and if they too feel confident they can choose to work for less cash compensation but with a chance of getting more when converting their options later
  - colinbartlett 9y ago
    I have a drawer full of stock option paperwork from various start ups I’ve worked with over my career, all of which were “confident” in their growth prospects and none of which exist anymore. At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled.
    - jsjohnst 9y ago
      > I have a drawer full of stock option paperwork from various start ups I’ve worked with over my career Ditto, but I’ve also had two good success stories in my career too. > At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled. Why does everyone think it’s an either / or scenario? I’ve negotiated to have both more than once, salary at where I feel I should be and options/RSU where it might be a very nice bonus at a future date. Don’t be afraid to say no and keep looking if a company is taking advantage of you. I realize it’s hard sometimes, but the folks on HN generally can have the upper hand negotiating as tech employees are in such demand.
      - colinbartlett 9y ago
        I'm fortunate that I recognized early the negotiating position I had, and each one of those worthless pieces of paper came with what I would consider a generous, above market salary. But I worry that many new to the industry are selling themselves short with an "or" and not realizing that an "and" is possible.
        jsjohnst 9y ago
        Agree completely. I got bit early in my career, which is why I try to help as many as I can who are early in their career now.
        sidlls 9y ago
        Well, an "and" is possible to the extent that there isn't a sufficient supply of people thinking "or" competing for the job. There are a number of self-imposed mechanisms that put downward pressure on compensation for developers. Willingness to take what are effectively lottery tickets and rationalizing it as discounted or future potential earnings is one of them.
      - padobson 9y ago
        This. Your salary should ALWAYS be the highest possible salary the market can support. Equity or options compensation at a startup should be used to defray the risk of the company failing in the near and midterm. So if Google is offering you $100k, then you should be asking Startup X for $100k plus equity.
        CalChris 9y ago
        As an early employee, I have taken less than market (like a third less) along with a 0.1% equity option. That aligned my interests with those of the company. If starting a company I would offer the same.
        azinman2 9y ago
        0.1% isn’t much. You’d need a billion dollar exit to make that 0.1% turn into something super significant.
    - mbesto 9y ago
      I tell everyone that seeks my advice on this subject - options are basically lottery tickets, so don't lever your salary up and down based on what option packages the company might present to you. From a startup's perspective, I've seen this happen all of the time "take $10k less and you'll get 5 BPS!". For a financial computational analysis of why this never really works out in the aggregate, I basically just send them this: https://danluu.com/startup-options/ https://danluu.com/startup-options/ > At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled. People consistently make irrational decisions with money all of the time. The reality for many people is taking the stock option route makes them emotionally more vested in the success in the company. Companies know this and regularly exploit it. Lastly - it is OK to join a startup early on to "mint" yourself professionally (e.g. "I was employee #4 at Google" or "I was employee #4 at a company that was bought by Google"). People's eyes perk up (in the Valley especially) because they assume that because you were an early employee you were more likely to contribute to the successful exit of the company. Thus, "minting" yourself in the job market. Whether that's true or not in reality is another point...
    - logicallee 9y ago
      This comment might be a bit hard to swallow, I've tried to be polite but the message itself is a difficult one. >I have a drawer full of stock option paperwork from various start ups I’ve worked with over my career, all of which were “confident” in their growth prospects and none of which exist anymore. >At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled. First let's assume you're a 10,000x engineer who was also able to change the course of small startups through your personality. Then if this has happened once or twice it might be bad luck. But a drawerful of times, and we should perhaps revisit the assumption that you are a 10,000x engineer who is able to change the course of small startups. Maybe this is about you. You conclude: > I feel like anyone who chooses stock options over cash is naive, delusional, or misled. But there is a hidden assumption there that if you are not a 10,000x engineer, then nobody is. Do you think this is a fair generalization for you to make? If the startups you picked and joined failed is it fair to say had anyone else been the one to pick and join startups (not necessarily the ones you picked and joined) they could fare no better? That you're the best there is, at the task of picking a startup to join and lighting its boosters on fire? Basically it is like dating: if someone says every single person has left them severely disappointed, that says more about them than it does about dating. To stick with the analogy: we know people enter happy successful and long-lived relationships. We know there are successful startups whose destinies early hires helped set. If every one of the ones you've tried with have failed, a drawerful over the course of a career - could this be more about you than them? Are you not perhaps the "truly excellent" husband who has given up on marriage, after 5 divorces. If so, then perhaps it is not fair for you to generalize and say that anyone who gets married is delusional. Because you've been married 5 times, you know how to pick 'em, you know how to make it work: and it just does not work. I tried to be a bit polite but I hope you can see the analogy. I get that it doesn't work for you. But is it really fair to generalize your experience?
      - s73ver_ 9y ago
        Considering the vast majority of companies fail rather than become unicorns, I feel their experience is much, much more generalized than the alternative.
        9y ago
  - s73ver_ 9y ago
    How is that better for the employee, though? All that's happened is that the employee took a substantial pay cut in exchange for having serious risk placed on them. Risk which is extremely tilted against them. This is also ignoring the fact that most companies will dilute the hell out of your options, so even if the company does make it, odds are you'll just have broken even from working for a regular company.
- chatmasta 9y ago
  My understanding is that RSUs were not affected as negatively by the original bill as were ISOs. Generally RSUs are given out at mature companies where liquidation is possible after exercise. For publicly traded companies, that can even mean automatically liquidating at the same time as exercise. For large private companies, hopefully there is a buy back scheme or secondary market enabling liquidation. The real issue was with ISOs, which are most common in early startups with no liquidation options. If you can’t liquidate your shares (and may never be able to), but you get taxed on the spread between 409A valuation / strike price, you could easily become bankrupt or go heavily into debt. As for why anyone would prefer a lottery ticket over straight cash, that comes down to personal preference. If you’d rather take the cash, good for you. But consider that Silicon Valley was built on decades of employees becoming millionaires from early stock options. Clearly some people prefer to take the risk. And if they take that risk, they should be able to capitalize on its returns. Of course they should pay tax on those returns. The problem was the original bill (and the current status quo, to some degree) expected that tax before the employee saw any money, which they may never see. As an aside, if you want cash over options, you’re probably better off just working at $BigCo for a higher salary and immediately liquidatable shares of one of the top companies in the world.
  - chimeracoder 9y ago
    > If you can’t liquidate your shares (and may never be able to), but you get taxed on the spread between 409A valuation / strike price, you could easily become bankrupt or go heavily into debt. This is already the case. What the bill would have changed: it would have taxed this at the point of vesting, rather than the point of exercise.
  - sulam 9y ago
    ISOs weren’t affected at all in the original. The stink was because the sorts of options executives and directors often receive (NSOs) had their tax treatment changed. This is about the rich getting richer. I suspect coupling the tax bill with repeal of the healthcare mandate will mean it goes nowhere, though.
    - sulam 9y ago
- jsjohnst 9y ago
  > I wonder who, where and how pressure was applied. Cynical view? Corporations and rich people rule the current US political landscape, and the legislation would’ve negatively impacted both’s interests.
- deleted 9y ago
  [deleted]
- lostboys67 9y ago
  Because you can get in early and cash out at a huge return with lower capital gains tax - to reward you for taking the risk) Even boring big companies in the UK have returned 400% over 5 years with some of their share scheme's - a successful ipo where you have shares early on can produce life changing amounts of return. One VC backed company I worked for back in 2000 everyone was at one point a $Millionaire if only the coop movement wasn't so stick in the mud :-)
- FLUX-YOU 9y ago
  >I wonder who, where and how pressure was applied. NVCA (mentioned in a reply in the article) appears to be a lobbying firm for venture capitalists and appears to have been behind it according to their twitter page.
  - CalChris 9y ago
    If you carefully parse the NVCA's press release, they only approve the change. https://nvca.org/pressreleases/nvca-cheers-changes-senate-tax-reform-legislation/ https://nvca.org/pressreleases/nvca-cheers-changes-senate-ta... They don't say anything about the bill as a whole. Yes, the bill is pure unadulterated shite. But the NVCA is a trade group lobbying for changes (from pure unadulterated shite) in the narrow interests of their group. I get this. But it doesn't mean the NVCA is signing up for ObamaCare repeal. Indeed every VC I've met loathes Trump (I haven't met Thiel.) I was in a startup forum at Berkeley when ObamaCare repeal was broached by a startup tax lawyer. That was met with a resentful utter stone silence from the crowd. Coulda heard a pin drop. But I get how the NVCA could lobby for this narrow change in an otherwise piece of pure unadulterated shite.
bryanl 9y ago
How is this a win when it is coupled with the changes to healthcare that could adversely affect millions? Once again it looks as if super wealthy America is out of touch with the masses.
- dsr_ 9y ago
  Negative changes in healthcare don't just affect the people who get worse healthcare. Pretend you are solely concerned with the success of your business venture and nothing else. Reducing general healthcare drives up your labor costs both directly and indirectly. Fewer vaccinations, longer infectious periods, reduced herd immunity, less work, more expensive. Most people in the US don't have RSUs. Everybody needs healthcare.
- RickJWagner 9y ago
  Healthcare is a different issue. It's in a messy state right now, it has been since an unsustainable system was put in place. Please don't conflate issues.
  - mikeash 9y ago
    It’s not a separate issue when Congress adds a repeal of the individual mandate to their “tax” bill.
  - optimuspaul 9y ago
    We didn't conflate the issues, congress did.
- FLUX-YOU 9y ago
  @NVCA looks like a lobbying firm for VCs, so it's a win to them because they lobbied for something on a major, controversial bill. They are certainly out of touch by calling the bill a "net positive for startups". https://twitter.com/nvca https://twitter.com/nvca
- w0m 9y ago
  'a win' - most of the readers here will be better off. Screw the poor and infirm, top 1% baby.
tptacek 9y ago
This means that the Senate has now made the tax reform bill a win for those who work in startups instead of a loss. It is seriously gross that a tax reform bill that is by basically all accounts enormously, even proudly regressive is being sold to tech nerds with a marginal improvement in stock options accounting. Here's a fun detail of the GOP tax plan: it will, according to Senate leadership, include a repeal of the ACA's individual mandate, which is the foundation on which guaranteed-issue health insurance works. Prior to the ACA, if you or anyone in your family had, in any previous doctor's visit, been assessed/documented as having any symptom of a very long list of disqualifying conditions, you couldn't buy individual-market insurance at any price. It was simply unavailable to you. There is no due process or meaningful appeal to these decisions, which were made mechanically and in bulk. How do I know? Because half my family --- none of whom suffers from any chronic conditions (or, really, any conditions whatsoever) turned out to be uninsurable when we started Matasano. If you work for some gigantic startup like Github or Airbnb, and your equity turns liquid in 2 years, here's a newsflash: the GOP tax bill is going to include a windfall for you. That probably would have been the case regardless of whether it included a new perk specifically for startup employees. But if you're starting a company now, or if you just in general care about the rationality of our public policy and the way we finance government, you should be extraordinarily wary of anyone --- especially an investment banker, even if they happen to be wearing khakis and a zip-front sweater --- trying to sell you this new bill. Their incentives are not the same as yours.
- BenchRouter 9y ago
  > It is seriously gross that a tax reform bill that is by basically all accounts enormously, even proudly regressive is being sold to tech nerds with a marginal improvement in stock options accounting. As with all things, worth remembering who's writing this: Fred Wilson is an extremely wealthy venture capitalist. He stands to benefit a great deal from provisions like the repeal of the estate tax.
  - tptacek 9y ago
    Much more directly than that, from protection of special treatment of carried interest.
BenchRouter 9y ago
Here's what's confusing me: Why would this make any sense, at all? From the government's point of view, they were trying to maximize tax revenue, right? And theoretically that occurs when the security price is at a (local) maximum, which would also likely be when employees choose to exercise. Or is the idea here that they can tax options at the short-term rate as opposed to the long-term rate? And even then, does that really make up for the substantial difference in market price (and thus taxes)? The "market price" (whatever that means here) of an early-stage startup's options has to be significantly lower than a post-IPO company.
- URSpider94 9y ago
  You’re still taxed on all of the gain. The initial taxation upon vesting would reset the basis. Any additional gains would be taxed when you sell the underlying shares. It would have done two things: a. Pull in revenue to an earlier date (a key factor in this tax plan, since all of the gain/loss calculations are on a 10-year timeline) and b. Lock in gains, even if the shares are later worthless. Yes, you can theoretically write off the losses, but only a few thousand dollars at a time if you don’t have offsetting gains.
- lloydde 9y ago
  The government could lamely argue that a lot of tax money is being left on the table as options are only exercised when sold or leaving a company, if at all. Exercising can trigger a tax burden, if an Inceptive Stock Option (ISO), because of alternative minimal taxes. Although, I didn’t like the proposal, it would have simplified taxation of stock options.
- s73ver_ 9y ago
  "From the government's point of view, they were trying to maximize tax revenue, right?" This is a GOP tax bill, so no, not really.
- dragonwriter 9y ago
  > From the government's point of view, they were trying to maximize tax revenue, right? No; there's basically no political faction that is interested in revenue maximization.
inthewoods 9y ago
Can someone explain the 5 year deferal on options mentioned at the end of the article?
- pcl 9y ago
  It means that if you have vested options to buy stock at an illiquid company (one that is still private, for example), you can quit the company and defer exercising those options for up to five years after your termination date. This is in contrast to current law, which requires only 90 days of grace period. This effectively legislates what AirBnB, Pinterest and others have been doing due to free market pressure [0]. This is good for employees, since you might not have enough money to pay for the taxes on the stock that you vested and exercised (due when you exercise under current and proposed law). But arguably, it’s not really important for the government to mandate this; it’s sufficient for the government to allow deferred option exercise dates (which is the case in current law). As tptacek wrote, this has a stench of pandering to it; the new tax law is IMO largely bad (and I say this as someone who probably stands to benefit from it). But this wrinkle is most certainly better than the proposal from yesterday, which I believe would have been stifling to startups and would have pushed most startups to either defer any fund-raising to keep valuation low and thus options affordable to new hires (bad for startups and VCs; good for incumbent companies due to reduced competition), or to do huge raises to compete on salary alone (bad for startup founders and employees due to presumed higher percentagowned by VCs; perhaps good for VCs if it didn’t damage startups too much; good for incumbents since it again makes startups higher-friction). [0] https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows
  - StevePerkins 9y ago
    Does this have modify or have any effect on pre-existing option grants with people's current employer? Or is it only for new option grants going forward?
    - pcl 9y ago
      This sort of thing almost always only applies to new contracts.
ajmurmann 9y ago
I hugely applaud this step. I do think that there is in fact some injustice going on here and that's why crazy legislation like this can make it that far. The real problem is that capital gains get taxed lower than ordinary income. It's not right that most of a CEO's income gets taxed lower than his secretary's. Unfortunately it seems nobody has the balls to address that.
slantedview 9y ago
> This means that the Senate has now made the tax reform bill a win for those who work in startups instead of a loss. Grossly inaccurate statement. Nearly all of the analysis of the tax bill throughout its many iterations so far find that it is a long term net loss for all but very, very high income earners.
- ameister14 9y ago
  >Nearly all of the analysis of the tax bill throughout its many iterations so far find that it is a long term net loss for all but very, very high income earners. Provided, of course, that incomes stay exactly the same, ignoring predicted increases, and inflation continues at predicted rates.
  - seattle_spring 9y ago
    Who is predicting increases in income? Breitbart doesn't count

91 points by runesoerensen 9y ago

I wonder who, where and how pressure was applied. There certainly was no groundswell of citizen support or mass calling of representatives (except for maybe in the heart of SV, and the fringes of HN/Reddit/Slashdot maybe)... That said, can anyone give me a compelling reason why Options/RSUs are better than getting the equivalent amount of straight cash (even with tax considerations) from an employees point of view?

t_fatus 9y ago
When you're a small company which hope to grow it can be a win-win for both you and your employees (if they understand correctly how options work) : you may be short on cash, but confident in your growth, and if they too feel confident they can choose to work for less cash compensation but with a chance of getting more when converting their options later
- colinbartlett 9y ago
  I have a drawer full of stock option paperwork from various start ups I’ve worked with over my career, all of which were “confident” in their growth prospects and none of which exist anymore. At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled.
  - jsjohnst 9y ago
    > I have a drawer full of stock option paperwork from various start ups I’ve worked with over my career Ditto, but I’ve also had two good success stories in my career too. > At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled. Why does everyone think it’s an either / or scenario? I’ve negotiated to have both more than once, salary at where I feel I should be and options/RSU where it might be a very nice bonus at a future date. Don’t be afraid to say no and keep looking if a company is taking advantage of you. I realize it’s hard sometimes, but the folks on HN generally can have the upper hand negotiating as tech employees are in such demand.
    - colinbartlett 9y ago
      I'm fortunate that I recognized early the negotiating position I had, and each one of those worthless pieces of paper came with what I would consider a generous, above market salary. But I worry that many new to the industry are selling themselves short with an "or" and not realizing that an "and" is possible.
      - jsjohnst 9y ago
        Agree completely. I got bit early in my career, which is why I try to help as many as I can who are early in their career now.
      - sidlls 9y ago
        Well, an "and" is possible to the extent that there isn't a sufficient supply of people thinking "or" competing for the job. There are a number of self-imposed mechanisms that put downward pressure on compensation for developers. Willingness to take what are effectively lottery tickets and rationalizing it as discounted or future potential earnings is one of them.
    - padobson 9y ago
      This. Your salary should ALWAYS be the highest possible salary the market can support. Equity or options compensation at a startup should be used to defray the risk of the company failing in the near and midterm. So if Google is offering you $100k, then you should be asking Startup X for $100k plus equity.
      - CalChris 9y ago
        As an early employee, I have taken less than market (like a third less) along with a 0.1% equity option. That aligned my interests with those of the company. If starting a company I would offer the same.
        azinman2 9y ago
        0.1% isn’t much. You’d need a billion dollar exit to make that 0.1% turn into something super significant.
  - mbesto 9y ago
    I tell everyone that seeks my advice on this subject - options are basically lottery tickets, so don't lever your salary up and down based on what option packages the company might present to you. From a startup's perspective, I've seen this happen all of the time "take $10k less and you'll get 5 BPS!". For a financial computational analysis of why this never really works out in the aggregate, I basically just send them this: https://danluu.com/startup-options/ https://danluu.com/startup-options/ > At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled. People consistently make irrational decisions with money all of the time. The reality for many people is taking the stock option route makes them emotionally more vested in the success in the company. Companies know this and regularly exploit it. Lastly - it is OK to join a startup early on to "mint" yourself professionally (e.g. "I was employee #4 at Google" or "I was employee #4 at a company that was bought by Google"). People's eyes perk up (in the Valley especially) because they assume that because you were an early employee you were more likely to contribute to the successful exit of the company. Thus, "minting" yourself in the job market. Whether that's true or not in reality is another point...
  - logicallee 9y ago
    This comment might be a bit hard to swallow, I've tried to be polite but the message itself is a difficult one. >I have a drawer full of stock option paperwork from various start ups I’ve worked with over my career, all of which were “confident” in their growth prospects and none of which exist anymore. >At this point I feel like anyone who chooses stock options over cash is naive, delusional, or misled. First let's assume you're a 10,000x engineer who was also able to change the course of small startups through your personality. Then if this has happened once or twice it might be bad luck. But a drawerful of times, and we should perhaps revisit the assumption that you are a 10,000x engineer who is able to change the course of small startups. Maybe this is about you. You conclude: > I feel like anyone who chooses stock options over cash is naive, delusional, or misled. But there is a hidden assumption there that if you are not a 10,000x engineer, then nobody is. Do you think this is a fair generalization for you to make? If the startups you picked and joined failed is it fair to say had anyone else been the one to pick and join startups (not necessarily the ones you picked and joined) they could fare no better? That you're the best there is, at the task of picking a startup to join and lighting its boosters on fire? Basically it is like dating: if someone says every single person has left them severely disappointed, that says more about them than it does about dating. To stick with the analogy: we know people enter happy successful and long-lived relationships. We know there are successful startups whose destinies early hires helped set. If every one of the ones you've tried with have failed, a drawerful over the course of a career - could this be more about you than them? Are you not perhaps the "truly excellent" husband who has given up on marriage, after 5 divorces. If so, then perhaps it is not fair for you to generalize and say that anyone who gets married is delusional. Because you've been married 5 times, you know how to pick 'em, you know how to make it work: and it just does not work. I tried to be a bit polite but I hope you can see the analogy. I get that it doesn't work for you. But is it really fair to generalize your experience?
    - s73ver_ 9y ago
      Considering the vast majority of companies fail rather than become unicorns, I feel their experience is much, much more generalized than the alternative.
      - 9y ago
- s73ver_ 9y ago
  How is that better for the employee, though? All that's happened is that the employee took a substantial pay cut in exchange for having serious risk placed on them. Risk which is extremely tilted against them. This is also ignoring the fact that most companies will dilute the hell out of your options, so even if the company does make it, odds are you'll just have broken even from working for a regular company.
chatmasta 9y ago
My understanding is that RSUs were not affected as negatively by the original bill as were ISOs. Generally RSUs are given out at mature companies where liquidation is possible after exercise. For publicly traded companies, that can even mean automatically liquidating at the same time as exercise. For large private companies, hopefully there is a buy back scheme or secondary market enabling liquidation. The real issue was with ISOs, which are most common in early startups with no liquidation options. If you can’t liquidate your shares (and may never be able to), but you get taxed on the spread between 409A valuation / strike price, you could easily become bankrupt or go heavily into debt. As for why anyone would prefer a lottery ticket over straight cash, that comes down to personal preference. If you’d rather take the cash, good for you. But consider that Silicon Valley was built on decades of employees becoming millionaires from early stock options. Clearly some people prefer to take the risk. And if they take that risk, they should be able to capitalize on its returns. Of course they should pay tax on those returns. The problem was the original bill (and the current status quo, to some degree) expected that tax before the employee saw any money, which they may never see. As an aside, if you want cash over options, you’re probably better off just working at $BigCo for a higher salary and immediately liquidatable shares of one of the top companies in the world.
- chimeracoder 9y ago
  > If you can’t liquidate your shares (and may never be able to), but you get taxed on the spread between 409A valuation / strike price, you could easily become bankrupt or go heavily into debt. This is already the case. What the bill would have changed: it would have taxed this at the point of vesting, rather than the point of exercise.
- sulam 9y ago
  ISOs weren’t affected at all in the original. The stink was because the sorts of options executives and directors often receive (NSOs) had their tax treatment changed. This is about the rich getting richer. I suspect coupling the tax bill with repeal of the healthcare mandate will mean it goes nowhere, though.
  - sulam 9y ago
jsjohnst 9y ago
> I wonder who, where and how pressure was applied. Cynical view? Corporations and rich people rule the current US political landscape, and the legislation would’ve negatively impacted both’s interests.
deleted 9y ago
[deleted]
lostboys67 9y ago
Because you can get in early and cash out at a huge return with lower capital gains tax - to reward you for taking the risk) Even boring big companies in the UK have returned 400% over 5 years with some of their share scheme's - a successful ipo where you have shares early on can produce life changing amounts of return. One VC backed company I worked for back in 2000 everyone was at one point a $Millionaire if only the coop movement wasn't so stick in the mud :-)
FLUX-YOU 9y ago
>I wonder who, where and how pressure was applied. NVCA (mentioned in a reply in the article) appears to be a lobbying firm for venture capitalists and appears to have been behind it according to their twitter page.
- CalChris 9y ago
  If you carefully parse the NVCA's press release, they only approve the change. https://nvca.org/pressreleases/nvca-cheers-changes-senate-tax-reform-legislation/ https://nvca.org/pressreleases/nvca-cheers-changes-senate-ta... They don't say anything about the bill as a whole. Yes, the bill is pure unadulterated shite. But the NVCA is a trade group lobbying for changes (from pure unadulterated shite) in the narrow interests of their group. I get this. But it doesn't mean the NVCA is signing up for ObamaCare repeal. Indeed every VC I've met loathes Trump (I haven't met Thiel.) I was in a startup forum at Berkeley when ObamaCare repeal was broached by a startup tax lawyer. That was met with a resentful utter stone silence from the crowd. Coulda heard a pin drop. But I get how the NVCA could lobby for this narrow change in an otherwise piece of pure unadulterated shite.

bryanl 9y ago

How is this a win when it is coupled with the changes to healthcare that could adversely affect millions? Once again it looks as if super wealthy America is out of touch with the masses.

dsr_ 9y ago
Negative changes in healthcare don't just affect the people who get worse healthcare. Pretend you are solely concerned with the success of your business venture and nothing else. Reducing general healthcare drives up your labor costs both directly and indirectly. Fewer vaccinations, longer infectious periods, reduced herd immunity, less work, more expensive. Most people in the US don't have RSUs. Everybody needs healthcare.
RickJWagner 9y ago
Healthcare is a different issue. It's in a messy state right now, it has been since an unsustainable system was put in place. Please don't conflate issues.
- mikeash 9y ago
  It’s not a separate issue when Congress adds a repeal of the individual mandate to their “tax” bill.
- optimuspaul 9y ago
  We didn't conflate the issues, congress did.
FLUX-YOU 9y ago
@NVCA looks like a lobbying firm for VCs, so it's a win to them because they lobbied for something on a major, controversial bill. They are certainly out of touch by calling the bill a "net positive for startups". https://twitter.com/nvca https://twitter.com/nvca
w0m 9y ago
'a win' - most of the readers here will be better off. Screw the poor and infirm, top 1% baby.

tptacek 9y ago

This means that the Senate has now made the tax reform bill a win for those who work in startups instead of a loss. It is seriously gross that a tax reform bill that is by basically all accounts enormously, even proudly regressive is being sold to tech nerds with a marginal improvement in stock options accounting. Here's a fun detail of the GOP tax plan: it will, according to Senate leadership, include a repeal of the ACA's individual mandate, which is the foundation on which guaranteed-issue health insurance works. Prior to the ACA, if you or anyone in your family had, in any previous doctor's visit, been assessed/documented as having any symptom of a very long list of disqualifying conditions, you couldn't buy individual-market insurance at any price. It was simply unavailable to you. There is no due process or meaningful appeal to these decisions, which were made mechanically and in bulk. How do I know? Because half my family --- none of whom suffers from any chronic conditions (or, really, any conditions whatsoever) turned out to be uninsurable when we started Matasano. If you work for some gigantic startup like Github or Airbnb, and your equity turns liquid in 2 years, here's a newsflash: the GOP tax bill is going to include a windfall for you. That probably would have been the case regardless of whether it included a new perk specifically for startup employees. But if you're starting a company now, or if you just in general care about the rationality of our public policy and the way we finance government, you should be extraordinarily wary of anyone --- especially an investment banker, even if they happen to be wearing khakis and a zip-front sweater --- trying to sell you this new bill. Their incentives are not the same as yours.

BenchRouter 9y ago
> It is seriously gross that a tax reform bill that is by basically all accounts enormously, even proudly regressive is being sold to tech nerds with a marginal improvement in stock options accounting. As with all things, worth remembering who's writing this: Fred Wilson is an extremely wealthy venture capitalist. He stands to benefit a great deal from provisions like the repeal of the estate tax.
- tptacek 9y ago
  Much more directly than that, from protection of special treatment of carried interest.

BenchRouter 9y ago

Here's what's confusing me: Why would this make any sense, at all? From the government's point of view, they were trying to maximize tax revenue, right? And theoretically that occurs when the security price is at a (local) maximum, which would also likely be when employees choose to exercise. Or is the idea here that they can tax options at the short-term rate as opposed to the long-term rate? And even then, does that really make up for the substantial difference in market price (and thus taxes)? The "market price" (whatever that means here) of an early-stage startup's options has to be significantly lower than a post-IPO company.

URSpider94 9y ago
You’re still taxed on all of the gain. The initial taxation upon vesting would reset the basis. Any additional gains would be taxed when you sell the underlying shares. It would have done two things: a. Pull in revenue to an earlier date (a key factor in this tax plan, since all of the gain/loss calculations are on a 10-year timeline) and b. Lock in gains, even if the shares are later worthless. Yes, you can theoretically write off the losses, but only a few thousand dollars at a time if you don’t have offsetting gains.
lloydde 9y ago
The government could lamely argue that a lot of tax money is being left on the table as options are only exercised when sold or leaving a company, if at all. Exercising can trigger a tax burden, if an Inceptive Stock Option (ISO), because of alternative minimal taxes. Although, I didn’t like the proposal, it would have simplified taxation of stock options.
s73ver_ 9y ago
"From the government's point of view, they were trying to maximize tax revenue, right?" This is a GOP tax bill, so no, not really.
dragonwriter 9y ago
> From the government's point of view, they were trying to maximize tax revenue, right? No; there's basically no political faction that is interested in revenue maximization.

inthewoods 9y ago

Can someone explain the 5 year deferal on options mentioned at the end of the article?

pcl 9y ago
It means that if you have vested options to buy stock at an illiquid company (one that is still private, for example), you can quit the company and defer exercising those options for up to five years after your termination date. This is in contrast to current law, which requires only 90 days of grace period. This effectively legislates what AirBnB, Pinterest and others have been doing due to free market pressure [0]. This is good for employees, since you might not have enough money to pay for the taxes on the stock that you vested and exercised (due when you exercise under current and proposed law). But arguably, it’s not really important for the government to mandate this; it’s sufficient for the government to allow deferred option exercise dates (which is the case in current law). As tptacek wrote, this has a stench of pandering to it; the new tax law is IMO largely bad (and I say this as someone who probably stands to benefit from it). But this wrinkle is most certainly better than the proposal from yesterday, which I believe would have been stifling to startups and would have pushed most startups to either defer any fund-raising to keep valuation low and thus options affordable to new hires (bad for startups and VCs; good for incumbent companies due to reduced competition), or to do huge raises to compete on salary alone (bad for startup founders and employees due to presumed higher percentagowned by VCs; perhaps good for VCs if it didn’t damage startups too much; good for incumbents since it again makes startups higher-friction). [0] https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows
- StevePerkins 9y ago
  Does this have modify or have any effect on pre-existing option grants with people's current employer? Or is it only for new option grants going forward?
  - pcl 9y ago
    This sort of thing almost always only applies to new contracts.

ajmurmann 9y ago

I hugely applaud this step. I do think that there is in fact some injustice going on here and that's why crazy legislation like this can make it that far. The real problem is that capital gains get taxed lower than ordinary income. It's not right that most of a CEO's income gets taxed lower than his secretary's. Unfortunately it seems nobody has the balls to address that.

slantedview 9y ago

> This means that the Senate has now made the tax reform bill a win for those who work in startups instead of a loss. Grossly inaccurate statement. Nearly all of the analysis of the tax bill throughout its many iterations so far find that it is a long term net loss for all but very, very high income earners.

ameister14 9y ago
>Nearly all of the analysis of the tax bill throughout its many iterations so far find that it is a long term net loss for all but very, very high income earners. Provided, of course, that incomes stay exactly the same, ignoring predicted increases, and inflation continues at predicted rates.
- seattle_spring 9y ago
  Who is predicting increases in income? Breitbart doesn't count