4 ms·

Yes. This is SOP for law firms authoring stock option agreements after Facebook IPO'd. OP is extraordinarily lucky that his company allowed a stock transfer, w

by kneath 9y ago

Yes. This is SOP for law firms authoring stock option agreements after Facebook IPO'd. OP is extraordinarily lucky that his company allowed a stock transfer, with extraordinary being too weak of a word to describe his circumstance.

toomuchtodo 9y ago
It is possible to use a specialized finance vehicle in order to create a synthetic liquidity event for non-transferable exercised options; it is, in effect, a non-recourse promissory note.
- kneath 9y ago
  Yes, there are several strategies. Each of them impacts significant discount on sale price, requirements to make a sale, or significant risk to option holder. Kind of like saying "anyone can buy a car without having a job or savings" — it's true, but those deals aren't comparable to those that can buy a car with cash.
  - toomuchtodo 9y ago
    There are funds/financial firms that will fund your options exercise, and take nothing if your common shares go to zero (they take a cut if there is an IPO or other significant liquidity event). Its an equity-backed loan with no recourse. Appears to be a reasonable option if you have a large amount of options and prefer the cash now vs later. > All of these deals require approval by the company. Which means you don't get to choose the firm, you get to deal with the firm they approve of. EDIT: These transactions require no agreement from your company in order to execute.
    - kneath 9y ago
      I … oof. I'm sure this stuff does look good from the outside. From experience, it is not anything close to that. Most stock options have short expirations (10 year is still very uncommon). There is no "now vs. later" choice, it's a "now or never choice" All of these deals require approval by the company. Which means you don't get to choose the firm, you get to deal with the firm they approve of. That kind of deal is in the 1% of deals they make. Almost all require option holders either repay loans or take on significant risk. I know this stuff sounds great on paper, in practice it is another world. Not to mention the absurdity of giving away half or more of your gains to a private equity firm from options you earned, just because the company has made a weird rule.
      - jeremymcanally 9y ago
        Typically these transactions are practiced on exercised options (i.e., shares) not options. I've never seen that offer for options. And they're right, it is fairly risk free. The investors understand (and sign a lot of paperwork indicating that) they understand it's extremely high risk and will possibly end up that (a) the shares will be worth nothing or (b) the company may never, ever offer a liquidity event. In the event that they do, the shares or derived value thereof transfer to the lender/investor. In the event that they don't, the instrument performs exactly like a loan/promissory note backed by the equity the shareholder owns with no vehicle for enforcing repayment beyond derived value from the shares.
- BigJono 9y ago
  Just when I thought I was getting the hang of how equity works... I didn't understand a word of that (other than non-transferable exercised options).
  - deleted 9y ago
    [deleted]
  - toomuchtodo 9y ago
    Apologies, I overcomplicated it. Someone lends you money to exercise your options, you pay them back (at IPO or acquisition) as well as additional compensation for their risk of your shares being worthless.
    - lasgsf 9y ago
      Yup that is what equidate does. Basically a forward contract on the underlying shares. I have done this with some AirBnB shares.
      - mrgordon 9y ago
        How was the experience overall?
        lasgsf 9y ago
        Overall was pretty easy and painless. In general I pretty feel good about it as they mention that the underlying principle is backed by insurance so if the counterparty does not transfer shares over you can get your principal back in theory.
    - JumpCrisscross 9y ago
      > Someone lends you money to exercise your options, you pay them back (at IPO or acquisition) There is a lot of uncertainty about whether these loan-and-pretend or forward structures violate the spirit of one’s stock option contract, which can and has resulted in forfeiture, and if it involves creating an off-exchange securities swap, illegal since Dodd Frank for non-qualified participants. It was receiving regulatory attention before cryptos distracted everyone. (One firm even got jammed by the SEC early on for structuring illegal swaps.)
gaadd33 9y ago
Are they actually non transferable or are they required to give the right of first refusal to the company? If they are non transferable at all, what limitations are there? Can you transfer them in bankruptcy or divorce?
- jeremymcanally 9y ago
  Probate transactions allow for a transfer typically (and they may allow for a very few specific other cases such as covering tax on your options by offering a buyback for some portion of them), but otherwise, there is absolutely no transfer allowed unless the company's board allows it.
  - toomuchtodo 9y ago
    One time transfer into a family trust is usually permitted as well.

by kneath 9y ago

toomuchtodo 9y ago

It is possible to use a specialized finance vehicle in order to create a synthetic liquidity event for non-transferable exercised options; it is, in effect, a non-recourse promissory note.

kneath 9y ago
Yes, there are several strategies. Each of them impacts significant discount on sale price, requirements to make a sale, or significant risk to option holder. Kind of like saying "anyone can buy a car without having a job or savings" — it's true, but those deals aren't comparable to those that can buy a car with cash.
- toomuchtodo 9y ago
  There are funds/financial firms that will fund your options exercise, and take nothing if your common shares go to zero (they take a cut if there is an IPO or other significant liquidity event). Its an equity-backed loan with no recourse. Appears to be a reasonable option if you have a large amount of options and prefer the cash now vs later. > All of these deals require approval by the company. Which means you don't get to choose the firm, you get to deal with the firm they approve of. EDIT: These transactions require no agreement from your company in order to execute.
  - kneath 9y ago
    I … oof. I'm sure this stuff does look good from the outside. From experience, it is not anything close to that. Most stock options have short expirations (10 year is still very uncommon). There is no "now vs. later" choice, it's a "now or never choice" All of these deals require approval by the company. Which means you don't get to choose the firm, you get to deal with the firm they approve of. That kind of deal is in the 1% of deals they make. Almost all require option holders either repay loans or take on significant risk. I know this stuff sounds great on paper, in practice it is another world. Not to mention the absurdity of giving away half or more of your gains to a private equity firm from options you earned, just because the company has made a weird rule.
    - jeremymcanally 9y ago
      Typically these transactions are practiced on exercised options (i.e., shares) not options. I've never seen that offer for options. And they're right, it is fairly risk free. The investors understand (and sign a lot of paperwork indicating that) they understand it's extremely high risk and will possibly end up that (a) the shares will be worth nothing or (b) the company may never, ever offer a liquidity event. In the event that they do, the shares or derived value thereof transfer to the lender/investor. In the event that they don't, the instrument performs exactly like a loan/promissory note backed by the equity the shareholder owns with no vehicle for enforcing repayment beyond derived value from the shares.
BigJono 9y ago
Just when I thought I was getting the hang of how equity works... I didn't understand a word of that (other than non-transferable exercised options).
- deleted 9y ago
  [deleted]
- toomuchtodo 9y ago
  Apologies, I overcomplicated it. Someone lends you money to exercise your options, you pay them back (at IPO or acquisition) as well as additional compensation for their risk of your shares being worthless.
  - lasgsf 9y ago
    Yup that is what equidate does. Basically a forward contract on the underlying shares. I have done this with some AirBnB shares.
    - mrgordon 9y ago
      How was the experience overall?
      - lasgsf 9y ago
        Overall was pretty easy and painless. In general I pretty feel good about it as they mention that the underlying principle is backed by insurance so if the counterparty does not transfer shares over you can get your principal back in theory.
  - JumpCrisscross 9y ago
    > Someone lends you money to exercise your options, you pay them back (at IPO or acquisition) There is a lot of uncertainty about whether these loan-and-pretend or forward structures violate the spirit of one’s stock option contract, which can and has resulted in forfeiture, and if it involves creating an off-exchange securities swap, illegal since Dodd Frank for non-qualified participants. It was receiving regulatory attention before cryptos distracted everyone. (One firm even got jammed by the SEC early on for structuring illegal swaps.)

gaadd33 9y ago

Are they actually non transferable or are they required to give the right of first refusal to the company? If they are non transferable at all, what limitations are there? Can you transfer them in bankruptcy or divorce?

jeremymcanally 9y ago
Probate transactions allow for a transfer typically (and they may allow for a very few specific other cases such as covering tax on your options by offering a buyback for some portion of them), but otherwise, there is absolutely no transfer allowed unless the company's board allows it.
- toomuchtodo 9y ago
  One time transfer into a family trust is usually permitted as well.