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A philosophy I have for founders is if it is too much money to early exercise all of it, covering the cost with a sign on bonus, you should be giving RSUs at th

A philosophy I have for founders is if it is too much money to early exercise all of it, covering the cost with a sign on bonus, you should be giving RSUs at that point. 82b sign on bonuses are cheaper than the actual cost, since the money is really the employee's marginal tax rate, since early exercise money comes back to the corp. That is typically around series A or B, which is a lot earlier than the typical switch to RSUs.

sk5t 8y ago
A really nice idea, although my sense is that companies in the $5-20mm paper valuation range fall into a sort of "valley of death" where the options are too expensive to exercise, RSUs would be laughably premature, and the odds of success are still very, very thin.
- woolvalley 8y ago
  Are they really laughably premature? Is it really that much more work to start issuing RSUs vs options for new hires? From what I know, it's a board meeting and other kind of equity contract that is presented.
  - sk5t 8y ago
    The paperwork shouldn't be crushing, but RSUs are not too appealing when the company stock is far from liquid. Grant 0.5% of a $10mm company--assuming no aggressive discount on common stock--pay something like $15K in tax with 83b election? Or, no early exercise and pay perhaps much more tax on vest with no market to sell.
    - woolvalley 8y ago
      $15k in tax isn't that big of a sign on bonus then, since I'm assuming it's a $37.5k grant? When paying $XXXk in tax starts sounding crazy for a company to do as a sign on bonus, that is the time to go RSU, because it's triple crazy for your employee to pay the exercise cost themselves. In practice, unless the cost is so cheap that doing an 83b is not hard, then an RSU is no different than an option to an employee. The employees will only exercise when there is some sort of liquidity. No employee is going to have the capital to exercise any other time either, because it's only to get more expensive with AMT as time goes on. By RSU I mean stock that is granted only when you have met the time requirement as in normal stock options, and when the company is liquid (acquisition or IPO). Cheap stock options that don't expire when you leave also work too.

sk5t 8y ago

A really nice idea, although my sense is that companies in the $5-20mm paper valuation range fall into a sort of "valley of death" where the options are too expensive to exercise, RSUs would be laughably premature, and the odds of success are still very, very thin.

woolvalley 8y ago
Are they really laughably premature? Is it really that much more work to start issuing RSUs vs options for new hires? From what I know, it's a board meeting and other kind of equity contract that is presented.
- sk5t 8y ago
  The paperwork shouldn't be crushing, but RSUs are not too appealing when the company stock is far from liquid. Grant 0.5% of a $10mm company--assuming no aggressive discount on common stock--pay something like $15K in tax with 83b election? Or, no early exercise and pay perhaps much more tax on vest with no market to sell.
  - woolvalley 8y ago
    $15k in tax isn't that big of a sign on bonus then, since I'm assuming it's a $37.5k grant? When paying $XXXk in tax starts sounding crazy for a company to do as a sign on bonus, that is the time to go RSU, because it's triple crazy for your employee to pay the exercise cost themselves. In practice, unless the cost is so cheap that doing an 83b is not hard, then an RSU is no different than an option to an employee. The employees will only exercise when there is some sort of liquidity. No employee is going to have the capital to exercise any other time either, because it's only to get more expensive with AMT as time goes on. By RSU I mean stock that is granted only when you have met the time requirement as in normal stock options, and when the company is liquid (acquisition or IPO). Cheap stock options that don't expire when you leave also work too.