5 ms·

As a normal individual contributor not at the C-level or even management level, I just assume the value of any options/shares I receive is zero unless an accoun

As a normal individual contributor not at the C-level or even management level, I just assume the value of any options/shares I receive is zero unless an accountant or the IRS tells me I should believe otherwise. Too many goofy fine-print shenanigans like this to keep track of.

ng12 7y ago
> the IRS tells me I should believe otherwise If you have NSOs (or pay AMT) the IRS will happily lie to you about the true value of your options.
x0x0 7y ago
This doesn't sound like shenanigans. Reading between the lines: > While it hasn’t ended up becoming the unicorn I was hoping for it sounds like the company wasn't a success. It could be the preference overhang, or it could be a difficult acquisition. Fundamentally, if the company isn't a success relative to the funding, employees aren't going to get paid. Employees can get paid quite well on a $100m exit if eg the funding structure was correct for the exit size.
- pc86 7y ago
  Unicorn refers only to a billion dollar startup, and they sold it for 1/10 of that.
  - x0x0 7y ago
    Right, but my guess is people start talking about being a unicorn probably means they did a unicorn-sized funding round. So total raised is comfortably north of $0.1B.
- badrequest 7y ago
  I don't mean shenanigans as a cutesy word for fraud (and to be completely fair, the author touched on how this is something the industry needs to improve at), but I merely mean that the explanation provided to most workers is "you own X number of shares in the company that are currently valued at Y", and anything missing from that summary that makes it untrue is, well, shenanigans to me.
  - x0x0 7y ago
    I totally agree that founders/hiring managers should be very clear on how employees are comped. However, in this specific case, I think a >= 1x preference is so utterly standard that employees of a startup need to do 5 minutes of due diligence and understand how their comp works. For everyone reading this, there are 3 outcomes: company failure, company success, middling In the middling outcomes, people need to know the negotiated rules re: who gets what
dustingetz 7y ago
the problematic circumstance is when the company doesn’t perform and is forced to raise under desperate circumstances. if you can make that distinction then early equity is worth stupid money (and just leave quickly if the company doesn’t perform)
- mcguire 7y ago
  "Doesn't perform?" "Forced to raise under desperate circumstances?"
alecbenzer 7y ago
You can't possibly actually values your shares at zero. Test: can I have all of your shares? No? Well then you must value them at _something_. What if I gave you $1? 10? $100? Just because something is (even incredibly) risky doesn't mean its value is zero.
- Florin_Andrei 7y ago
  How old are you?
  - alecbenzer 7y ago
    Mid 20s, but that's not a useful way to tell someone you think they're wrong.
    - Florin_Andrei 7y ago
      Yeah, it's a bit early. Omniscience starts fading out later.
      - alecbenzer 7y ago
        having an opinion == omniscience?
- jonathankoren 7y ago
  When people say that options or pre-ipo shares are “worth nothingl, it doesn’t mean that they literally have zero value on the market. They obviously have value, they have the company had a valuation at issue. It means that you shouldn’t assume you’ll see any value from them. Until a liquidity event, you’re not even a paper thousandaire. Most private equity is worthless in a couple of years. Most companies crash before any liquidity event. Those that don reach an event, have such a preference stack, and so for such a pittance, the options are underwater. It’s a mindset.
  - alecbenzer 7y ago
jacquesm 7y ago
The IRS has a pretty good incentive to value your options/shares as high as the can, their goals and yours are not aligned. Your accountant may be closer to the true value, but even then it may end up significantly lower or higher in practice. The only thing that accurately values your shares is a sale.
- delinka 7y ago
  You owe tax on an exercise below market value, whether you can sell or not. This is why you get the official 409a valuation from the CFO before you file your taxes. The 409a is prepared by the company's CFO, accountants, lawyers, and somehow in conjunction with the IRS (or by IRS rules?) and is the valuation that you use to compute whether you owe tax on an exercise or not. >The only thing that accurately values your shares is a sale. Accurately? Perhaps. But until that sale happens, you can still be on the hook for more tax.
  - jacquesm 7y ago
    Oh absolutely. People tend to forget that options and illiquid stock still count for the taxman.

ng12 7y ago

> the IRS tells me I should believe otherwise If you have NSOs (or pay AMT) the IRS will happily lie to you about the true value of your options.

x0x0 7y ago

This doesn't sound like shenanigans. Reading between the lines: > While it hasn’t ended up becoming the unicorn I was hoping for it sounds like the company wasn't a success. It could be the preference overhang, or it could be a difficult acquisition. Fundamentally, if the company isn't a success relative to the funding, employees aren't going to get paid. Employees can get paid quite well on a $100m exit if eg the funding structure was correct for the exit size.

pc86 7y ago
Unicorn refers only to a billion dollar startup, and they sold it for 1/10 of that.
- x0x0 7y ago
  Right, but my guess is people start talking about being a unicorn probably means they did a unicorn-sized funding round. So total raised is comfortably north of $0.1B.
badrequest 7y ago
I don't mean shenanigans as a cutesy word for fraud (and to be completely fair, the author touched on how this is something the industry needs to improve at), but I merely mean that the explanation provided to most workers is "you own X number of shares in the company that are currently valued at Y", and anything missing from that summary that makes it untrue is, well, shenanigans to me.
- x0x0 7y ago
  I totally agree that founders/hiring managers should be very clear on how employees are comped. However, in this specific case, I think a >= 1x preference is so utterly standard that employees of a startup need to do 5 minutes of due diligence and understand how their comp works. For everyone reading this, there are 3 outcomes: company failure, company success, middling In the middling outcomes, people need to know the negotiated rules re: who gets what

dustingetz 7y ago

the problematic circumstance is when the company doesn’t perform and is forced to raise under desperate circumstances. if you can make that distinction then early equity is worth stupid money (and just leave quickly if the company doesn’t perform)

mcguire 7y ago
"Doesn't perform?" "Forced to raise under desperate circumstances?"

alecbenzer 7y ago

You can't possibly actually values your shares at zero. Test: can I have all of your shares? No? Well then you must value them at _something_. What if I gave you $1? 10? $100? Just because something is (even incredibly) risky doesn't mean its value is zero.

Florin_Andrei 7y ago
How old are you?
- alecbenzer 7y ago
  Mid 20s, but that's not a useful way to tell someone you think they're wrong.
  - Florin_Andrei 7y ago
    Yeah, it's a bit early. Omniscience starts fading out later.
    - alecbenzer 7y ago
      having an opinion == omniscience?
jonathankoren 7y ago
When people say that options or pre-ipo shares are “worth nothingl, it doesn’t mean that they literally have zero value on the market. They obviously have value, they have the company had a valuation at issue. It means that you shouldn’t assume you’ll see any value from them. Until a liquidity event, you’re not even a paper thousandaire. Most private equity is worthless in a couple of years. Most companies crash before any liquidity event. Those that don reach an event, have such a preference stack, and so for such a pittance, the options are underwater. It’s a mindset.
- alecbenzer 7y ago

jacquesm 7y ago

The IRS has a pretty good incentive to value your options/shares as high as the can, their goals and yours are not aligned. Your accountant may be closer to the true value, but even then it may end up significantly lower or higher in practice. The only thing that accurately values your shares is a sale.

delinka 7y ago
You owe tax on an exercise below market value, whether you can sell or not. This is why you get the official 409a valuation from the CFO before you file your taxes. The 409a is prepared by the company's CFO, accountants, lawyers, and somehow in conjunction with the IRS (or by IRS rules?) and is the valuation that you use to compute whether you owe tax on an exercise or not. >The only thing that accurately values your shares is a sale. Accurately? Perhaps. But until that sale happens, you can still be on the hook for more tax.
- jacquesm 7y ago
  Oh absolutely. People tend to forget that options and illiquid stock still count for the taxman.