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I’m surprised they were still handing out options - don’t most later stage startups switch to RSUs? I’d hate to have to decide whether to exercise today, cliff
by yojo 6y ago
I’m surprised they were still handing out options - don’t most later stage startups switch to RSUs? I’d hate to have to decide whether to exercise today, cliff or no cliff.
- fennecfoxen 6y agoI haven't seen RSUs outside of publicly traded companies.
- kahnjw 6y agoI got an RSU offer from Pinterest a couple years back when they were private, though I turned it down.
- actuator 6y agoNon listed companies do give RSUs. For example: Stripe
- pb7 6y agoRSUs are common in late stage startups. The share price at the time of grant is calculated based on an estimated valuation. If I remember correctly, in the year or two leading up to IPO, Uber issued RSUs to employees at a valuation of $49/share so the IPO price of $45 was already below grant price for many that joined late.
- deleted 6y ago[deleted]
- hibikir 6y agoLate stage startups have to offer RSUs, as the equivalent option package becomes extremely unattractive if you depart before the company is public. Imagine, for example, an initial option grant of 180K shares at $2.00, which expire 90 days after you leave. Then fast forward two years: The valuations have doubled every year, and half are vested, so you have 90k options priced at $2, but that last valuation puts at $8 each. Sounds like you have a lot of potential money right? Maybe, but not if you leave. If the company isn't public, you either have to rely on some secondary market that might be really shady, or have to hold your shares until IPO. To do so, you need to spend $180K, and prepare for an AMT tax hit of, roughly, 28% of the gains. 90k shares, with $6 a a share paper gains, means $135k in taxes that year. So barring that secondary market for the shares, we are talking about spending $300k exercising the options. Few people can, or are willing, to put that much money in, even if on paper they are up hundreds of thousands of dollars. RSUs will demand action at IPO, as you can't delay the exercise forever, but it's far better than, in practice, letting a majority of options lapse, even when you are pretty sure they'll be deep in the money at IPO.
- dilyevsky 6y agoYet they are quite common in late stage pre-ipo companies bc few will take their options
- fapi1974 6y agoDoes anyone recall if Airbnb were one of the firms to institute more employee-friendly exercise windows? If so that takes some of the pressure off the decision.
- dilyevsky 6y agoThey are probably double trigger rsus with 10y expiration
- jzl 6y agoYou mean if you're still an employee? I've read their RSUs have 7y expiration, which is part of the whole Airbnb IPO problem because the ones from 2014 will start expiring next year. But what's the window to exercise once you leave the company? I doubt it's until expiration.
- H8crilA 6y agoForgive my ignorance but how do RSUs expire? I thought those are just stocks?
- bradleyjg 6y agoIf these are double trigger RSUs they don’t fully vest until two conditions are met: 1) the usual employed by the company for a certain period of time 2) some qualifying liquidity event (ipo / sale) This is to avoid employees needing to pay taxes after #1 even though the stock can’t be sold. However for tax reasons there has to be time limit when they either vest or expire worthless. Depends on which lawyer you ask how long that can be, but generally most are less than ten years.
- deleted 6y ago[deleted]
- dilyevsky 6y agoRSUs normally expire only if there’s no liquidity event (ipo or sale) and once vested remain yours even after end of employement. Ofx that depends on specific contract
- airstrike 6y agoWhy would you not want optionality? Optionality always has carries an intrinsic positive value.
- sokoloff 6y agoIf you started working at Boeing exactly a year ago and were leaving today, would you rather have been granted RSUs at a notional initial value of $371.60/sh or been granted options at a strike price of $371.60/sh?
- jameslevy 6y agoWouldn't you pay income tax on the RSUs based on the notional initial value, and only pay tax on the options if you exercised them?
- sokoloff 6y ago(Under US law,) You pay income tax on RSUs only when they are both vested and released. (These typically happen on the same day, but in the future, not on the grant date.)
- philwelch 6y agoNot really. RSU’s don’t have a “notional initial value” for public companies; if you get them, you pay tax on the number of RSU’s you got times the stock price at the time you get them. Your vesting schedule will just say, “X units of ABC on 5/1/20” with no dollar figure. Brokerages will typically set things up so you can automatically sell enough shares to cover your tax liability as soon as they vest. Typically you have to amend your cost basis on your tax return for this to actually work, for some stupid bureaucratic reason. Probably a conspiracy to make people who get equity compensation buy the more expensive version of TurboTax.
- PNWChris 6y agoAt my employer they withhold taxes from the RSUs themselves as they vest (taxes are withheld at the bonus tax rate using integer multiplication, I believe). E.g.: you'll get Math.floor(x * (1-bonus_tax_rate)) shares and will owe no income tax (unless your marginal tax rate is over the bonus tax rate). After that point, you'll only owe taxes on possible capital gains from price at the time of vest to the time you sell.
- tinyhouse 6y agoI thought RSUs are only given by public companies. Anyway, they would be crazy not to exercise.
- kahnjw 6y agoSome private companies offer RSU grants. I've been offered them.
- mason55 6y agoHopefully they have cash to cover the exercise and the taxes! Tough choice to make right when you just lost your job. The tax bill could be tens of thousands of dollars or more.
- redshirtrob 6y agoI'd expect the options might be under water based on recent funding announcements. Probably still expensive to exercise, but I can't see how there would be a tax liability if they are under water.
- daseiner1 6y agoi’m not super in the know here, but why would corporate financials be relevant to the tax obligations of individuals?
- redshirtrob 6y agoIt's pretty much impossible for us to say in this case since the terms weren't disclosed that I know of. They've been described as debt and equity. It's reasonable to assume the equity component would imply a certain valuation, and that valuation could be down from previous valuations. If you received options at a strike price at the peak valuation, then the current valuation may be below that level.
- da_chicken 6y agoYeah it's going to be a hard decision to make for a lot of these people, especially given some of the bad press that these kind of gig factories have been enduring.
- abhorrence 6y agoThey are RSUs, at least in the US.
- tempsy 6y agoLong term employees have options. All newer US based employees should have RSUs
- enra 6y agoThey're RSUs, Airbnb hasn't been given options for the last 7 years or so. Techcrunch is just reporting it wrong.