7 ms·

Every time one of these is written, it comes off as if the 90-day window is something startups came up with to try and screw employees. A reminder that the 90-

Every time one of these is written, it comes off as if the 90-day window is something startups came up with to try and screw employees. A reminder that the 90-day window is a requirement by law in order for options to qualify as Incentive Stock Options, and receive favorable tax treatment for employees [1]. If you want to do 10-yr exercise, that's fine, but until the law is changed those will be NSOs and not receive that special tax treatment and will be taxed on exercise instead of on sale. [1] https://www.cooleygo.com/isos-v-nsos-whats-the-difference/ https://www.cooleygo.com/isos-v-nsos-whats-the-difference/

woah 4y ago
There was a talk that's been shared on here from Ben Horowitz where he explicitly pitches the 90-day window as a way to screw employees. That's probably where the perception comes from: > The second way to handle it - no companies do this, which is why I actually really like this post that he wrote - is you can say up front, " Look you are guaranteed to get your salary but for your stock to be meaningful, these are the things that have to happened. You have to have vested. Two, you have to stay until we get to an exit. Untile the company makes it. You've got other money." Finally, the company actually has to be worth something. Because 10 percent of nothing is nothing. The reason we set the policy this way is we really value people who stay. So don't join this company if you are going to join another one in 18 months because you're going to get screwed. Our policy guarantees you're going to get screwed. https://genius.com/B-horowitz-lecture-15-how-to-manage-annotated https://genius.com/B-horowitz-lecture-15-how-to-manage-annot...
- ghiculescu 4y ago
  He pitches it as a way of screwing employees who aggressively job hop. Not really the same thing.
  - gkop 4y ago
    No, a16z is very explicit about their views. This is not from Ben but from the current managing partner: > A 10-year exercise window is really a direct wealth transfer from the employees who choose to remain at the company and build future shareholder value, to former employees who are no longer contributing to building the business/ its ultimate value. https://a16z.com/2016/06/23/options-timing/ https://a16z.com/2016/06/23/options-timing/
    - jacquesm 4y ago
      I read that as you're supposed to loyal right up to the point the company decides to lay you off and you better not think that you have any freedom once you sign on because we will retroactively screw you. The percentages in the typical option pool are not going to move the needle anyway and those employees that served the company early on took far greater risks than those that did so later and probably were paid much less too. So as far as I'm concerned they are well entitled to their stock.
      - gkop 4y ago
        Totally. It’s really fantastic that a16z is transparent about their values. It’s safe to assume other VCs share these beliefs but choose not to disclose them.
        jacquesm 4y ago
        What will never cease to amaze me is that the likes of a16z while reaping billions on hardly any work at all will go to extreme ends to deny others what they simply earned through usually very hard work.
        foobiekr 4y ago
        When we were raising our series C, a potential investor (which we did not go with) wanted a requirement to cancel/claw back all _vested_ and _early exercised_ options that employees who had worked for us had and to put in place a buy-back-at-exercise-cost-or-cancel for current employees. No thanks. But it was eye opening.
        jacquesm 4y ago
        That is absolutely ridiculous. I'd love to know which investor that was so I can avoid working with them, if you could let me know I'd be very grateful (mail in profile). If not, I understand. Kudos for making the right call anyway, and that VC deserves to lose each and every deal they look at.
  - 21723 4y ago
    Yeah, because fuck those workers who try to make a free market work for them once in a while. Don't they realize that market talk is only a way for their social class superiors to justify doing whatever they want, and that it isn't for them?
  - HWR_14 4y ago
    I see no reason to screw employees who job hop. It seems like if 1/10 as much effort was put into making your workplace pleasant, you'd have fewer people leave.
  - woah 4y ago
    That's what always seemed like bullshit to me. If you want to have a 4 year cliff to discourage job hopping, then give people a 4 year cliff. Why try to weasel them into it?
- 21723 4y ago
  At this point, I'm surprised when other people are surprised that founders and investors work together to screw employees. "Work", in the corporate sense, is the same sort of exploitative, morally vacuous, might-makes-right dominance hierarchy that humans have been forming for thousands of years. We haven't evolved beyond that garbage yet.
deleted 4y ago
[deleted]
jkaplowitz 4y ago
That's true and it's not true. An increasing number of startups issue their grants such that they qualify as ISOs if exercised within the 90-day window but automatically convert to NSOs 90 days after departure (with the actual exercise deadline dependent on employee tenure), so that the employee and their tax advisors at time of departure get to decide how to handle the tradeoff of more time for reflection vs better tax treatment. What's more, if an employee gets more than $100k of exercisable options in a year - very possible especially in cases where early exercise is allowed - only $100k of those are treated as ISOs. There's no way in which the tax law privileges a short post-termination exercise period for the excess above $100k. Last, some companies use the same options plan both inside the US and outside, including my two most recent employers. Most employees working outside the US, with some exceptions like US citizens and green card holders, wouldn't have to care about this US tax law nuance.
- carlosdp 4y ago
  Yea I looked into this when we were forming our options plan after I read Sam Altman's article arguing for it. It's not as common as you might think yet. We have one of the big name corporate law firms that most VC-backed startups use, and when I asked about this kind of setup they hadn't heard of it before. Path of least resistance was to just do a regular ISO, especially since early team members are usually experienced startup people like us that are used to ISOs anyways. Would love to revisit it in the future and see if we can enact this sort of plan, although in our case since we're in the web3 space, the equity might not matter as much as the tokens (which don't get favorable treatment either way atm).
  - leoqa 4y ago
    Does your company sell the tokens to account for tax liability when compensating employees with tokens? I can imagine a new hell where my bonus is paid in Foo tokens but it isn’t liquid and then I have a massive tax liability as the crypto market tanks.
  - jkaplowitz 4y ago
    I agree it isn't the most common, but I did just work for a company that put this policy into place last year I think, so it's growing. It's certainly not something where a startup which wants to do it needs to break new ground, at any rate.
heliodor 4y ago
Then the startup should explain it. They prefer to say nothing on the topic. So, they typically care a lot about the UX of product users but not about the UX of their employees. Seems shortsighted.
choppaface 4y ago
The tax games are dumb no matter if you have ISOs or Non-quals or whatever options. The standard should be 83(b) elections supported with the company covering cash to exercise (or at least some portion). That makes the equity closer to RSUs, which is more aligned with the desired incentive. VCs / investors should be putting more money into companies to make this work; the employee pool is only typically 10% so it’s a tiny haircut to them.
- lifeisstillgood 4y ago
  I am trying to grok this bit. If I understand it, an 83(b) election allows me to buy stock in the company at the (say) day of employment, and recognise that as income on the same day (ie I buy the stock as I join). Then there is some restriction on me selling it during my employment (not quite vesting but similar). Which sounds sensible - but I may have misunderstood. Overall it seems either people are trying to make a simple situation seem complex, or the (US?) tax code is set up badly. http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83b-election/ http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83...
  - nemo44x 4y ago
    You are exercising options that haven’t vested yet. But because strike and FMV are the same you have no tax liability. So when they beat they become stock and long term capital gains if they become liquid one day. Here’s the best part - if the company is worth < 50m at the time then you are granted and exercise them, when you sell those stocks one day, you will owe 0 income tax as it’s a “qualified small business stock” - on your first 10m of profit. Wowza’s!
    - enahs-sf 4y ago
      QSBS ftw
      - nemo44x 4y ago
        Indeed and I should clarify - it’s not if the company is “worth < 50m” it’s if the company has less than 50m in assets generally. So you could have raised 30m at a 200m valuation and qualify. It’s amazing.
gumby 4y ago
I always permit early exercise, which is specially good at the earliest stages when the common options are worth little, even less than a cent pre funding That is, you can exercise your options whenever you want, even your first day at your job. What happens is the company can buy them back when you leave, but that ability goes away by the same amount as the regular vesting schedule. So if you leave the company after two years the company buys back half your stock, but there’s no tax impact (and by then you’re in the LTCG regime). Big win, easy to do, so why doesn’t everybody do this?
- rstephenson2 4y ago
  Is there some nuance as to how this is set up? The company buying back the stock when you leave seems particularly interesting: if the valuation has changed in between when you start and when you leave, the company either buys the stock back at the new, higher price (in which case you make some cash on unvested stock) or the company buys it back at the original price, and from a tax perspective you are selling it to them priced under fair market value and the company owes taxes on that I think? Is there something I’m missing?
  - Swizec 4y ago
    I've been part of such an approach in the past. The way it worked there (and I imagine would everywhere) is that you exercise your full options, thus turning them into RSUs. You then give the company options on your RSUs at current valuation and the percentage of your RSUs that are covered by the options reduces on the vesting schedule.
    - gumby 4y ago
      Nothing so complicated. Not turning them into RSUs, simply exercising the options to buy ordinary common stock with the company's right to repurchase expiring every month (or whatever the option vesting schedule would be). Repurchase is at the purchase price paid by the employee so nobody owes any taxes. The point is that whenever you leave you have the same number of shares either way, but this way you pay for them at par (and with 83(b) owe no tax until you sell) and get the LTCG clock started right away. If you pay when you leave you have to pay tax on the delta This is much friendlier to the the employee, at least when the purchase price is quite low. And why wouldn't I want that for my team? I've done this with half a dozen companies at least; I don't know why everyone doesn't. The change to the option plan is quite standard and the law firms all know it.
deleted 4y ago
[deleted]
dsizzle 4y ago
As an anecdote, the company I work for has a 90-day window, but when we were bought out the options were taxed as regular income (it was on our W2) -- there was no favorable tax treatment.

woah 4y ago

There was a talk that's been shared on here from Ben Horowitz where he explicitly pitches the 90-day window as a way to screw employees. That's probably where the perception comes from: > The second way to handle it - no companies do this, which is why I actually really like this post that he wrote - is you can say up front, " Look you are guaranteed to get your salary but for your stock to be meaningful, these are the things that have to happened. You have to have vested. Two, you have to stay until we get to an exit. Untile the company makes it. You've got other money." Finally, the company actually has to be worth something. Because 10 percent of nothing is nothing. The reason we set the policy this way is we really value people who stay. So don't join this company if you are going to join another one in 18 months because you're going to get screwed. Our policy guarantees you're going to get screwed. https://genius.com/B-horowitz-lecture-15-how-to-manage-annotated https://genius.com/B-horowitz-lecture-15-how-to-manage-annot...

ghiculescu 4y ago
He pitches it as a way of screwing employees who aggressively job hop. Not really the same thing.
- gkop 4y ago
  No, a16z is very explicit about their views. This is not from Ben but from the current managing partner: > A 10-year exercise window is really a direct wealth transfer from the employees who choose to remain at the company and build future shareholder value, to former employees who are no longer contributing to building the business/ its ultimate value. https://a16z.com/2016/06/23/options-timing/ https://a16z.com/2016/06/23/options-timing/
  - jacquesm 4y ago
    I read that as you're supposed to loyal right up to the point the company decides to lay you off and you better not think that you have any freedom once you sign on because we will retroactively screw you. The percentages in the typical option pool are not going to move the needle anyway and those employees that served the company early on took far greater risks than those that did so later and probably were paid much less too. So as far as I'm concerned they are well entitled to their stock.
    - gkop 4y ago
      Totally. It’s really fantastic that a16z is transparent about their values. It’s safe to assume other VCs share these beliefs but choose not to disclose them.
      - jacquesm 4y ago
        What will never cease to amaze me is that the likes of a16z while reaping billions on hardly any work at all will go to extreme ends to deny others what they simply earned through usually very hard work.
        foobiekr 4y ago
        When we were raising our series C, a potential investor (which we did not go with) wanted a requirement to cancel/claw back all _vested_ and _early exercised_ options that employees who had worked for us had and to put in place a buy-back-at-exercise-cost-or-cancel for current employees. No thanks. But it was eye opening.
        jacquesm 4y ago
        That is absolutely ridiculous. I'd love to know which investor that was so I can avoid working with them, if you could let me know I'd be very grateful (mail in profile). If not, I understand. Kudos for making the right call anyway, and that VC deserves to lose each and every deal they look at.
- 21723 4y ago
  Yeah, because fuck those workers who try to make a free market work for them once in a while. Don't they realize that market talk is only a way for their social class superiors to justify doing whatever they want, and that it isn't for them?
- HWR_14 4y ago
  I see no reason to screw employees who job hop. It seems like if 1/10 as much effort was put into making your workplace pleasant, you'd have fewer people leave.
- woah 4y ago
  That's what always seemed like bullshit to me. If you want to have a 4 year cliff to discourage job hopping, then give people a 4 year cliff. Why try to weasel them into it?
21723 4y ago
At this point, I'm surprised when other people are surprised that founders and investors work together to screw employees. "Work", in the corporate sense, is the same sort of exploitative, morally vacuous, might-makes-right dominance hierarchy that humans have been forming for thousands of years. We haven't evolved beyond that garbage yet.

deleted 4y ago

[deleted]

jkaplowitz 4y ago

That's true and it's not true. An increasing number of startups issue their grants such that they qualify as ISOs if exercised within the 90-day window but automatically convert to NSOs 90 days after departure (with the actual exercise deadline dependent on employee tenure), so that the employee and their tax advisors at time of departure get to decide how to handle the tradeoff of more time for reflection vs better tax treatment. What's more, if an employee gets more than $100k of exercisable options in a year - very possible especially in cases where early exercise is allowed - only $100k of those are treated as ISOs. There's no way in which the tax law privileges a short post-termination exercise period for the excess above $100k. Last, some companies use the same options plan both inside the US and outside, including my two most recent employers. Most employees working outside the US, with some exceptions like US citizens and green card holders, wouldn't have to care about this US tax law nuance.

carlosdp 4y ago
Yea I looked into this when we were forming our options plan after I read Sam Altman's article arguing for it. It's not as common as you might think yet. We have one of the big name corporate law firms that most VC-backed startups use, and when I asked about this kind of setup they hadn't heard of it before. Path of least resistance was to just do a regular ISO, especially since early team members are usually experienced startup people like us that are used to ISOs anyways. Would love to revisit it in the future and see if we can enact this sort of plan, although in our case since we're in the web3 space, the equity might not matter as much as the tokens (which don't get favorable treatment either way atm).
- leoqa 4y ago
  Does your company sell the tokens to account for tax liability when compensating employees with tokens? I can imagine a new hell where my bonus is paid in Foo tokens but it isn’t liquid and then I have a massive tax liability as the crypto market tanks.
- jkaplowitz 4y ago
  I agree it isn't the most common, but I did just work for a company that put this policy into place last year I think, so it's growing. It's certainly not something where a startup which wants to do it needs to break new ground, at any rate.

heliodor 4y ago

Then the startup should explain it. They prefer to say nothing on the topic. So, they typically care a lot about the UX of product users but not about the UX of their employees. Seems shortsighted.

choppaface 4y ago

The tax games are dumb no matter if you have ISOs or Non-quals or whatever options. The standard should be 83(b) elections supported with the company covering cash to exercise (or at least some portion). That makes the equity closer to RSUs, which is more aligned with the desired incentive. VCs / investors should be putting more money into companies to make this work; the employee pool is only typically 10% so it’s a tiny haircut to them.

lifeisstillgood 4y ago
I am trying to grok this bit. If I understand it, an 83(b) election allows me to buy stock in the company at the (say) day of employment, and recognise that as income on the same day (ie I buy the stock as I join). Then there is some restriction on me selling it during my employment (not quite vesting but similar). Which sounds sensible - but I may have misunderstood. Overall it seems either people are trying to make a simple situation seem complex, or the (US?) tax code is set up badly. http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83b-election/ http://www.startupcompanylawyer.com/2008/02/15/what-is-an-83...
- nemo44x 4y ago
  You are exercising options that haven’t vested yet. But because strike and FMV are the same you have no tax liability. So when they beat they become stock and long term capital gains if they become liquid one day. Here’s the best part - if the company is worth < 50m at the time then you are granted and exercise them, when you sell those stocks one day, you will owe 0 income tax as it’s a “qualified small business stock” - on your first 10m of profit. Wowza’s!
  - enahs-sf 4y ago
    QSBS ftw
    - nemo44x 4y ago
      Indeed and I should clarify - it’s not if the company is “worth < 50m” it’s if the company has less than 50m in assets generally. So you could have raised 30m at a 200m valuation and qualify. It’s amazing.

gumby 4y ago

I always permit early exercise, which is specially good at the earliest stages when the common options are worth little, even less than a cent pre funding That is, you can exercise your options whenever you want, even your first day at your job. What happens is the company can buy them back when you leave, but that ability goes away by the same amount as the regular vesting schedule. So if you leave the company after two years the company buys back half your stock, but there’s no tax impact (and by then you’re in the LTCG regime). Big win, easy to do, so why doesn’t everybody do this?

rstephenson2 4y ago
Is there some nuance as to how this is set up? The company buying back the stock when you leave seems particularly interesting: if the valuation has changed in between when you start and when you leave, the company either buys the stock back at the new, higher price (in which case you make some cash on unvested stock) or the company buys it back at the original price, and from a tax perspective you are selling it to them priced under fair market value and the company owes taxes on that I think? Is there something I’m missing?
- Swizec 4y ago
  I've been part of such an approach in the past. The way it worked there (and I imagine would everywhere) is that you exercise your full options, thus turning them into RSUs. You then give the company options on your RSUs at current valuation and the percentage of your RSUs that are covered by the options reduces on the vesting schedule.
  - gumby 4y ago
    Nothing so complicated. Not turning them into RSUs, simply exercising the options to buy ordinary common stock with the company's right to repurchase expiring every month (or whatever the option vesting schedule would be). Repurchase is at the purchase price paid by the employee so nobody owes any taxes. The point is that whenever you leave you have the same number of shares either way, but this way you pay for them at par (and with 83(b) owe no tax until you sell) and get the LTCG clock started right away. If you pay when you leave you have to pay tax on the delta This is much friendlier to the the employee, at least when the purchase price is quite low. And why wouldn't I want that for my team? I've done this with half a dozen companies at least; I don't know why everyone doesn't. The change to the option plan is quite standard and the law firms all know it.

deleted 4y ago

[deleted]

dsizzle 4y ago

As an anecdote, the company I work for has a 90-day window, but when we were bought out the options were taxed as regular income (it was on our W2) -- there was no favorable tax treatment.