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I had a smaller YC company pitch me something like this as an option for my stock comp - an RSA (restricted stock agreement, or "founder's stock"), where I put

I had a smaller YC company pitch me something like this as an option for my stock comp - an RSA (restricted stock agreement, or "founder's stock"), where I put up all the cash up front, paid a big income tax bill in the first year, but then upside was all capital gains. I would technically own the stock but I had to sell it back for nothing if I left before it vested. Turned out I left very early because the company wasn't doing great, in the current climate I think they're probably default-dead. All that cash is just gone.

break_the_bank 4y ago
Wow. How'd they make you pay upfront and still make you wait & vest? This makes no sense.
- chowchowchow 4y ago
  This is actually a great deal when the exercise price is low enough. You pay a nominal-ish amount up front to exercise early and all gains are LTCG. It is not a good deal in any situation where you’re not getting in close to the ground floor though, if the exercise cost itself is substantial.
- gkoberger 4y ago
  For what it's worth, this is how it works for founders too. The amount you pay is stupidly small (usually well under $100), since the strike price is essentially $0. There's no legal designation for founder when it comes to stock, so this person just got the same deal the founders did.
nthngtshr 4y ago
See, generally speaking I don't think this is a bad deal. I mean, I don't know the exact numbers / company profile. But I was in a similar situation 8 years ago. I could early exercise and I did. Estimating taxes was a pain (but a fun challenge too, lol). A couple of years ago they finally had a liquidity event and doing all these exercise shenanigans saved me a ton of money, so I'm glad I did that. The business was doing well and I knew exactly what the risks were and I knew I could afford to lose that money. I joined early so it wasn't that much money to begin with. I guess my point is that I wouldn't be too dismissive of early exercise / RSAs / etc — for the right kind of person / company it could be a great tool.

break_the_bank 4y ago

Wow. How'd they make you pay upfront and still make you wait & vest? This makes no sense.

chowchowchow 4y ago
This is actually a great deal when the exercise price is low enough. You pay a nominal-ish amount up front to exercise early and all gains are LTCG. It is not a good deal in any situation where you’re not getting in close to the ground floor though, if the exercise cost itself is substantial.
gkoberger 4y ago
For what it's worth, this is how it works for founders too. The amount you pay is stupidly small (usually well under $100), since the strike price is essentially $0. There's no legal designation for founder when it comes to stock, so this person just got the same deal the founders did.

nthngtshr 4y ago

See, generally speaking I don't think this is a bad deal. I mean, I don't know the exact numbers / company profile. But I was in a similar situation 8 years ago. I could early exercise and I did. Estimating taxes was a pain (but a fun challenge too, lol). A couple of years ago they finally had a liquidity event and doing all these exercise shenanigans saved me a ton of money, so I'm glad I did that. The business was doing well and I knew exactly what the risks were and I knew I could afford to lose that money. I joined early so it wasn't that much money to begin with. I guess my point is that I wouldn't be too dismissive of early exercise / RSAs / etc — for the right kind of person / company it could be a great tool.