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This is why you should early exercise and file an 83B election whenever possible. Personally would avoid working at any startup that is in the awkward middle s

by tempsy 4y ago

This is why you should early exercise and file an 83B election whenever possible. Personally would avoid working at any startup that is in the awkward middle stage and would require you to shell out six figures just to exercise some questionable options especially now. Either join a very small company in the early stages where the valuation is still low or join a late stage or public company where you vest RSUs and don’t have to deal with options at all.

gkoberger 4y ago
Sure, but this isn't realistic. Like you said, most people can't afford to exercise early. Even at a small company, most people don't have an extra $10k to gamble on a startup that may go nowhere. This is what Bolt was trying to solve. They did it the wrong way and hurt a lot of people, but they were trying to give people the opportunity to exercise early. The correct answer is a 10-year extended window. It's not perfect, and there are downsides. But it's (currently) the fairest way to issue stock options to employees. By the time it comes time to exercise, the employee will be significantly de-risked because they'll know how the company is doing.
- tempsy 4y ago
  Define “most people”. $10k maybe a lot for a new grad but isn’t if you’ve worked even just a few years, especially in a high paying role in tech elsewhere.
  - gkoberger 4y ago
    If you're working at a small tech startup, you're likely not making a huge salary. Good, sure, but not huge. It's possible you left your high-paying FAANG job to be developer #3 at a tiny little startup, but in my experience this almost never happens. Also, $10k is a lot of money. Even if you have it in savings (and I'd agree a lot of tech people technically do), it's a huge gamble on an unknown startup. You're already gambling your time; now you're supposed to also gamble your money?
    - tempsy 4y ago
      if that’s truly how you feel why would you accept an offer where that’s how a significant percentage of your compensation works? these types of work environments self select for people who are comfortable taking on risk. no one is forcing you or anyone else to join.
      - bradj 4y ago
        People can have a variety of different comfort levels with different kinds of risk. You’re suggesting that someone should consider a slightly lower salary + future possible earnings on options as equivalent to slightly lower salary + future possible earning on options - risk of loss on early exercise. Some people work for startups, some are angel investors, there is some overlap but it’s not 1:1 and it’s because those are different types of risk.
      - s1artibartfast 4y ago
        The point is that it sucks and is largely avoidable. Sure people can not work at companies that don't provide 10 year exercise options. Its not like they are slaves. But that doesn't mean there aren't better ways of structuring options and it is bad to point this out.
  - dopamean 4y ago
    I'm one of those "most people" right now. I make a a great wage and have savings in the bank. However I have a 6 month old baby at home and a wife who is taking time off from her career to look after our baby. I also left a job I was at for almost 5 years and exercised my options on the way out. This cost me almost $30k in cash. At my new job early exercising would cost me nearly $40k. Spending $40k to early exercise this startup's equity grant feels like it might be a little irresponsible. It wouldn't surprise me at all if other people didn't have that much lying around.
    - tempsy 4y ago
      These types of companies self select for people who are comfortable taking on more risk. If this is your thought process why would you even put yourself in a situation where you pick an offer from a company that offers options as part of your comp over RSUs or a public company? I don’t doubt that many people have the same thought process, but if I decline to early exercise from a company that offers that option the alternative is a massive tax bill down the road that I didn’t need to pay if the company does remotely well.
      - dopamean 4y ago
        I selected the company I'm at because they offered me the highest salary of all the places I was interviewing. They also have a product in domain I'm very familiar with and are a size that would allow me to have a big impact on the engineering org. Basically this opportunity checked all the boxes I set out to check when I decided to leave my last job. I'll vest my options here without exercising and if they turn into something one day that'll be nice. In the meantime I'll collect the nice salary I negotiated for myself and grow my career the way I wanted. Edit: A little clarification about my last role. I took that job because they were using tech I wanted to learn and they had a team I wanted to work with. They also offered me salary that was a healthy bump from where I was at at the time. I didn't early exercise those options back then because I didn't know enough about the company to justify plunking down the cash. After being there nearly 5 years I believe in the company a lot and see the exercise as a smart investment. I don't have that clarity yet for my current role and so it just doesn't make sense to me to early exercise.
- gwbas1c 4y ago
  > The correct answer is a 10-year extended window How would that work? Very few people stay in a tech job for 10 years. I stayed in a software job for 9 years, until I was laid off, and that's extremely unusual.
  - erichurkman 4y ago
    Most startups offer a 90 day window to exercise after you leave. Some companies have extended that to longer (caveat being they convert to NSO grants after 90 days).
  - gkoberger 4y ago
    Normally, the exercise window starts when you leave and lasts 90 days. The 10 years works the same way, except much longer! It has nothing to do with how long you're at the company (although some companies only trigger an extended window after you've hit X years). Here's more: https://zachholman.com/posts/fuck-your-90-day-exercise-window/ https://zachholman.com/posts/fuck-your-90-day-exercise-windo...
dehrmann 4y ago
The gotcha with exercising early is you have less information about an illiquid asset. The longer you can wait, the more time you have to see if the company will succeed.
- tempsy 4y ago
  if you leave the company you get a refund for whatever it is you don’t vest. i feel like people who are acting like early exercise is money down a black hole aren’t aware that if the company is going nowhere you will probably know that long before 4 years, in which case if you leave you get a refund for unvested options. and even if you’ve vested shares you’re unsure about in many cases the company will offer to buyback shares. worst case it’s a write off against capital gains.

by tempsy 4y ago

gkoberger 4y ago

Sure, but this isn't realistic. Like you said, most people can't afford to exercise early. Even at a small company, most people don't have an extra $10k to gamble on a startup that may go nowhere. This is what Bolt was trying to solve. They did it the wrong way and hurt a lot of people, but they were trying to give people the opportunity to exercise early. The correct answer is a 10-year extended window. It's not perfect, and there are downsides. But it's (currently) the fairest way to issue stock options to employees. By the time it comes time to exercise, the employee will be significantly de-risked because they'll know how the company is doing.

tempsy 4y ago
Define “most people”. $10k maybe a lot for a new grad but isn’t if you’ve worked even just a few years, especially in a high paying role in tech elsewhere.
- gkoberger 4y ago
  If you're working at a small tech startup, you're likely not making a huge salary. Good, sure, but not huge. It's possible you left your high-paying FAANG job to be developer #3 at a tiny little startup, but in my experience this almost never happens. Also, $10k is a lot of money. Even if you have it in savings (and I'd agree a lot of tech people technically do), it's a huge gamble on an unknown startup. You're already gambling your time; now you're supposed to also gamble your money?
  - tempsy 4y ago
    if that’s truly how you feel why would you accept an offer where that’s how a significant percentage of your compensation works? these types of work environments self select for people who are comfortable taking on risk. no one is forcing you or anyone else to join.
    - bradj 4y ago
      People can have a variety of different comfort levels with different kinds of risk. You’re suggesting that someone should consider a slightly lower salary + future possible earnings on options as equivalent to slightly lower salary + future possible earning on options - risk of loss on early exercise. Some people work for startups, some are angel investors, there is some overlap but it’s not 1:1 and it’s because those are different types of risk.
    - s1artibartfast 4y ago
      The point is that it sucks and is largely avoidable. Sure people can not work at companies that don't provide 10 year exercise options. Its not like they are slaves. But that doesn't mean there aren't better ways of structuring options and it is bad to point this out.
- dopamean 4y ago
  I'm one of those "most people" right now. I make a a great wage and have savings in the bank. However I have a 6 month old baby at home and a wife who is taking time off from her career to look after our baby. I also left a job I was at for almost 5 years and exercised my options on the way out. This cost me almost $30k in cash. At my new job early exercising would cost me nearly $40k. Spending $40k to early exercise this startup's equity grant feels like it might be a little irresponsible. It wouldn't surprise me at all if other people didn't have that much lying around.
  - tempsy 4y ago
    These types of companies self select for people who are comfortable taking on more risk. If this is your thought process why would you even put yourself in a situation where you pick an offer from a company that offers options as part of your comp over RSUs or a public company? I don’t doubt that many people have the same thought process, but if I decline to early exercise from a company that offers that option the alternative is a massive tax bill down the road that I didn’t need to pay if the company does remotely well.
    - dopamean 4y ago
      I selected the company I'm at because they offered me the highest salary of all the places I was interviewing. They also have a product in domain I'm very familiar with and are a size that would allow me to have a big impact on the engineering org. Basically this opportunity checked all the boxes I set out to check when I decided to leave my last job. I'll vest my options here without exercising and if they turn into something one day that'll be nice. In the meantime I'll collect the nice salary I negotiated for myself and grow my career the way I wanted. Edit: A little clarification about my last role. I took that job because they were using tech I wanted to learn and they had a team I wanted to work with. They also offered me salary that was a healthy bump from where I was at at the time. I didn't early exercise those options back then because I didn't know enough about the company to justify plunking down the cash. After being there nearly 5 years I believe in the company a lot and see the exercise as a smart investment. I don't have that clarity yet for my current role and so it just doesn't make sense to me to early exercise.
gwbas1c 4y ago
> The correct answer is a 10-year extended window How would that work? Very few people stay in a tech job for 10 years. I stayed in a software job for 9 years, until I was laid off, and that's extremely unusual.
- erichurkman 4y ago
  Most startups offer a 90 day window to exercise after you leave. Some companies have extended that to longer (caveat being they convert to NSO grants after 90 days).
- gkoberger 4y ago
  Normally, the exercise window starts when you leave and lasts 90 days. The 10 years works the same way, except much longer! It has nothing to do with how long you're at the company (although some companies only trigger an extended window after you've hit X years). Here's more: https://zachholman.com/posts/fuck-your-90-day-exercise-window/ https://zachholman.com/posts/fuck-your-90-day-exercise-windo...

dehrmann 4y ago

The gotcha with exercising early is you have less information about an illiquid asset. The longer you can wait, the more time you have to see if the company will succeed.

tempsy 4y ago
if you leave the company you get a refund for whatever it is you don’t vest. i feel like people who are acting like early exercise is money down a black hole aren’t aware that if the company is going nowhere you will probably know that long before 4 years, in which case if you leave you get a refund for unvested options. and even if you’ve vested shares you’re unsure about in many cases the company will offer to buyback shares. worst case it’s a write off against capital gains.