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Stripe faces $3.5B tax bill as employees' shares expire

322 points by chollida1 4y ago

krmbzds 4y ago
https://archive.is/iIxdI https://archive.is/iIxdI
raylad 4y ago
I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?
- BlackjackCF 4y ago
  Like you said, if the employees filed an 83b, they would be in the clear. However, the article’s talking about some of Stripe’s earliest employees, who might not have elected to file an 83b because the company was still unestablished and risky, and filing the 83b meant potentially paying taxes on shares that might ultimately be worthless. And since these are the company’s early employees, I imagine that Stripe is doing this to try and ensure they retain them.
  - raylad 4y ago
    If they were the earliest employees the stock should have been at par value, making the tax payment minimal. Later employees typically get options, which don't have the tax issue. So I'm still unclear where the tax bill is coming from.
    - yieldcrv 4y ago
      Because they didn’t get options. Stripe was flirting with going public for so long that they gave RSUs and people were trading the shares on private secondary markets. Those secondary markets have dried up in the general macroeconomic environment, so now this practice is leaving people with their pants down, complete illiquidity.
      - raylad 4y ago
        If they didn't get options, tax would have had to be paid as each RSU vested if it was not paid with an 83b election. So again, I don't see why Stripe has a tax bill now.
        deleted 4y ago
        [deleted]
        kasey_junk 4y ago
        RSU don’t allow an 83b. Stripe issued double trigger RSU so the tax is only due when the second trigger occurs, which hasn’t happened yet. Some of the RSU have upcoming expiration dates as required by IRS rule. To avoid those expiration dates Stripe wants to do something. That something probably involves a big tax withholding for Stripe that must be paid in cash. Stripe doesn’t intend to go public soon so is seeking an alternate way to come up with that cash.
    - bzax 4y ago
      I don't know why you believe later employees get options. It is true that at public companies, employees often are compensated with options, but at "startup"s where the FMV of a new employee grant would be prohibitively expensive to either early exercise or pay income taxes on, employees get RSUs. Options are for small companies, and 83b elections when the exercise price can be paid by the employee upfront. RSU are for unicorns. Once the company is public and there is liquidity you can do whatever. Except backdating stock options...
      - raylad 4y ago
        Someone here is confused, and it might be me. As I understand it: In a company where the fair market value share price is $1/share, if you get granted 100 options, you owe tax on $0 because options are not taxable. If you get granted 100 RSUs which are all fully vested, you owe tax on $100 because stocks are taxable. If the RSUs are 0% vested you don't owe any tax yet. Then, if the share price goes up to $2 a share, you still owe $0 tax on your options, but if you have RSUs and 50 of them now vest, you immediately owe tax on $100 (50 x $2) - unless you did an 83b election and paid taxes on the 100 shares at $1 a share at the time you got the grant. If you exercise the options, now you owe tax on $200 (100 x $2), whether or not you can sell the stock. So again, I don't understand why Stripe would have a tax bill under any of these scenarios. The employees would have a tax bill connected with vesting of RSUs if they had not done an 83b election, but no one else would have any tax due until they (exercise in the case of options) and then sell the stock.
        bink 4y ago
        If I'm understanding it correctly, the employees won't have a tax bill if they let the options expire, but they are presumably worth millions so they don't want to just throw that money away. If they exercise then they will owe taxes and they will also have no way to sell the shares (currently) to pay the tax bill.
        raylad 4y ago
        Sure, but options don't expire while you are an employee. So if Stripe wants to let employees sell stock, they only have to exercise options equal to the number of shares they will sell, then they can use the proceeds to pay the tax. I still don't understand why there is a tax bill for Stripe.
    - fatnoah 4y ago
      They way I'm reading the article is that there are employees that would incur large tax liabilities by exercising their options, but have no way to sell those option, so Stripe is looking to cover those taxes. Whether those employees may or may not have been able to ameliorate this by making an 83b election is moot at this point. They clearly didn't, so now something has to happen if the company wants to keep them around.
      - s1artibartfast 4y ago
        I can't read the whole article but are they planning to buy back some of the stock to cover the tax, or simply pay it as some kind of a perk. Edit: after reading the archive link, it seems that the former case is the most likely.
        fatnoah 4y ago
        Yeah, I think it's the former, so it'll feel more like "sell to cover" for the employee. I'd have to imagine that paying it as a perk would trigger its own tax liability.
  - rcme 4y ago
    Shouldn't the strike of the options make them worthless at grant time? I was under the impression that the 83b election is awesome because it basically gives you tax free grants.
    - s1artibartfast 4y ago
      That may be the case if you're employee number 10, but if the company already has a high valuation you're in trouble
      - kjellsbells 4y ago
        Making sure I get your point: if I get a job at a mature company, like amazon, and they give me, say, 100k in stock options, then AIUI filing a 83b would be painful as I'd owe taxes on 100k even before they vest. But as the stock vests, isnt that treated as income and taxed anyway? And then taxed again if I sell (as capital gains)? If so then it comes down to a gamble of whether the stock is going to go up by the time the stock vests and whether you happen to have the spare cash around to pay a tax bill. Am i reading that right?
        zamnos 4y ago
        But as a mature company, Amazon's stock price is not likely to undergo huge swings. Thus you wouldn't file an 83b. However, a startup aiming for unicorn status will have a huge inflation in valuation on the way to being a unicorn (and beyond). If you're unlucky, doing an 83b early exercise will hit right as the valuation jumps, leaving you with a five figure tax bill. I mean, that's better than, say, an eight figure tax bill, but taking a five figure risk so early on in a companies life cycle when there's not even a proven product market fit is, well, risky. If you're in a place where losing that kind of investment because of a remotely possible potential upside, your risk tolerance is simply higher than mine. The other thing to consider is your vesting timeline. As you vest, you'll owe additional taxes, which means a sizable tax bill before there's been a liquidity event. If you are rich enough to afford that then hey, go for it. But not everyone is in a position to be able to do that.
  - jossclimb 4y ago
    You cannot elect 83b on RSU's.
- yieldcrv 4y ago
  Very few people are in a position to pay for all their shares upon accepting a job. Which an 83b election entails. Change my view.
  - yibg 4y ago
    Depends on when. If you join when the shares are with $0.10 then exercising is not going to be costly on tech salaries.
- bzax 4y ago
  If you do an 83b election on RSUs, you'd recognize the entire present value of the RSU grant as income in that year, and pay taxes on it. I believe you're then limited to claiming capital losses on that if you leave before it all vests, or it all ends up worthless. Stripe was already worth $9B in 2016. If you joined then, it could have been prohibitively expensive to do an 83b election. The whole point of RSUs is that you don't owe anything until there is a liquidity event, unlike options which you may be required to exercise or lose while the company is still private. However, RSUs only get this favorable treated (i.e. you've been given something of value, but can defer paying taxes on it) because they technically expire worthless if the company does not have a liquidity event in time. Thus far no successful tech company (that I know of) has screwed over its employees by casually choosing not to have a liquidity event and letting years worth of RSUs grants all expire worthless. Stripe is trying to arrange liquidity for its employees who were granted RSUs in e.g. 2016, and that expire in 2023. Those employees have not had to pay taxes as the RSUs vested, but will have a large tax bill if those RSUs do anything other than expire worthless...
  - s1artibartfast 4y ago
    Can they not just let the old RSU was expire and provide new grants with an equivalent number of shares? That prevent the tax on exercising non liquid shares. Similarly, why not just offer to buy the stock back at current valuation and leave it up to the employees to settled any taxes
    - bzax 4y ago
      They certainly can let the old RSUs expire worthless, but holding up the "social contract" (as opposed to the strict legal contract) with their employees (and former employees!) while also not drawing the ire of the IRS may be a challenge. If you give new RSU grants, what time period do they vest over? What happens to current employees who leave before then, if they are required to re-earn-out their comp? What can you do at all about former employees? Will the IRS still accept that this deferred compensation is subject to "substantial risk of forfeiture" and thus the taxes on it can be deferred (see U.S. Code 409A)? Stripe is trying to do option b), buy back stock at current valuation. To do so, they need to raise a couple billion dollars. That money will go to the employees (in exchange for some stock) so that the employees can settle up their taxes, though the IRS will "cut out the middleman" so to speak, and requires Stripe to simple withhold the proceeds and remit to the IRS on the employees' behalf. The $3.5B tax bill is not "corporate tax" owed by Stripe, but employee income tax that will be owed by employees if there is a liquidity event, and which Stripe will be, in practice, required to withhold on their behalf if Stripe arrange that liquidity for them.
- kasey_junk 4y ago
  RSUs aren’t eligible for an 83b election.
  - jossclimb 4y ago
    correct The 83b election is a provision in the Internal Revenue Code that allows employees who receive equity-based compensation (such as restricted stock) to elect to be taxed on the value of the stock at the time it is granted rather than at the time it vests. This can be beneficial for employees who believe that the value of the stock will increase over time, as they will pay taxes on the lower grant price rather than the higher vesting price. However, RSUs are different from restricted stock in that they do not represent actual ownership in the company until they are vested and settled in shares. Therefore, they cannot be subject to an 83(b) election. Instead, RSUs are generally taxed as ordinary income at the time of vesting, based on the fair market value of the underlying shares on that date.
- el_nahual 4y ago
  Options expire after 10 years, so employees that got grants in 2013 have to exercise them now.
- deleted 4y ago
  [deleted]
- yibg 4y ago
  Only if you join early enough for the early exercise cost to be low. Anyone that joined after the first few years probably won’t be able to or want to pay the upfront cost for early exercising.
  - abledon 4y ago
    I'm gonna need a {username}.github.io/stripeipovisualizer for this, with chart.js and d3.js interactive charts. ALso, throw in 2 reddit ELI5s
  - yibg 4y ago
    Also to clarify, RSUs are not exercised. They are yours when they vest and taxes are due when they vest (hence the double trigger) Early startup employees are typically granted stock options. Stock options can be exercised, and the spread is taxed. Very early stage employees typically opt to do a 83b and early exercise. In this case the tax is due right then, but because the strike price is low and spread is nominally 0, the overall cost is low as well. If you join later when your strike price is already high, it’s not financially viable for most to early exercise.
- elgenie 4y ago
  First of all, the issue here is with options, not RSUs. The reason employees of early stage companies don’t take 83b elections for RSUs or exercise their options early is because that dramatically ups the risk: they have to front the money for exercise (strike price * number of options) or pay the tax bill on the RSUs as income. If the company then goes belly up, the IRS doesn’t give the money back, so the employee is out of a job and also that money. It makes sense to buy in like that if and only if the person is otherwise rich and diversified enough that choosing to make the equivalent of a speculative seed investment (and usually dead lost in terms of liquidation preference) would be reasonable for their overall portfolio. That financial situation is not a common one among early startup employees.
  - kgwgk 4y ago
    > First of all, the issue here is with options, not RSUs. Where is "here"? The headline "Stripe faces $3.5B tax bill as employees' shares expire" is about RSUs. The subheadline "Firm also expects to use $600 million to exercise some options" is about options.
olliej 4y ago
Oh, look another train wreck caused by a non-public company offering "equity" based compensation.
- toomuchtodo 4y ago
  The knife cuts both ways. Just as these stories exist, there are plenty of folks who have fell into life changing or generational wealth through equity comp. Treat it for the lottery ticket it is.
  - olliej 4y ago
    I would treat it as a lottery if I thought it was a lottery. But it isn't a lottery. If a startup _chooses_ not to go public then it I cannot realize any compensation from that valuation - given the founders always seem to be able to, why isn't that option available to the rank-and-file employees? Similarly there have been multiple start ups that sold the controlling class of stock off and rendered all other stock worthless. A startup equity based compensation is only a lottery if the startup allows every employee who is being compensated with "equity" the opportunity to sell their "equity" back to the company at the current market valuation, or as part of the equity exchange in a funding round. Otherwise the value of the equity is determined by the company - what we're seeing here is that Stripe has realized that their scam compensation is running the risk of now actively harming their employees rather than just ripping them off. Stripe doesn't need to do any tax funding BS to "help" its employees: it just has to buy back the RSUs that are scheduled to expire at their apparent face value. The tax problem that employees are being faced with is entirely a result of stripe refusing to actually pay employees what they have earned.
    - danielmarkbruce 4y ago
      This take isn't right. Stripe has done the right thing here. They've always been honest about what the comp was, what the risks were, and now they are doing the right thing, again. The employees involved recognize it as such and the only people making disparaging remarks are either not involved or don't understand it.
noahmbarr 4y ago
(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems to be teeing up a secondary sale of these stocks themselves -- where Stripe is offering to buy some of their shares back from those early employees, allowing the employees to exercise ('buy") all of those early options and (at least) pay their tax bill. Usually, a company will limit the # of shares eligible for a secondary purchase so current/former employees can buy all the stock, sell enough to the company to cover that person's resulting tax bill, and keep the remaining stock until IPO. By limiting the # of shares they will allow to be purchased via the secondary, Stripe will almost certainly make sure the secondary does not create post-tax cash gains to make people wealthy! It doesn't have to be that way: Stripe could allow ANY investor to buy the shares directly from those employees -- but guessing Stripe has a blocking right on stock transfers-- so they have, and will continue to block early employee sales to new investors. Stripe and many companies have these transfer "veto right" to make sure they can control their ownership ("cap table") and also to make sure early employees don't get rich before the IPO. This is my best guess-- I am not familiar with the Stripe's situation.
- paxys 4y ago
  > This is my best guess-- I am not familiar with the Stripe's situation. All of what you said is literally the content of the article.
  - noahmbarr 4y ago
    Other people asked a bunch of q's so I tried to present it a little differently Key concepts that were net-new from the article: * 10 year concept IRS restriction * Concept of a transfer Block essentially requiring a company sponsored secondary * Idea that Stripe could stay out of it, and just allow (partially) transfer waiver to 3rd party investor * The concept of most startups strong preference against creating liquid wealth events for early employees prior to IPO Perhaps you knew all of this, but the other commenters didn't seem to have this knowledge top of mind.
sfc32 4y ago
Did the CEO/CFO not see this one coming? Or was it a calculated gamble they took and lost on?
- mcast 4y ago
  They were enjoying the years of free* VC money before the recent interest hikes were made.
  - rvz 4y ago
    And the time to IPO was in 2019 when everyone there was heading for the exit as I said before. [0] At the time, Stripe said they can wait, no time to rush for an IPO. Now they know they need to IPO before their employee options expire and the down-rounds coming in. [0] https://news.ycombinator.com/item?id=20993919 https://news.ycombinator.com/item?id=20993919
- qwerpy 4y ago
  CFO departed mysteriously very recently, so maybe there was something there: https://www.axios.com/2023/02/03/stripe-cfo-suryadevara-step-down https://www.axios.com/2023/02/03/stripe-cfo-suryadevara-step...
dang 4y ago
Related ongoing thread: Stripe Is Raising $6B to Resolve Employee Tax Issue - https://news.ycombinator.com/item?id=35074633 https://news.ycombinator.com/item?id=35074633 - March 2023 (23 comments) Edit: there's also https://www.reuters.com/article/us-stripe-funding-breakingviews-idDEKBN2V41M1 https://www.reuters.com/article/us-stripe-funding-breakingvi... - thanks dvt (https://news.ycombinator.com/item?id=35075013 https://news.ycombinator.com/item?id=35075013).
deleted 4y ago
[deleted]
paxys 4y ago
The article title is mixing up two different problems, and I think that's what is causing all the confusion in this thread. 1. Stripe has to pay $3.5B in taxes. This is unrelated to employee stock. 2. Lots of long term employees have expiring options, and if they exercised them they would face a massive tax bill. To solve both 1 & 2 Strips is doing an additional raise of $2.3B from private investors which will (1) give them money to pay that tax this quarter and (2) let employees exercise their options and sell shares to the same investors ($600M worth) – so basically a buyback event.
- mike_d 4y ago
  Stripe is saying that the taxes are not for normal business operations, so I believe in this case #1 is actually related to problem #2.
  - hackernewds 4y ago
    yes, also Stripe will need to offer employees some relief (buying them out due to lack of liquid mkt mostly) which compounds to their expenses for the tax bill
- Kukumber 4y ago
  raising money only just to pay people's tax from people who want to cash out seems scammy
  - Blackthorn 4y ago
    Letting the RSUs expire is even more scammy.
  - danielmarkbruce 4y ago
    Who is being scammed?
  - Nifty3929 4y ago
    It not people who want to cash out. Actually it’s people who can’t cash out otherwise, but will still have a huge tax bill if they exercise before the options expire. The only other choice for these employees would be to simply allow millions of Dollars (each) of options to expire.
CodeWriter23 4y ago
> Throughout the fundraising, Stripe has been adamant with investors that it doesn’t need the cash to fund normal business operations. Covering tax liabilities apparently is not part of "normal business operations" at Stripe.
- ztratar 4y ago
  Tax liabilities on (optional) employee secondary stock sales is most certainly not a normal business operation.
  - CodeWriter23 4y ago
    If your SOP is handing out options, yes it is. I’d also say GAAP likely requires building a cash reserve to cover such liabilities. I’m not an accountant but I’m pretty sure they have to be ready to cover the difference between the option and strike price until the expiry of the option. One would imagine that is less than tax when the option remains unexercised.
    - danielmarkbruce 4y ago
      It's not a Stripe liability, so no. GAAP is a set of accounting standards - it doesn't require taking actions, it's about how to record things if you want to meet those standards. So no, there is no GAAP requirement to build a cash reserve. For what it's worth, Stripe isn't even obliged to follow GAAP for their accounting (it is likely they signed a contract somewhere which calls for a set of financials meeting GAAP to be furnished periodically, but again GAAP doesn't require actions, it stipulates accounting entries).
    - pjc50 4y ago
      That is absolutely not how options work; the options entitle you to shares, not cash, so all they have to do is put aside a part of the share pool.
- deleted 4y ago
  [deleted]
rvnx 4y ago
The company brings only 127M USD / yr in fees. To generate this income, they are losing money. 10M USD / month in income for a valuation of 95B USD sounds really insane (even at 50B USD valuation). This could be the real reason why the employees are not so excited to purchase the shares even at a supposedly deep-discount @ 10B USD.
- gkoberger 4y ago
  Do you have a source on this? Nothing I could find is within an order of magnitude of your number. Two weeks ago, Bloomberg said they process $1T in payment volume and expect to turn a profit this year. https://www.bloomberg.com/news/articles/2023-02-16/stripe-is-on-track-to-turn-a-profit-with-1-trillion-in-payment-volume https://www.bloomberg.com/news/articles/2023-02-16/stripe-is...
  - abhv 4y ago
    Stripe charges 2.9% + 30c per transaction. From that, about 1.3% + 5c per tx go to interchange + assessment fees. This leaves about 1.6% + 25c for the payment processor. 14.3 on 816b is about 1.7% which is consistent. On 1T, that means about 17b in revenue. Lets assume they have 7000 employees (i've seen 6000-8000 in searches). As rough estimates, these SFO-based SWEs + knowledge workers cost 1m/yr on average (which includes their total comp, insurance, federal + state taxes, and operating overheads amortized over all employees). So their cost of labor may be around 7-8b/year. They may have other acquisition and marketing costs, but it means the co can feasibly be earning >8b before taxes, depreciation, amortization, etc. That number could justify a 80b valuation. If their current round cap is 55b, then my #s on costs are off, or the multiple has dropped to 6-7. Please debug.
    - itake 4y ago
      I’m a bit surprised their employees cost so much. I’d imagine engineers might, but other orgs like Hr, sales, recruiting, or support (which should be most of the headcount) would be compensated way less.
    - deleted 4y ago
georgelyon 4y ago
I've always been curious, what happens if they just let these shares just expire? It wouldn't look great for Stripe, but presumably they would just get back for free (modulo taxes) any shares employees could not afford to exercise. The value of those shares alone could be pretty enticing to the people in charge.
- mertd 4y ago
  Good luck hiring or retaining anyone after that while Stripe is still private.
  - ojbyrne 4y ago
    I think the point the previous commentator was trying to make was, why can't they let them expire and issue new options/RSUs of equivalent value to the same people.
    - deleted 4y ago
      [deleted]
    - superzamp 4y ago
      My understanding is that the delta between their strike price and the current valuation would be seen as capital gain and taxed accordingly.
  - postalrat 4y ago
    Thats a lot of money they don't need to pay that could be used to hire and retain people.
    - snemvalts 4y ago
      Stripe's compensation is notoriously option heavy, almost like it were a public company https://www.levels.fyi/companies/stripe/salaries/software-engineer https://www.levels.fyi/companies/stripe/salaries/software-en...
- 4y ago
sbrother 4y ago
Why can't stripe let them expire, and then issue new grants to all affected employees with the same nominal value as the expired grants?
- siquick 4y ago
  Let’s just hope this isn’t an option so a major corp can’t find yet another way to not pay tax.
- deleted 4y ago
  [deleted]
- mschulkind 4y ago
  The IRS won't let you. You're essentially suggesting discounting stock options: https://www.jdsupra.com/legalnews/section-409a-implications-of-discounted-37112/ https://www.jdsupra.com/legalnews/section-409a-implications-...
- subarctic 4y ago
  Would the strike price be the same? If it is then I believe the employees are still on the hook for the same tax bill, because it's lower than the current fair market value.
- jacquesm 4y ago
  Because Stripe as a whole is now much more valuable you'd either be defrauding the tax office or causing the employees to be massively diluted.
m3kw9 4y ago
These are all accounted for once issued no?
yalogin 4y ago
This is a very interesting situation. Generally at startups, is there no room to negotiate to get RSUs instead of options? What is the reason they give options instead of options? They want to reduce the amount of stock people own that no longer work at the company over time?
- samclearman 4y ago
  RSU's are taxed on vesting, so it would be worse than options if anything. Best are options with early exercise, but they're still not perfect (you have a possibly significant upfront cost to exercise them). Really they should just change the AMT rules.
zwilliamson 4y ago
So are companies incentivizing to not let RSUs expire for employees? Otherwise they face a large tax bill?
remote_phone 4y ago
This is completely Stripe’s fault for not going public sooner. I hope Stripe and Uber become lessons on how not to let your company stay too long as a private company.
SamvitJ 4y ago
> Winning Competitions > In the presentation, Stripe said it generated $14.3 billion in revenue as it processed $816 billion in payments volume last year. The company’s so-called transaction margin before losses — a measure of net revenue — rose to $3.17 billion, or 0.38% of total volume. That compares with 17 basis points for rival Adyen NV, according to the presentation. Does anyone else feel these numbers aren't as high as expected? Sure $14B in annual revenue (and margins of ~$3b on that revenue) is nothing to scoff at. But $14B isn't even close to Amazon/Azure cloud big or even Amazon Ads big. Perhaps Stripe's valuation assumes a steep uptick in this revenue in the years to come?
- umeshunni 4y ago
  FWIW, Paypal's revenues are $25.37B/year and it has a market cap of $86B
  - ztratar 4y ago
    And those are measured in the same way Stripe measures the $14B number. Granted, PayPal has a higher take rate than both Adyen and Stripe. But also much lower growth.
- martinald 4y ago
  I'm unsure how stripe is only making 0.38% on transactions, given at least in the UK they are vastly more expensive than other providers on their public pricing. For example; stripe charges 1.5%+20p for UK cards. Revolut charges 1%+20p for online transactions, 0.8%+2p for in person. I'm sure other providers charge even less than this but they don't make the pricing public easily. Ayden is perceived to be a lot cheaper than stripe too, so I am surprised they are only getting 20bps more. What am I missing here? Are margins a lot tighter in the US market, and stripe is extremely US focussed (one possibility?), or are Stripe giving really heavy discounts for volume which really drags down their marigns?
- cornholio 4y ago
  The main problem with investing in Stripe is they are one meeting away from being disrupted into oblivion. This would be the meeting where the likes of Revolut, Transferwise, PayPal, Monzo etc. meet with the high-street bankers and with the eCommerce industry and agree to cutout the middle man and rollout a modern online payment system for the 21st century, cheap and architected to resist fraud. Many European countries already have local systems. Luckily for Stripe, MC, Visa etc. those three groups hate each other, but the probably of this meeting happening in the long run tends towards certainty.
Bessie69 4y ago
[dead]
Nifty3929 4y ago
If Stripe didn’t do that, could the affected employees theoretically borrow money themselves to exercise the options and pay the taxes?
- kgwgk 4y ago
  Just like anyone can theoretically borrow money to do whatever they want.
ConcernedCoder 4y ago
...and this is why I choose to work at companies that issue STOCK not OPTIONS as part of my compensation.
sub7 4y ago
Stripe was trading at $150 a share in the private market which valued it at ~$135B at some point. I think the investors who got in at $10B would be lucky to see a return. My guess is founder/early employee stock has already exited as much as possible and notional value still on the books will be mostly wiped out Stripe is a super paranoid company that knows it's valuation is tied to it's hype and they spend absurd $ on legal and "business intelligence" because the truth is they are really just a nicely documented API that any regulated entity can provide. If/when they stop subsidizing their growth with investor $, Stripe common stock = 0
noja 4y ago
Who is this news for? It can't be Stripe, they already know this. It can't be investors, this information is already priced in.
- mousetree 4y ago
  There are a lot of other people in the world that read Bloomberg news who are not Stripe and who are not Stripe investors.
- destitude 4y ago
  I thought it was interesting because it shows what other companies are doing for their employees that have been there for 10 years. This was a big topic at a previous company I worked at who had employees getting close to their 10 year mark and it looks like that previous company is just going to let those employees options expire and screw them over.
- braza 4y ago
  For is interesting because as an employee I can see different job dynamics being played out and learn from that for the next position. For instance: this is a big topic for folks that wants to join late stage scale-ups because since they are issuing RSUs instead options to be attractive for future employees it comes with a very risky dynamic that is the company let those RSUs expire, or worse: folks overhang in some financial obligations in some not liquid instrument.
omgomgomgomg 4y ago
Ah, well, I have seen people who ended up in debt to the tax aithorities because of such deals and schemes. I would always prefer the cash and be done with it.
fumblebee 4y ago
I'm curious, why even have the 10 year expiry cutoff? Is there a regulatory ask that this be the case, or is there logic I'm not seeing? Hindsight is ofc 20/20, those contracts have long since been set in stone, but I can't help but think Stripe (and maybe other future companies) could have saved themselves a $6bn headache by not having the expiry in the first place.
- kasey_junk 4y ago
  Double trigger RSU require a real chance at forfeiture or they get taxed on grant by IRS rule. Given that you use double trigger RSU to avoid getting taxed at grant, all double trigger RSU will have an expiration.
antomeie 4y ago
That is such a confusing title... How I interpret the article is rather: "Stripe is raising $3.5B in order to buy-back shares from employees". Which, if that is the case, really is just a re-distribution of money. Nothing is gained, nor lost. But the article wants it to look like stripe is about to take a $3.5B tax loss...
orenbarzilai 4y ago
[flagged]
- bagacrap 4y ago
  What happens when there's no liquidity event or insufficient to cover the loan? What is the "share of the upside" in terms of percentange?
  - orenbarzilai 4y ago
    The employee never pays out of pocke. Note it's not a loan, but an investment. Upon a liquidity event, the employee needs to pay back the investment amount + certain percentage of their shares. If the total amount is lower than the investment amount, the payback amount is capped by the amount they received for their shares. Thus, the employee will never pay out of pocket. Regarding the share %, that varies based on the demand by the investor community for the specific company, and the specific employee strike price.

322 points by chollida1 4y ago

https://archive.is/iIxdI https://archive.is/iIxdI

I'm not following why there is a tax bill. If the stocks are founder stock or RSU, then the employee should have done an 83b election to avoid paying tax as they vest. If they are options, then the employee is under no obligation to exercise them, and owes no tax until they are exercised. What am I missing?

BlackjackCF 4y ago
Like you said, if the employees filed an 83b, they would be in the clear. However, the article’s talking about some of Stripe’s earliest employees, who might not have elected to file an 83b because the company was still unestablished and risky, and filing the 83b meant potentially paying taxes on shares that might ultimately be worthless. And since these are the company’s early employees, I imagine that Stripe is doing this to try and ensure they retain them.
- raylad 4y ago
  If they were the earliest employees the stock should have been at par value, making the tax payment minimal. Later employees typically get options, which don't have the tax issue. So I'm still unclear where the tax bill is coming from.
  - yieldcrv 4y ago
    Because they didn’t get options. Stripe was flirting with going public for so long that they gave RSUs and people were trading the shares on private secondary markets. Those secondary markets have dried up in the general macroeconomic environment, so now this practice is leaving people with their pants down, complete illiquidity.
    - raylad 4y ago
      If they didn't get options, tax would have had to be paid as each RSU vested if it was not paid with an 83b election. So again, I don't see why Stripe has a tax bill now.
      - deleted 4y ago
        [deleted]
      - kasey_junk 4y ago
        RSU don’t allow an 83b. Stripe issued double trigger RSU so the tax is only due when the second trigger occurs, which hasn’t happened yet. Some of the RSU have upcoming expiration dates as required by IRS rule. To avoid those expiration dates Stripe wants to do something. That something probably involves a big tax withholding for Stripe that must be paid in cash. Stripe doesn’t intend to go public soon so is seeking an alternate way to come up with that cash.
  - bzax 4y ago
    I don't know why you believe later employees get options. It is true that at public companies, employees often are compensated with options, but at "startup"s where the FMV of a new employee grant would be prohibitively expensive to either early exercise or pay income taxes on, employees get RSUs. Options are for small companies, and 83b elections when the exercise price can be paid by the employee upfront. RSU are for unicorns. Once the company is public and there is liquidity you can do whatever. Except backdating stock options...
    - raylad 4y ago
      Someone here is confused, and it might be me. As I understand it: In a company where the fair market value share price is $1/share, if you get granted 100 options, you owe tax on $0 because options are not taxable. If you get granted 100 RSUs which are all fully vested, you owe tax on $100 because stocks are taxable. If the RSUs are 0% vested you don't owe any tax yet. Then, if the share price goes up to $2 a share, you still owe $0 tax on your options, but if you have RSUs and 50 of them now vest, you immediately owe tax on $100 (50 x $2) - unless you did an 83b election and paid taxes on the 100 shares at $1 a share at the time you got the grant. If you exercise the options, now you owe tax on $200 (100 x $2), whether or not you can sell the stock. So again, I don't understand why Stripe would have a tax bill under any of these scenarios. The employees would have a tax bill connected with vesting of RSUs if they had not done an 83b election, but no one else would have any tax due until they (exercise in the case of options) and then sell the stock.
      - bink 4y ago
        If I'm understanding it correctly, the employees won't have a tax bill if they let the options expire, but they are presumably worth millions so they don't want to just throw that money away. If they exercise then they will owe taxes and they will also have no way to sell the shares (currently) to pay the tax bill.
        raylad 4y ago
        Sure, but options don't expire while you are an employee. So if Stripe wants to let employees sell stock, they only have to exercise options equal to the number of shares they will sell, then they can use the proceeds to pay the tax. I still don't understand why there is a tax bill for Stripe.
  - fatnoah 4y ago
    They way I'm reading the article is that there are employees that would incur large tax liabilities by exercising their options, but have no way to sell those option, so Stripe is looking to cover those taxes. Whether those employees may or may not have been able to ameliorate this by making an 83b election is moot at this point. They clearly didn't, so now something has to happen if the company wants to keep them around.
    - s1artibartfast 4y ago
      I can't read the whole article but are they planning to buy back some of the stock to cover the tax, or simply pay it as some kind of a perk. Edit: after reading the archive link, it seems that the former case is the most likely.
      - fatnoah 4y ago
        Yeah, I think it's the former, so it'll feel more like "sell to cover" for the employee. I'd have to imagine that paying it as a perk would trigger its own tax liability.
- rcme 4y ago
  Shouldn't the strike of the options make them worthless at grant time? I was under the impression that the 83b election is awesome because it basically gives you tax free grants.
  - s1artibartfast 4y ago
    That may be the case if you're employee number 10, but if the company already has a high valuation you're in trouble
    - kjellsbells 4y ago
      Making sure I get your point: if I get a job at a mature company, like amazon, and they give me, say, 100k in stock options, then AIUI filing a 83b would be painful as I'd owe taxes on 100k even before they vest. But as the stock vests, isnt that treated as income and taxed anyway? And then taxed again if I sell (as capital gains)? If so then it comes down to a gamble of whether the stock is going to go up by the time the stock vests and whether you happen to have the spare cash around to pay a tax bill. Am i reading that right?
      - zamnos 4y ago
        But as a mature company, Amazon's stock price is not likely to undergo huge swings. Thus you wouldn't file an 83b. However, a startup aiming for unicorn status will have a huge inflation in valuation on the way to being a unicorn (and beyond). If you're unlucky, doing an 83b early exercise will hit right as the valuation jumps, leaving you with a five figure tax bill. I mean, that's better than, say, an eight figure tax bill, but taking a five figure risk so early on in a companies life cycle when there's not even a proven product market fit is, well, risky. If you're in a place where losing that kind of investment because of a remotely possible potential upside, your risk tolerance is simply higher than mine. The other thing to consider is your vesting timeline. As you vest, you'll owe additional taxes, which means a sizable tax bill before there's been a liquidity event. If you are rich enough to afford that then hey, go for it. But not everyone is in a position to be able to do that.
- jossclimb 4y ago
  You cannot elect 83b on RSU's.
yieldcrv 4y ago
Very few people are in a position to pay for all their shares upon accepting a job. Which an 83b election entails. Change my view.
- yibg 4y ago
  Depends on when. If you join when the shares are with $0.10 then exercising is not going to be costly on tech salaries.
bzax 4y ago
If you do an 83b election on RSUs, you'd recognize the entire present value of the RSU grant as income in that year, and pay taxes on it. I believe you're then limited to claiming capital losses on that if you leave before it all vests, or it all ends up worthless. Stripe was already worth $9B in 2016. If you joined then, it could have been prohibitively expensive to do an 83b election. The whole point of RSUs is that you don't owe anything until there is a liquidity event, unlike options which you may be required to exercise or lose while the company is still private. However, RSUs only get this favorable treated (i.e. you've been given something of value, but can defer paying taxes on it) because they technically expire worthless if the company does not have a liquidity event in time. Thus far no successful tech company (that I know of) has screwed over its employees by casually choosing not to have a liquidity event and letting years worth of RSUs grants all expire worthless. Stripe is trying to arrange liquidity for its employees who were granted RSUs in e.g. 2016, and that expire in 2023. Those employees have not had to pay taxes as the RSUs vested, but will have a large tax bill if those RSUs do anything other than expire worthless...
- s1artibartfast 4y ago
  Can they not just let the old RSU was expire and provide new grants with an equivalent number of shares? That prevent the tax on exercising non liquid shares. Similarly, why not just offer to buy the stock back at current valuation and leave it up to the employees to settled any taxes
  - bzax 4y ago
    They certainly can let the old RSUs expire worthless, but holding up the "social contract" (as opposed to the strict legal contract) with their employees (and former employees!) while also not drawing the ire of the IRS may be a challenge. If you give new RSU grants, what time period do they vest over? What happens to current employees who leave before then, if they are required to re-earn-out their comp? What can you do at all about former employees? Will the IRS still accept that this deferred compensation is subject to "substantial risk of forfeiture" and thus the taxes on it can be deferred (see U.S. Code 409A)? Stripe is trying to do option b), buy back stock at current valuation. To do so, they need to raise a couple billion dollars. That money will go to the employees (in exchange for some stock) so that the employees can settle up their taxes, though the IRS will "cut out the middleman" so to speak, and requires Stripe to simple withhold the proceeds and remit to the IRS on the employees' behalf. The $3.5B tax bill is not "corporate tax" owed by Stripe, but employee income tax that will be owed by employees if there is a liquidity event, and which Stripe will be, in practice, required to withhold on their behalf if Stripe arrange that liquidity for them.
kasey_junk 4y ago
RSUs aren’t eligible for an 83b election.
- jossclimb 4y ago
  correct The 83b election is a provision in the Internal Revenue Code that allows employees who receive equity-based compensation (such as restricted stock) to elect to be taxed on the value of the stock at the time it is granted rather than at the time it vests. This can be beneficial for employees who believe that the value of the stock will increase over time, as they will pay taxes on the lower grant price rather than the higher vesting price. However, RSUs are different from restricted stock in that they do not represent actual ownership in the company until they are vested and settled in shares. Therefore, they cannot be subject to an 83(b) election. Instead, RSUs are generally taxed as ordinary income at the time of vesting, based on the fair market value of the underlying shares on that date.
el_nahual 4y ago
Options expire after 10 years, so employees that got grants in 2013 have to exercise them now.
deleted 4y ago
[deleted]
yibg 4y ago
Only if you join early enough for the early exercise cost to be low. Anyone that joined after the first few years probably won’t be able to or want to pay the upfront cost for early exercising.
- abledon 4y ago
  I'm gonna need a {username}.github.io/stripeipovisualizer for this, with chart.js and d3.js interactive charts. ALso, throw in 2 reddit ELI5s
- yibg 4y ago
  Also to clarify, RSUs are not exercised. They are yours when they vest and taxes are due when they vest (hence the double trigger) Early startup employees are typically granted stock options. Stock options can be exercised, and the spread is taxed. Very early stage employees typically opt to do a 83b and early exercise. In this case the tax is due right then, but because the strike price is low and spread is nominally 0, the overall cost is low as well. If you join later when your strike price is already high, it’s not financially viable for most to early exercise.
elgenie 4y ago
First of all, the issue here is with options, not RSUs. The reason employees of early stage companies don’t take 83b elections for RSUs or exercise their options early is because that dramatically ups the risk: they have to front the money for exercise (strike price * number of options) or pay the tax bill on the RSUs as income. If the company then goes belly up, the IRS doesn’t give the money back, so the employee is out of a job and also that money. It makes sense to buy in like that if and only if the person is otherwise rich and diversified enough that choosing to make the equivalent of a speculative seed investment (and usually dead lost in terms of liquidation preference) would be reasonable for their overall portfolio. That financial situation is not a common one among early startup employees.
- kgwgk 4y ago
  > First of all, the issue here is with options, not RSUs. Where is "here"? The headline "Stripe faces $3.5B tax bill as employees' shares expire" is about RSUs. The subheadline "Firm also expects to use $600 million to exercise some options" is about options.

olliej 4y ago

Oh, look another train wreck caused by a non-public company offering "equity" based compensation.

toomuchtodo 4y ago
The knife cuts both ways. Just as these stories exist, there are plenty of folks who have fell into life changing or generational wealth through equity comp. Treat it for the lottery ticket it is.
- olliej 4y ago
  I would treat it as a lottery if I thought it was a lottery. But it isn't a lottery. If a startup _chooses_ not to go public then it I cannot realize any compensation from that valuation - given the founders always seem to be able to, why isn't that option available to the rank-and-file employees? Similarly there have been multiple start ups that sold the controlling class of stock off and rendered all other stock worthless. A startup equity based compensation is only a lottery if the startup allows every employee who is being compensated with "equity" the opportunity to sell their "equity" back to the company at the current market valuation, or as part of the equity exchange in a funding round. Otherwise the value of the equity is determined by the company - what we're seeing here is that Stripe has realized that their scam compensation is running the risk of now actively harming their employees rather than just ripping them off. Stripe doesn't need to do any tax funding BS to "help" its employees: it just has to buy back the RSUs that are scheduled to expire at their apparent face value. The tax problem that employees are being faced with is entirely a result of stripe refusing to actually pay employees what they have earned.
  - danielmarkbruce 4y ago
    This take isn't right. Stripe has done the right thing here. They've always been honest about what the comp was, what the risks were, and now they are doing the right thing, again. The employees involved recognize it as such and the only people making disparaging remarks are either not involved or don't understand it.

noahmbarr 4y ago

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems to be teeing up a secondary sale of these stocks themselves -- where Stripe is offering to buy some of their shares back from those early employees, allowing the employees to exercise ('buy") all of those early options and (at least) pay their tax bill. Usually, a company will limit the # of shares eligible for a secondary purchase so current/former employees can buy all the stock, sell enough to the company to cover that person's resulting tax bill, and keep the remaining stock until IPO. By limiting the # of shares they will allow to be purchased via the secondary, Stripe will almost certainly make sure the secondary does not create post-tax cash gains to make people wealthy! It doesn't have to be that way: Stripe could allow ANY investor to buy the shares directly from those employees -- but guessing Stripe has a blocking right on stock transfers-- so they have, and will continue to block early employee sales to new investors. Stripe and many companies have these transfer "veto right" to make sure they can control their ownership ("cap table") and also to make sure early employees don't get rich before the IPO. This is my best guess-- I am not familiar with the Stripe's situation.

paxys 4y ago
> This is my best guess-- I am not familiar with the Stripe's situation. All of what you said is literally the content of the article.
- noahmbarr 4y ago
  Other people asked a bunch of q's so I tried to present it a little differently Key concepts that were net-new from the article: * 10 year concept IRS restriction * Concept of a transfer Block essentially requiring a company sponsored secondary * Idea that Stripe could stay out of it, and just allow (partially) transfer waiver to 3rd party investor * The concept of most startups strong preference against creating liquid wealth events for early employees prior to IPO Perhaps you knew all of this, but the other commenters didn't seem to have this knowledge top of mind.

sfc32 4y ago

Did the CEO/CFO not see this one coming? Or was it a calculated gamble they took and lost on?

mcast 4y ago
They were enjoying the years of free* VC money before the recent interest hikes were made.
- rvz 4y ago
  And the time to IPO was in 2019 when everyone there was heading for the exit as I said before. [0] At the time, Stripe said they can wait, no time to rush for an IPO. Now they know they need to IPO before their employee options expire and the down-rounds coming in. [0] https://news.ycombinator.com/item?id=20993919 https://news.ycombinator.com/item?id=20993919
qwerpy 4y ago
CFO departed mysteriously very recently, so maybe there was something there: https://www.axios.com/2023/02/03/stripe-cfo-suryadevara-step-down https://www.axios.com/2023/02/03/stripe-cfo-suryadevara-step...

dang 4y ago

Related ongoing thread: Stripe Is Raising $6B to Resolve Employee Tax Issue - https://news.ycombinator.com/item?id=35074633 https://news.ycombinator.com/item?id=35074633 - March 2023 (23 comments) Edit: there's also https://www.reuters.com/article/us-stripe-funding-breakingviews-idDEKBN2V41M1 https://www.reuters.com/article/us-stripe-funding-breakingvi... - thanks dvt (https://news.ycombinator.com/item?id=35075013 https://news.ycombinator.com/item?id=35075013).

deleted 4y ago

[deleted]

paxys 4y ago

The article title is mixing up two different problems, and I think that's what is causing all the confusion in this thread. 1. Stripe has to pay $3.5B in taxes. This is unrelated to employee stock. 2. Lots of long term employees have expiring options, and if they exercised them they would face a massive tax bill. To solve both 1 & 2 Strips is doing an additional raise of $2.3B from private investors which will (1) give them money to pay that tax this quarter and (2) let employees exercise their options and sell shares to the same investors ($600M worth) – so basically a buyback event.

mike_d 4y ago
Stripe is saying that the taxes are not for normal business operations, so I believe in this case #1 is actually related to problem #2.
- hackernewds 4y ago
  yes, also Stripe will need to offer employees some relief (buying them out due to lack of liquid mkt mostly) which compounds to their expenses for the tax bill
Kukumber 4y ago
raising money only just to pay people's tax from people who want to cash out seems scammy
- Blackthorn 4y ago
  Letting the RSUs expire is even more scammy.
- danielmarkbruce 4y ago
  Who is being scammed?
- Nifty3929 4y ago
  It not people who want to cash out. Actually it’s people who can’t cash out otherwise, but will still have a huge tax bill if they exercise before the options expire. The only other choice for these employees would be to simply allow millions of Dollars (each) of options to expire.

CodeWriter23 4y ago

> Throughout the fundraising, Stripe has been adamant with investors that it doesn’t need the cash to fund normal business operations. Covering tax liabilities apparently is not part of "normal business operations" at Stripe.

ztratar 4y ago
Tax liabilities on (optional) employee secondary stock sales is most certainly not a normal business operation.
- CodeWriter23 4y ago
  If your SOP is handing out options, yes it is. I’d also say GAAP likely requires building a cash reserve to cover such liabilities. I’m not an accountant but I’m pretty sure they have to be ready to cover the difference between the option and strike price until the expiry of the option. One would imagine that is less than tax when the option remains unexercised.
  - danielmarkbruce 4y ago
    It's not a Stripe liability, so no. GAAP is a set of accounting standards - it doesn't require taking actions, it's about how to record things if you want to meet those standards. So no, there is no GAAP requirement to build a cash reserve. For what it's worth, Stripe isn't even obliged to follow GAAP for their accounting (it is likely they signed a contract somewhere which calls for a set of financials meeting GAAP to be furnished periodically, but again GAAP doesn't require actions, it stipulates accounting entries).
  - pjc50 4y ago
    That is absolutely not how options work; the options entitle you to shares, not cash, so all they have to do is put aside a part of the share pool.
deleted 4y ago
[deleted]

rvnx 4y ago

The company brings only 127M USD / yr in fees. To generate this income, they are losing money. 10M USD / month in income for a valuation of 95B USD sounds really insane (even at 50B USD valuation). This could be the real reason why the employees are not so excited to purchase the shares even at a supposedly deep-discount @ 10B USD.

gkoberger 4y ago
Do you have a source on this? Nothing I could find is within an order of magnitude of your number. Two weeks ago, Bloomberg said they process $1T in payment volume and expect to turn a profit this year. https://www.bloomberg.com/news/articles/2023-02-16/stripe-is-on-track-to-turn-a-profit-with-1-trillion-in-payment-volume https://www.bloomberg.com/news/articles/2023-02-16/stripe-is...
- abhv 4y ago
  Stripe charges 2.9% + 30c per transaction. From that, about 1.3% + 5c per tx go to interchange + assessment fees. This leaves about 1.6% + 25c for the payment processor. 14.3 on 816b is about 1.7% which is consistent. On 1T, that means about 17b in revenue. Lets assume they have 7000 employees (i've seen 6000-8000 in searches). As rough estimates, these SFO-based SWEs + knowledge workers cost 1m/yr on average (which includes their total comp, insurance, federal + state taxes, and operating overheads amortized over all employees). So their cost of labor may be around 7-8b/year. They may have other acquisition and marketing costs, but it means the co can feasibly be earning >8b before taxes, depreciation, amortization, etc. That number could justify a 80b valuation. If their current round cap is 55b, then my #s on costs are off, or the multiple has dropped to 6-7. Please debug.
  - itake 4y ago
    I’m a bit surprised their employees cost so much. I’d imagine engineers might, but other orgs like Hr, sales, recruiting, or support (which should be most of the headcount) would be compensated way less.
  - deleted 4y ago

georgelyon 4y ago

I've always been curious, what happens if they just let these shares just expire? It wouldn't look great for Stripe, but presumably they would just get back for free (modulo taxes) any shares employees could not afford to exercise. The value of those shares alone could be pretty enticing to the people in charge.

mertd 4y ago
Good luck hiring or retaining anyone after that while Stripe is still private.
- ojbyrne 4y ago
  I think the point the previous commentator was trying to make was, why can't they let them expire and issue new options/RSUs of equivalent value to the same people.
  - deleted 4y ago
    [deleted]
  - superzamp 4y ago
    My understanding is that the delta between their strike price and the current valuation would be seen as capital gain and taxed accordingly.
- postalrat 4y ago
  Thats a lot of money they don't need to pay that could be used to hire and retain people.
  - snemvalts 4y ago
    Stripe's compensation is notoriously option heavy, almost like it were a public company https://www.levels.fyi/companies/stripe/salaries/software-engineer https://www.levels.fyi/companies/stripe/salaries/software-en...
4y ago

sbrother 4y ago

Why can't stripe let them expire, and then issue new grants to all affected employees with the same nominal value as the expired grants?

siquick 4y ago
Let’s just hope this isn’t an option so a major corp can’t find yet another way to not pay tax.
deleted 4y ago
[deleted]
mschulkind 4y ago
The IRS won't let you. You're essentially suggesting discounting stock options: https://www.jdsupra.com/legalnews/section-409a-implications-of-discounted-37112/ https://www.jdsupra.com/legalnews/section-409a-implications-...
subarctic 4y ago
Would the strike price be the same? If it is then I believe the employees are still on the hook for the same tax bill, because it's lower than the current fair market value.
jacquesm 4y ago
Because Stripe as a whole is now much more valuable you'd either be defrauding the tax office or causing the employees to be massively diluted.

m3kw9 4y ago

These are all accounted for once issued no?

yalogin 4y ago

This is a very interesting situation. Generally at startups, is there no room to negotiate to get RSUs instead of options? What is the reason they give options instead of options? They want to reduce the amount of stock people own that no longer work at the company over time?

samclearman 4y ago
RSU's are taxed on vesting, so it would be worse than options if anything. Best are options with early exercise, but they're still not perfect (you have a possibly significant upfront cost to exercise them). Really they should just change the AMT rules.

zwilliamson 4y ago

So are companies incentivizing to not let RSUs expire for employees? Otherwise they face a large tax bill?

remote_phone 4y ago

This is completely Stripe’s fault for not going public sooner. I hope Stripe and Uber become lessons on how not to let your company stay too long as a private company.

SamvitJ 4y ago

> Winning Competitions > In the presentation, Stripe said it generated $14.3 billion in revenue as it processed $816 billion in payments volume last year. The company’s so-called transaction margin before losses — a measure of net revenue — rose to $3.17 billion, or 0.38% of total volume. That compares with 17 basis points for rival Adyen NV, according to the presentation. Does anyone else feel these numbers aren't as high as expected? Sure $14B in annual revenue (and margins of ~$3b on that revenue) is nothing to scoff at. But $14B isn't even close to Amazon/Azure cloud big or even Amazon Ads big. Perhaps Stripe's valuation assumes a steep uptick in this revenue in the years to come?

umeshunni 4y ago
FWIW, Paypal's revenues are $25.37B/year and it has a market cap of $86B
- ztratar 4y ago
  And those are measured in the same way Stripe measures the $14B number. Granted, PayPal has a higher take rate than both Adyen and Stripe. But also much lower growth.
martinald 4y ago
I'm unsure how stripe is only making 0.38% on transactions, given at least in the UK they are vastly more expensive than other providers on their public pricing. For example; stripe charges 1.5%+20p for UK cards. Revolut charges 1%+20p for online transactions, 0.8%+2p for in person. I'm sure other providers charge even less than this but they don't make the pricing public easily. Ayden is perceived to be a lot cheaper than stripe too, so I am surprised they are only getting 20bps more. What am I missing here? Are margins a lot tighter in the US market, and stripe is extremely US focussed (one possibility?), or are Stripe giving really heavy discounts for volume which really drags down their marigns?
cornholio 4y ago
The main problem with investing in Stripe is they are one meeting away from being disrupted into oblivion. This would be the meeting where the likes of Revolut, Transferwise, PayPal, Monzo etc. meet with the high-street bankers and with the eCommerce industry and agree to cutout the middle man and rollout a modern online payment system for the 21st century, cheap and architected to resist fraud. Many European countries already have local systems. Luckily for Stripe, MC, Visa etc. those three groups hate each other, but the probably of this meeting happening in the long run tends towards certainty.

Bessie69 4y ago

[dead]

Nifty3929 4y ago

If Stripe didn’t do that, could the affected employees theoretically borrow money themselves to exercise the options and pay the taxes?

kgwgk 4y ago
Just like anyone can theoretically borrow money to do whatever they want.

ConcernedCoder 4y ago

...and this is why I choose to work at companies that issue STOCK not OPTIONS as part of my compensation.

sub7 4y ago

Stripe was trading at $150 a share in the private market which valued it at ~$135B at some point. I think the investors who got in at $10B would be lucky to see a return. My guess is founder/early employee stock has already exited as much as possible and notional value still on the books will be mostly wiped out Stripe is a super paranoid company that knows it's valuation is tied to it's hype and they spend absurd $ on legal and "business intelligence" because the truth is they are really just a nicely documented API that any regulated entity can provide. If/when they stop subsidizing their growth with investor $, Stripe common stock = 0

noja 4y ago

Who is this news for? It can't be Stripe, they already know this. It can't be investors, this information is already priced in.

mousetree 4y ago
There are a lot of other people in the world that read Bloomberg news who are not Stripe and who are not Stripe investors.
destitude 4y ago
I thought it was interesting because it shows what other companies are doing for their employees that have been there for 10 years. This was a big topic at a previous company I worked at who had employees getting close to their 10 year mark and it looks like that previous company is just going to let those employees options expire and screw them over.
braza 4y ago
For is interesting because as an employee I can see different job dynamics being played out and learn from that for the next position. For instance: this is a big topic for folks that wants to join late stage scale-ups because since they are issuing RSUs instead options to be attractive for future employees it comes with a very risky dynamic that is the company let those RSUs expire, or worse: folks overhang in some financial obligations in some not liquid instrument.

omgomgomgomg 4y ago

Ah, well, I have seen people who ended up in debt to the tax aithorities because of such deals and schemes. I would always prefer the cash and be done with it.

fumblebee 4y ago

I'm curious, why even have the 10 year expiry cutoff? Is there a regulatory ask that this be the case, or is there logic I'm not seeing? Hindsight is ofc 20/20, those contracts have long since been set in stone, but I can't help but think Stripe (and maybe other future companies) could have saved themselves a $6bn headache by not having the expiry in the first place.

kasey_junk 4y ago
Double trigger RSU require a real chance at forfeiture or they get taxed on grant by IRS rule. Given that you use double trigger RSU to avoid getting taxed at grant, all double trigger RSU will have an expiration.

antomeie 4y ago

That is such a confusing title... How I interpret the article is rather: "Stripe is raising $3.5B in order to buy-back shares from employees". Which, if that is the case, really is just a re-distribution of money. Nothing is gained, nor lost. But the article wants it to look like stripe is about to take a $3.5B tax loss...

orenbarzilai 4y ago

[flagged]

bagacrap 4y ago
What happens when there's no liquidity event or insufficient to cover the loan? What is the "share of the upside" in terms of percentange?
- orenbarzilai 4y ago
  The employee never pays out of pocke. Note it's not a loan, but an investment. Upon a liquidity event, the employee needs to pay back the investment amount + certain percentage of their shares. If the total amount is lower than the investment amount, the payback amount is capped by the amount they received for their shares. Thus, the employee will never pay out of pocket. Regarding the share %, that varies based on the demand by the investor community for the specific company, and the specific employee strike price.