7 ms·
It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealth
by throw3823423 4y ago
It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock.
I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6 shares in the secondary market? Might as well be an actual IPO.
Without 2022 going the way it did, I'd have expected that there would have been yet another regular round, where the investors ate enough common stock for current and former employees to vest the RSUs. That, or maybe the company really IPOs, which clears out all the comp problems. But Stripe finds it very valuable to keep the company closed, so instead of IPOing when everyone else does, they delayed too much.
So there's no real need for not wanting people to get rich here: It's just a very uncomfortable amount of stock to have to turn into liquidity either way.
- morepork 4y agoI wonder whether there could be space here for a bank to come in and specialise in loans to cover the tax bill, using the currently pre-IPO stock as security
- kodah 4y agoPre-IPO stock is about as secure as super glue based on toothpicks and bubblegum.
- MajimasEyepatch 4y agoSome companies are doing that, like https://vested.co/ https://vested.co/.
- zamnos 4y agohttp://getquid.com http://getquid.com http://secfi.com http://secfi.com
- renewiltord 4y agoThat's literally what the Bolt CEO did. He ran a company that offered his employees the loans.
- fshbbdssbbgdd 4y agoThat’s absolutely a thing, I know people who did it. However “security” can be expensive, they might demand some of the upside as well.
- KptMarchewa 4y agoI don't understand why there's tax on unrealized gains there.
- valzam 4y agoThe gains are realised, you just aren't getting cash but company stock. The 'gain' is the difference between option strike price and market value of the shares. Since stripe is privat the market value is a bit murky but that doesn't deter the IRS. EDIT: spelling
- xyzzyz 4y agoNo, this is completely incorrect. The issue in question is about stock options, not stocks themselves. If you hold actual stocks, there is no tax bill until you sell these to realize the gains, and you can hold these forever. Instead, the issue at hand is about stock options. For those, the tax bill is due on exercise. For as long as you can hold the options without exercising, you don’t owe any tax, but the problem here is that you cannot have options that do not expire or have expiration date longer than 10 years. As this deadline is getting closer, option holders need to choose between exercising (and owing taxes on resulting difference between strike price and FMV), and forfeiting the options.
- theIV 4y agoIf they are ISOs, tax won't be due _upon_ exercise but will show up on that years tax return. Usually the AMT will hit you (if the exercise was worth it), and you'll owe the following year. This is a slightly longer way of saying I'm not totally sure how what you're saying invalidates what valzam said: as far as the IRS is concerned, you did realize gains (you got something of value), just not on anything "liquid," hence AMT. Perhaps they (IRS) use different terms, but that's basically what's happening.
- iav 4y agowhen the gain shows up is irrelevant - IRS requires taxes to be paid on income in the quarter it is realized. Everyone needs to pay the estimated tax and then file the return for the final adjustment.
- MajimasEyepatch 4y agoI don't think it really changes the overall point you're making, but these would presumably be ISOs, not RSUs.
- snotrockets 4y agoAccording to the story, Stripe has been compensating employees with double triggered RSUs
- tyre 4y agoBut not from ten years ago. Initially everyone was on options (ISOs) then moved to double trigger RSUs, around 2017 iirc
- kgwgk 4y agoAccording to the story, Stripe's need to withhold billions in (employee's) taxes is related to (waiving the second trigger in) the double triggered RSUs it has been using to compensate them.
- elbigbad 4y agoTypically a company starts with ISOs or similar, and then moves to RSUs when they are confident there will be an IPO or other liquidation event in the foreseeable future. In this case, Stripe did that, and only later started issuing RSUs.
- choppaface 4y agoAt Uber, employees got loans to cover exercise. Is that not happening here?
- nrmitchi 4y agoTaking out 7-8 figure loans to exercise start-up options in a private company in a time of decreasing valuations and market uncertainty sounds like a pretty poor idea.
- akavi 4y agoYou can get loans backed by the shares themselves. Ie, the lender gets x% of the shares, rather than being paid back a specific dollar amount at a later time.
- runako 4y agoIn this market, the X% might well need to be so near to 100% as to make the transaction not worth doing. For ex: Stripe has marked itself down ~50% over the last year. Suppose you think the haircut should be more like the 70% comps like SQ and PYPL have taken, and build that into the X%. Then on top of that loss buffer, you prudently demand an illiquidity premium and a profit margin. That arithmetic doesn't leave much room for the employee to retain any stock.
- zamnos 4y agoMore explicitly, if the shares go to zero, you don't owe any money
- nrmitchi 4y agoIf the shares to go 0, and the loan is discharged, the discharged amount is still considered taxable income (at least if you are subject to US taxation)
- choppaface 4y agoRight, that's what banks were doing for Uber employees, for AFAIK, as low as 7-digit packages. I believe the interest was conditional on an IPO happening tho, and in some cases the IPO not only got delayed but the IPO price was actually a little below secondary market price right before the IPO (same as Facebook). I would think banks would do this again? But perhaps with a longer IPO window? Like the banks that would do this would also likely participate in the IPO anyways ...
- sopooneo 4y agoOne thing I've never understood about this: why on earth aren't there financial products specifically for people in this situation? Especially around Silicon Valley? Bankish Corp floats you the tax bill at some mutually beneficial interest rate, and in return gets a signed repayment guarantee for when you can actually cash out?
- RandallBrown 4y agoThat does exist. I was able to do that with options at my last job with Carta.
- mcherm 4y agoWell, it might be a good idea, but there is a lot of risk. There is, for example, a risk that the employees get utterly screwed and are never permitted to cash out.
- madaxe_again 4y agoThat isn’t a risk. That’s a near certainty.
- deleted 4y ago[deleted]
- gadders 4y agoYou can price risk. People buy distressed debt. No reason why they wouldn't buy illiquid private company stock (at a discount the holder might not like obviously).
- bagels 4y agoThere are, I think. Forge global and others have services like this.
- mytailorisrich 4y agoYou mean a loan? I think banks do that ;)