3 ms·

I'm a bit cynical when I see stuff like this. Is it a way for the company to exit employee shareholders and put that equity into investor hands? Especially at a

by sb8244 4y ago

I'm a bit cynical when I see stuff like this. Is it a way for the company to exit employee shareholders and put that equity into investor hands? Especially at a discount from peak? That can be good for employees (money in your bank is a good thing), but only if they want to sell. Edit: there's another thread with more info. This round looks to address a specific issue that would affect employees very negatively. So it seems like a good thing and not corp greed.

auntienomen 4y ago
It depends whether current employees are getting their next RSU before or after this down-round.
Zetice 4y ago
I thought a frequent reason for this kind of thing was that they had planned on doing an IPO which would have also let employees sell (eventually, after a lockup period?) but given the current market they're waiting. Also didn't another company recently do this because of some expiring stock options? If employee options expire that's basically a death knell to your ability to recruit and those employees would all hate you and quit. Maybe there's some of that going on here.
- sb8244 4y ago
  I think you're right after reading more. Sounds like RSU are expiring. Not sure about options but 10 year is the options limit so that would align with the age of the company.
kevinventullo 4y ago
I suspect it will generally be good for employees. In my relatively recent job search, I was considering Stripe versus some large publicly traded tech companies. I ruled out Stripe largely because the equity would not be liquid.
thaumasiotes 4y ago
What does the tax treatment look like? I'm aware of the following: 1. Get options, pay nothing. 2. Exercise options, pay AMT. 3. Sell stock, pay capital gains. (Please point out anything missing; it's missing because I don't know about it.) Assume that the timing of step 2 is nondiscretionary and the stock price is temporarily depressed when it occurs. Assume that you have to pay the AMT by selling some of your stock until you've sold enough to cover the whole AMT. If the AMT is a lump sum (seems... unlikely?), then the depression in the price at the moment you have to pay it is bad for you. If the AMT is a percentage of the value of the stock (my guess?), then by the assumption that you have to pay for it by selling stock, you're going to lose a fixed percentage of your stock no matter what the current stock price is. If we relax that assumption and you take out a loan to pay the AMT, the depression in the stock price is good for you, because you end up making a profit on holding your shares while they recover. In step 3, you sell your stock at the "natural" price. I guess that since the stock was temporarily depressed, it's now higher and you pay a capital gains tax on the difference. Is the tax rate higher or lower than the rate you paid for the AMT? If it's equal, what difference did the temporary depression of the stock price make?
- harikb 4y ago
  Fun fact: You have to pay AMT on exercise even if the stock cannot be sold in the open market. Usually this means dipping into ones other savings. It hurts even more than you are paying AMT on fictitious valuations (if the company is not public yet) and you really can't be sure if they will ever go IPO
  - Retric 4y ago
    Even if you can’t sell the stock directly you can effectively sell options for someone else to buy that stock from you at IPO. I haven’t looked into this myself, but I recall reading about someone doing this when their options where about to expire in a relatively hot but still far from IPO startup.
    - harikb 4y ago
      I have heard of 'second market', but how would one go about doing this? Do they create private contracts and such for a non-yet-listed company?
killingtime74 4y ago
That's a very cynical view of things. There's always a buyer and seller in a transaction. It's not like they are confiscating the employee shares and selling them.
- sb8244 4y ago
  For sure. Recognized. I've been in the situation where it's not a choice. So that is where my view comes from. It probably worked out better for me personally than if it didn't happen, so I'm not upset now.
coffeebeqn 4y ago
I believe the issue is that the options of early employees are expiring. And that sounded like it’s actually a lot more difficult to solve for a private large corporation than it sounds

by sb8244 4y ago

auntienomen 4y ago

It depends whether current employees are getting their next RSU before or after this down-round.

Zetice 4y ago

I thought a frequent reason for this kind of thing was that they had planned on doing an IPO which would have also let employees sell (eventually, after a lockup period?) but given the current market they're waiting. Also didn't another company recently do this because of some expiring stock options? If employee options expire that's basically a death knell to your ability to recruit and those employees would all hate you and quit. Maybe there's some of that going on here.

sb8244 4y ago
I think you're right after reading more. Sounds like RSU are expiring. Not sure about options but 10 year is the options limit so that would align with the age of the company.

kevinventullo 4y ago

I suspect it will generally be good for employees. In my relatively recent job search, I was considering Stripe versus some large publicly traded tech companies. I ruled out Stripe largely because the equity would not be liquid.

thaumasiotes 4y ago

What does the tax treatment look like? I'm aware of the following: 1. Get options, pay nothing. 2. Exercise options, pay AMT. 3. Sell stock, pay capital gains. (Please point out anything missing; it's missing because I don't know about it.) Assume that the timing of step 2 is nondiscretionary and the stock price is temporarily depressed when it occurs. Assume that you have to pay the AMT by selling some of your stock until you've sold enough to cover the whole AMT. If the AMT is a lump sum (seems... unlikely?), then the depression in the price at the moment you have to pay it is bad for you. If the AMT is a percentage of the value of the stock (my guess?), then by the assumption that you have to pay for it by selling stock, you're going to lose a fixed percentage of your stock no matter what the current stock price is. If we relax that assumption and you take out a loan to pay the AMT, the depression in the stock price is good for you, because you end up making a profit on holding your shares while they recover. In step 3, you sell your stock at the "natural" price. I guess that since the stock was temporarily depressed, it's now higher and you pay a capital gains tax on the difference. Is the tax rate higher or lower than the rate you paid for the AMT? If it's equal, what difference did the temporary depression of the stock price make?

harikb 4y ago
Fun fact: You have to pay AMT on exercise even if the stock cannot be sold in the open market. Usually this means dipping into ones other savings. It hurts even more than you are paying AMT on fictitious valuations (if the company is not public yet) and you really can't be sure if they will ever go IPO
- Retric 4y ago
  Even if you can’t sell the stock directly you can effectively sell options for someone else to buy that stock from you at IPO. I haven’t looked into this myself, but I recall reading about someone doing this when their options where about to expire in a relatively hot but still far from IPO startup.
  - harikb 4y ago
    I have heard of 'second market', but how would one go about doing this? Do they create private contracts and such for a non-yet-listed company?

killingtime74 4y ago

That's a very cynical view of things. There's always a buyer and seller in a transaction. It's not like they are confiscating the employee shares and selling them.

sb8244 4y ago
For sure. Recognized. I've been in the situation where it's not a choice. So that is where my view comes from. It probably worked out better for me personally than if it didn't happen, so I'm not upset now.

coffeebeqn 4y ago

I believe the issue is that the options of early employees are expiring. And that sounded like it’s actually a lot more difficult to solve for a private large corporation than it sounds