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I work for a startup and I don't even understand half the comments in this thread I'd be very greatful for a few hours of content I can listen to or read that w

by k8svet 3y ago

I work for a startup and I don't even understand half the comments in this thread I'd be very greatful for a few hours of content I can listen to or read that would explain what's at play. I feel so miserably ignorant and lost. :/

sangnoir 3y ago
If your remuneration includes shares or options in the startup, you owe it to yourself to understand how startup shareholding works - I'm not being dismissive here - you could save yourself from making poor financial decisions. High level topics: Cap table, funding rounds, dilution, shares vs options (and the tax implications of exercising options), liquidity events & secondary markets. I may be missing more.
nezaj 3y ago
YC and Startup School have some excellent videos with Kirsty Nathoo discussing basic startup mechanics, finances, accounting, and fundraising rounds. You may find this one especially helpful https://youtu.be/Dk6JNTDec9I?si=8fzjDJS8XoxB3vLG https://youtu.be/Dk6JNTDec9I?si=8fzjDJS8XoxB3vLG
enra 3y ago
Don't feel bad. The issue here is the relationship with the company & Carta and overall corporate concerns, not much about employee equity. Briefly: - In a startup you're granted options. Contract that allows you to buy certain amount of company shares at a specific price (”strike price”, also known as “exercise price”), which is usually the fair market price at the time when your options are granted. Options do not give you ownership of stock, instead they provide you rights to purchase stock at a favorable price. - Fair market price is the price of the stock based on the company’s current valuation (set by an outside evaluator). Early stage companies the fair market valuation 20-30% of the valuation investors pay. - Exercising your options means purchasing all or some of your shares and becoming a shareholder in the company. For example, if your strike price is $1.50 and you exercise your option for 1,000 shares, your exercise will cost $1,500 (1,000 x $1.50) plus any potential taxes, and you will be a holder of 1,000 shares. Now if in the future the company IPOs with a stock price of $100 you can sell those shares and get $100k or gain $98.5 per share. - Exercise window is the time you can buy your options. Commonly in US startups required you to purchase the shares within 90 days of you leaving the company or you lose it. More employee friendly startups have extended exercise windows that let you keep the options for 7 or 10 years. - Early exercise. Employee friendly startups allow early exercise for your options to avoid paying taxes along the way. Say you join the company when the strike price is $1.50. You exercise the shares at $1.50 now you own the shares and since there was no gain, you don't have to pay taxes at that time. If you don't early exercise then, but wait until the next funding round when the strike price is now $4.50, your now have to pay tax on the gain of $3. In both cases in the end if you one day sell the stock for $100 you still pay the same amount of taxes (gain from $1.50 to $100 or from $1.5 to $4.5 + $4.5 to $100). It just lets you to avoid taxes until you have actual liquidity and also lets you to pay long term gains, sometimes get it even tax free if your company and holding is QSBS eligible. Some guides that we share with our employees: https://medium.com/swlh/understanding-startup-stock-options-4bf9cc26089e https://medium.com/swlh/understanding-startup-stock-options-... https://www.holloway.com/g/equity-compensation https://www.holloway.com/g/equity-compensation https://blog.alexmaccaw.com/an-engineers-guide-to-stock-options/ https://blog.alexmaccaw.com/an-engineers-guide-to-stock-opti... https://www.wealthfront.com/blog/equity-ipo-guide https://www.wealthfront.com/blog/equity-ipo-guide

by k8svet 3y ago

sangnoir 3y ago

If your remuneration includes shares or options in the startup, you owe it to yourself to understand how startup shareholding works - I'm not being dismissive here - you could save yourself from making poor financial decisions. High level topics: Cap table, funding rounds, dilution, shares vs options (and the tax implications of exercising options), liquidity events & secondary markets. I may be missing more.

nezaj 3y ago

YC and Startup School have some excellent videos with Kirsty Nathoo discussing basic startup mechanics, finances, accounting, and fundraising rounds. You may find this one especially helpful https://youtu.be/Dk6JNTDec9I?si=8fzjDJS8XoxB3vLG https://youtu.be/Dk6JNTDec9I?si=8fzjDJS8XoxB3vLG

enra 3y ago

Don't feel bad. The issue here is the relationship with the company & Carta and overall corporate concerns, not much about employee equity. Briefly: - In a startup you're granted options. Contract that allows you to buy certain amount of company shares at a specific price (”strike price”, also known as “exercise price”), which is usually the fair market price at the time when your options are granted. Options do not give you ownership of stock, instead they provide you rights to purchase stock at a favorable price. - Fair market price is the price of the stock based on the company’s current valuation (set by an outside evaluator). Early stage companies the fair market valuation 20-30% of the valuation investors pay. - Exercising your options means purchasing all or some of your shares and becoming a shareholder in the company. For example, if your strike price is $1.50 and you exercise your option for 1,000 shares, your exercise will cost $1,500 (1,000 x $1.50) plus any potential taxes, and you will be a holder of 1,000 shares. Now if in the future the company IPOs with a stock price of $100 you can sell those shares and get $100k or gain $98.5 per share. - Exercise window is the time you can buy your options. Commonly in US startups required you to purchase the shares within 90 days of you leaving the company or you lose it. More employee friendly startups have extended exercise windows that let you keep the options for 7 or 10 years. - Early exercise. Employee friendly startups allow early exercise for your options to avoid paying taxes along the way. Say you join the company when the strike price is $1.50. You exercise the shares at $1.50 now you own the shares and since there was no gain, you don't have to pay taxes at that time. If you don't early exercise then, but wait until the next funding round when the strike price is now $4.50, your now have to pay tax on the gain of $3. In both cases in the end if you one day sell the stock for $100 you still pay the same amount of taxes (gain from $1.50 to $100 or from $1.5 to $4.5 + $4.5 to $100). It just lets you to avoid taxes until you have actual liquidity and also lets you to pay long term gains, sometimes get it even tax free if your company and holding is QSBS eligible. Some guides that we share with our employees: https://medium.com/swlh/understanding-startup-stock-options-4bf9cc26089e https://medium.com/swlh/understanding-startup-stock-options-... https://www.holloway.com/g/equity-compensation https://www.holloway.com/g/equity-compensation https://blog.alexmaccaw.com/an-engineers-guide-to-stock-options/ https://blog.alexmaccaw.com/an-engineers-guide-to-stock-opti... https://www.wealthfront.com/blog/equity-ipo-guide https://www.wealthfront.com/blog/equity-ipo-guide