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Story of bad management aside, this was also a highlight for me on the risks of early stage startup even when the startup goes big > In my case the amount of t

by jatins 3y ago

Story of bad management aside, this was also a highlight for me on the risks of early stage startup even when the startup goes big > In my case the amount of taxes would be so high I wouldn't be able to afford it, forcing me to wait until GitLab went public I have seen a bunch of cases where people really want to leave the company but can't due to short exercise windows and taxes that come along with exercise. One of the companies I know had to partner with a lender just so that their employees could exercise stocks. So now if the company IPOs you owe the lender a load compounding at 15% Thankfully many newer companies seem to be going towards 10 year exercise windows, but they are still a minority

kevin_nisbet 3y ago
> Thankfully many newer companies seem to be going towards 10 year exercise windows, but they are still a minority I'm actually a bit on the fence for the 10 year exercise window, as I'm not sure it's always a benefit. As I understand it, startup exits timelines are on an upward trend, so in 10 years will the average exit still be below 10 years, and even then are you working for a company that meets the average timeline. Then, from a taxation perspective, if you do want to exercise before the 10 year expiry, if it's cost prohibitive now, it should be bankrupting after a few more investment rounds and increases to the 409A valuation. So I'm curious if there is a side effect here that the 10 year exercise window actually leads to many more shares becoming even more cost prohibitive to exercise right before the company reaches a liquidity event and as such not exercised (if you're in the early stage employee group).
- jatins 3y ago
  Yeah, you are right on the point that if you are not able to exercise now you might not be able exercise later also. It's still lesser of the 2 evils imo because: 1/ many companies have liquidity events as they mature. So you may not have to wait for IPO/exit 2/ In 10 years you often know if the companies gonna go anywhere. So if you feel the company's ngmi, might as well not exercise. I have also heard some companies fixing their exercise price (as in its not tied to 409A) to $1 or some small value like this. That seems like the best option

by jatins 3y ago

kevin_nisbet 3y ago

> Thankfully many newer companies seem to be going towards 10 year exercise windows, but they are still a minority I'm actually a bit on the fence for the 10 year exercise window, as I'm not sure it's always a benefit. As I understand it, startup exits timelines are on an upward trend, so in 10 years will the average exit still be below 10 years, and even then are you working for a company that meets the average timeline. Then, from a taxation perspective, if you do want to exercise before the 10 year expiry, if it's cost prohibitive now, it should be bankrupting after a few more investment rounds and increases to the 409A valuation. So I'm curious if there is a side effect here that the 10 year exercise window actually leads to many more shares becoming even more cost prohibitive to exercise right before the company reaches a liquidity event and as such not exercised (if you're in the early stage employee group).

jatins 3y ago
Yeah, you are right on the point that if you are not able to exercise now you might not be able exercise later also. It's still lesser of the 2 evils imo because: 1/ many companies have liquidity events as they mature. So you may not have to wait for IPO/exit 2/ In 10 years you often know if the companies gonna go anywhere. So if you feel the company's ngmi, might as well not exercise. I have also heard some companies fixing their exercise price (as in its not tied to 409A) to $1 or some small value like this. That seems like the best option