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I think he means 83b early exercise: https://www.esofund.com/blog/early-exercise-options-83b-election https://www.esofund.com/blog/early-exercise-options-83b-el

I think he means 83b early exercise: https://www.esofund.com/blog/early-exercise-options-83b-election https://www.esofund.com/blog/early-exercise-options-83b-elec... Extremely beneficial when paired with QSBS and liquidity.

JumpCrisscross 2y ago
Does anyone restrict 83b elections? Is that even allowed?
- dilyevsky 2y ago
  Ive seen it restricted so yes
  - jjav 2y ago
    I think there's a confusion between the related events. Filing the 83(b) form with the IRS is between you and the IRS. Company isn't involved so not something they can restrict. However, filing that 83(b) only makes any sense if you are allowed to early exercise and that is indeed entirely up to the company. So if they don't let you early exercise you also won't be filing the 83(b). Pro tip: Never join a startup that does not let you early exercise!!
    - dilyevsky 2y ago
      Yes i assumed parent was referring to early exercise but maybe i misread. Imo early exercise doesn’t make a ton of sense when the company no longer qualifies for qsbs especially if long exercise window is offered so probably why it’s not offered - to avoid a ton of drama later on
      - jjav 2y ago
        > Imo early exercise doesn’t make a ton of sense when the company no longer qualifies for qsbs I strongly disagree, early exercise is always optimal if the cost makes sense to you. The primary reason it is so valuable is so that you don't lose everything if you have to change jobs for whatever reason before a liquidity event. If you join a startup and don't early exercise, now you are going to have to work there for however long it takes for liquidity, which could be many many years. Maybe your life changes and you have to change jobs, but you're trapped, or lose everything you worked for. Always early exercise! If the startup doesn't allow it, find a different startup. Edit: I should add that by not early exercising you can still lose a lot even if there is a liquidity event while you're still there! I lost a staggering amount of money on my first startup due to not early exercising even though it went through an IPO while I was there. But later I left (lured to another startup) so I had to excercise (same day sell) all the option in the typical 90 day window after quitting. Had I early exercised years before when I joined, I could've held those shares for 15x returns.
        dilyevsky 2y ago
        See my point about long exercise window - 5-10y is not uncommon now. I’d rather have that even though it converts to PSOs than gamble ~50k + amt on early exercise. Unless you’re super early ofc which changes the math
        jjav 2y ago
        > 5-10y is not uncommon now Is it? I'd be curious on survey data on that if something is available. Personally I've never encountered a startup that had anything other than the standard 90 day after you quit exercise window. I know these long exercise windows exist but as far as I knew they are pretty rare. > gamble ~50k That's a huge number though, I'd never gamble that much either. I'm talking about very early in the startup. If the strike price is above a few pennies, it's too late (although of course depends on the number of options and your personal budget).
        dilyevsky 2y ago
        Anecdotally, i've received more offers in the last ~5 years with extended window. I think it's just natural evolution due to increased competition for talent with high-paying public companies. Here's an incomplete list btw[0]. There are usually some strings attached - e.g additional cliff to qualify (like 2-3 years with the company) and you need to sign a separation agreement when leaving, etc > That's a huge number though, I'd never gamble that much either. I've been offered early exercise of 25k options with a $2 strike price. Series B startup. So yeah... [0] - https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows
        jjav 2y ago
        > https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows This is a nice list, thanks! No idea how complete that is, but it lists roughly ~160 companies. Which is nice, but according to [1] there are about 71K startups in the US. (Of course both of these counts might be wrong but let's go with these numbers.) So about 0.2% of startups have extended exercise windows. Not a lot ;-( [1] https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows
- stanleydrew 2y ago
  What would this even look like? An 83b election is something I file with the IRS. Are you suggesting a company might have me sign a contract committing me to not file an 83b election? How would they ever find out if I did file, and why would they care?
  - tdiggity 2y ago
    It's been a possibility in my options contracts. However, the company must agree to it, cash your exercise check, and send the necessary paperwork to the IRS. If they choose not to cooperate, you're out of luck.
  - jahewson 2y ago
    My understanding is that 83b applies to stock, not options, so you have to first exercise the options and hold unvested stock. That requires early exercise.
- molsongolden 2y ago
  Not a restriction of the 83b election but a restriction of when you can exercise. Without early exercise you are stuck exercising as you vest so there’s more likely to be a taxable spread between your option strike price and the value of the stock. With early exercise you are exercising and making the 83b election when there’s no taxable spread.
  - deleted 2y ago
    [deleted]

JumpCrisscross 2y ago

Does anyone restrict 83b elections? Is that even allowed?

dilyevsky 2y ago
Ive seen it restricted so yes
- jjav 2y ago
  I think there's a confusion between the related events. Filing the 83(b) form with the IRS is between you and the IRS. Company isn't involved so not something they can restrict. However, filing that 83(b) only makes any sense if you are allowed to early exercise and that is indeed entirely up to the company. So if they don't let you early exercise you also won't be filing the 83(b). Pro tip: Never join a startup that does not let you early exercise!!
  - dilyevsky 2y ago
    Yes i assumed parent was referring to early exercise but maybe i misread. Imo early exercise doesn’t make a ton of sense when the company no longer qualifies for qsbs especially if long exercise window is offered so probably why it’s not offered - to avoid a ton of drama later on
    - jjav 2y ago
      > Imo early exercise doesn’t make a ton of sense when the company no longer qualifies for qsbs I strongly disagree, early exercise is always optimal if the cost makes sense to you. The primary reason it is so valuable is so that you don't lose everything if you have to change jobs for whatever reason before a liquidity event. If you join a startup and don't early exercise, now you are going to have to work there for however long it takes for liquidity, which could be many many years. Maybe your life changes and you have to change jobs, but you're trapped, or lose everything you worked for. Always early exercise! If the startup doesn't allow it, find a different startup. Edit: I should add that by not early exercising you can still lose a lot even if there is a liquidity event while you're still there! I lost a staggering amount of money on my first startup due to not early exercising even though it went through an IPO while I was there. But later I left (lured to another startup) so I had to excercise (same day sell) all the option in the typical 90 day window after quitting. Had I early exercised years before when I joined, I could've held those shares for 15x returns.
      - dilyevsky 2y ago
        See my point about long exercise window - 5-10y is not uncommon now. I’d rather have that even though it converts to PSOs than gamble ~50k + amt on early exercise. Unless you’re super early ofc which changes the math
        jjav 2y ago
        > 5-10y is not uncommon now Is it? I'd be curious on survey data on that if something is available. Personally I've never encountered a startup that had anything other than the standard 90 day after you quit exercise window. I know these long exercise windows exist but as far as I knew they are pretty rare. > gamble ~50k That's a huge number though, I'd never gamble that much either. I'm talking about very early in the startup. If the strike price is above a few pennies, it's too late (although of course depends on the number of options and your personal budget).
        dilyevsky 2y ago
        Anecdotally, i've received more offers in the last ~5 years with extended window. I think it's just natural evolution due to increased competition for talent with high-paying public companies. Here's an incomplete list btw[0]. There are usually some strings attached - e.g additional cliff to qualify (like 2-3 years with the company) and you need to sign a separation agreement when leaving, etc > That's a huge number though, I'd never gamble that much either. I've been offered early exercise of 25k options with a $2 strike price. Series B startup. So yeah... [0] - https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows
        jjav 2y ago
        > https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows This is a nice list, thanks! No idea how complete that is, but it lists roughly ~160 companies. Which is nice, but according to [1] there are about 71K startups in the US. (Of course both of these counts might be wrong but let's go with these numbers.) So about 0.2% of startups have extended exercise windows. Not a lot ;-( [1] https://github.com/holman/extended-exercise-windows https://github.com/holman/extended-exercise-windows
stanleydrew 2y ago
What would this even look like? An 83b election is something I file with the IRS. Are you suggesting a company might have me sign a contract committing me to not file an 83b election? How would they ever find out if I did file, and why would they care?
- tdiggity 2y ago
  It's been a possibility in my options contracts. However, the company must agree to it, cash your exercise check, and send the necessary paperwork to the IRS. If they choose not to cooperate, you're out of luck.
- jahewson 2y ago
  My understanding is that 83b applies to stock, not options, so you have to first exercise the options and hold unvested stock. That requires early exercise.
molsongolden 2y ago
Not a restriction of the 83b election but a restriction of when you can exercise. Without early exercise you are stuck exercising as you vest so there’s more likely to be a taxable spread between your option strike price and the value of the stock. With early exercise you are exercising and making the 83b election when there’s no taxable spread.
- deleted 2y ago
  [deleted]