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Vesting resets wouldn't apply to an IPO, but they'd apply to an acquisition where the bought company is paid-for in stock and vesting applies to the new stock.

Vesting resets wouldn't apply to an IPO, but they'd apply to an acquisition where the bought company is paid-for in stock and vesting applies to the new stock. Let's say that the employee has 0.4% (after dilution) of BuzzFlop with a 4-year vesting cycle. After 2.5 years, BuzzFlop is bought by Hooli for $100M in Hooli stock. The employee doesn't get $250k in walk-away cash, but $250k in Hooli stock, subject itself to a vesting schedule (and possibly a "refresher"). If that employee gets cliffed (which can happen in a merger) then none of that stock ever vests.

tptacek 11y ago
I'm confused how that could work. Let's take the same employee but have them leave the company, executing their options, just before Hooli acquires them. How do they end up vesting at all? Are you saying: the vesting schedule on your as-yet unvested stock might reset when the company is acquired? How often does that happen? How often does the exact opposite thing happen --- accelerated vesting on change of control? Because that other thing also happens.
- guimarin 11y ago
  It happens all the time. More often than not the C-level will get a bonus on employee retention and tie the new stock vesting schedule up with that retention period. They in the meantime are able to immediately get bought out. I think Michael has a very legitimate position here, and one that is not well understood at all. As a side note, I think Netflix' strategy of paying people a lot of money with no stock/rsu's/options is the right one.
  - tptacek 11y ago
    Strong agree on cash over options. I like how I understand Bloomberg to do it, too: internally liquid equity; ie, equity that is practically immediately as good as cash.
tedunangst 11y ago
I have options for 0.4% of BuzzFlop. After 2 years, I walk away with 0.2%. After 2.5 years, Hooli buys BuzzFlop for $100M in stock. What do I have?
rhizome 11y ago
In 2008, what happened to me was instant vesting and something like an 8:1 exchange for the acquiring (public) company's stock. It wound up paying out very little, just about equalizing on a low-end salary for the year and a half I was there (acquisition at 1yr). I was employee ~#5 out of 9 or so.

tptacek 11y ago

I'm confused how that could work. Let's take the same employee but have them leave the company, executing their options, just before Hooli acquires them. How do they end up vesting at all? Are you saying: the vesting schedule on your as-yet unvested stock might reset when the company is acquired? How often does that happen? How often does the exact opposite thing happen --- accelerated vesting on change of control? Because that other thing also happens.

guimarin 11y ago
It happens all the time. More often than not the C-level will get a bonus on employee retention and tie the new stock vesting schedule up with that retention period. They in the meantime are able to immediately get bought out. I think Michael has a very legitimate position here, and one that is not well understood at all. As a side note, I think Netflix' strategy of paying people a lot of money with no stock/rsu's/options is the right one.
- tptacek 11y ago
  Strong agree on cash over options. I like how I understand Bloomberg to do it, too: internally liquid equity; ie, equity that is practically immediately as good as cash.

tedunangst 11y ago

I have options for 0.4% of BuzzFlop. After 2 years, I walk away with 0.2%. After 2.5 years, Hooli buys BuzzFlop for $100M in stock. What do I have?

rhizome 11y ago

In 2008, what happened to me was instant vesting and something like an 8:1 exchange for the acquiring (public) company's stock. It wound up paying out very little, just about equalizing on a low-end salary for the year and a half I was there (acquisition at 1yr). I was employee ~#5 out of 9 or so.