Berkeley CSUA MOTD:2010:May:19 Wednesday
Berkeley CSUA MOTD
2010/5/19-6/30 [Industry/Startup] UID:53840 Activity:nil
5/19    I'm working for an early stage startup, and they want to grant me
        stock options.  However, they are claiming that I must either pay
        tens of thousands of dollars to purchase the options at the
        current valuation, or have it be taken as personal income when I
        (eventually) try to cash out.  It seems that both of these
        are terrible choices.  Are there any other ways to deal with
        this sort of situation?  I'd like the capital gains but feel
        that I shouldn't be paying nearly half my after-tax income
        just to purchase the stock that should be an incentive, not
        a liability.
        \ _ Your employers are retards.  leave.
        \_ It sounds like this is either your first experience with stock
           options or your first experience at a startup.  If this is an
           early stage startup and the purchase price and valuation of an
           option are equal, then exercising them is a very, very risky
           thing to do.  Most startups fail.  You can realize no value for
           your options until the shares can be sold (you're not publically
           traded yet -- who are you going to sell your shares to and how
           will you and the buyer determine the value?).  The whole point of
           an option is that you can, at a later date, buy shares for what
           they were worth long ago when you started working there (assuming
           the place succeeds).  It sounds like you are years away from
           needing to worry about this.  You also need to learn about
           Alternative Minimum Tax (AMT) and how it relates to stock options.
           If the place takes off and the options become worth something,
           seek professional help for a good financial advisor.
           seek professional help from a good financial advisor.
        \_ Read this:
           \_ This is excellent.  I made about $20,000 on my options using the
              "exercise and sell" option (or cashless sell) as in this article.
              Note that you need to know whether they are NQO or ISO options to
              properly follow this advice, because the tax ramifications are
              different.  For NQOs this article is right on the money.
              \_ That article is moronic.   Who the hell would exercise an
                 option to buy  a share at $10, when the share price *IS*
                 $10?  This was helpful to you?!?  Next he is going to follow
                 it up with a brilliant and insightful article explaining how
                 if you have an option to buy a $10 stock at $11, it is a sub-
                 optimal strategy to exercise and sell.
        \_ The "either ... or ..." that your employer said are usually both
           true for late startups.  For early startups, the current valuation
           at the time of option granting is usually very low.  When I joined
           my early startup, I was granted 0.25% of the company in options, yet
           I could exercise all of it for only $200.  May be your company is
           I could exercise all of it for only $200.  Maybe your company is
           not that early of a startup.
           \_ Your company had a valuation of $80k when you started? That is
              a very early stage start-up indeed.
              \_ There were five engineers including me, and all reported to
                 the CEO.
        \_ Just shut up and pay your taxes when they are due. Also, buy Piaw's
        \_ I just left my job of 2.5 years.   I was granted a block at
           a certain price when I started, and more ( at a higher price )
           a year later.  This is a startup that has not IPO'd, and
           I think everyone involved would agree they will never IPO.
           They might get bought one day.  So I'm aware that options
           traditionally vest over 4 years.  I was not there for 4 years.
           1 week after I left, I got an email from the CEO saying that
           I could vest all of my options for a check for 17k.  No mention
           of current prices, estimated company valuation, number of
           options already out there, nothing.  From some numbers thrown
           around at me from the old CFO who got fired 2 years ago, I
           estimate I was given options for a little less than .10% of the
           company.  I think the CEO is just trying to get more money for
           his company, but I really can't tell.
Berkeley CSUA MOTD:2010:May:19 Wednesday