I'm curious to hear about people who excersised their stock options at a startup and there was a liquidity event (i.e. acquisition, merger, IPO). How good was the RoI? Did you lose money?
Joined a company 2.5 years pre-IPO, and made about ~200k pre-tax (but I waited until after the IPO to exercise as I didn't want the risk) at lock-up, with another ~400k still vesting.
Worked at another company that supposedly on the IPO track. Didn't buy my shares, and they ended up being acquired in a fire sale and gave 1 penny per share to those that did exercise. Company had gone through three rounds of layoffs ("normal trimming down before you IPO" lol), and I still had friends that exercised their shares.
For me, I'm willing to take the tax hit by waiting to exercise since I've seen so many companies fail.
1. Exercised my ISOs at small company A when I quit, because the options were buy-within-90-days-or-lose, and they were cheap, and I felt the company had decent odds of being acquired. They were acquired a couple of years later, and my $300 of stock turned into $15k. So an amazing ROI, but a small enough amount of stock that it didn't really matter.
2. Exercised some NQ options that company B, a customer of company A that I worked with, gave me. They got acquired by company C and the stock zoomed, I sold all, then the acquiring company went bust. Most employees of company B never made any money because their shares were locked up during the period that company C was worth something. I was lucky I was a contractor and not locked up, so I cashed mine in. Made about $60k, or about 4 times what I made from Company A who I actually worked for. The moral of this story is that if you have a lot of restricted stock in a company that's worth a lot of money now but might not be worth anything later, don't assume it will be worth anything.
3. I was an employee at company D when the got acquired by a big company E and all our stock got cashed out. This was a riskless exercise-and-sell transaction, and I made about $20k for my small amount of stock. Not bad, but not life-changing.
4. I was an employee at a pretty big famous public company F that gave us RSUs, and the RSUs roughly doubled in value when I was there. I sold most, kept some, and then the company got bought by bigger more famous company G, causing my remaining shares to turn into cash at another premium. Good deal but I didn't have enough stock for it to be life-changing. I think I made about $40k all told.
5. I was an employee at another big famous public company H, that gave me a significant number of RSUs, and during the term of my employment the stock went up and to the right a lot. This one was life-changing money: I can now afford to retire.
6. I'm now an employee at another big famous public company I, that gives me a decent number of RSUs. Like most of the market, the stock went down a lot back in February and March due to COVID-19 and is since up a lot.
The takeaway? Big company RSUs > startup options, in my limited experience. Of course it really comes down to how the individual companies do, but there are so many more ways employees can get screwed with private companies.
In the .COM bubble, many, many employees got crushed by exercising and holding options that were in the money when they exercised. 'Accountants and politicians were inundated with horror stories' [0]. The crushing happened when the stock price subsequently crashed below what their option price was. That circumstance meant they were liable to pay tax on the capital gain from exercising, but, did not have enough equity in the shares to cover the tax liability.
Generally, only exercise if the shares are in the money and 1) you are immediately going to sell or 2) the options are expiring. If you're going to exercise and hold, sell enough to cover your tax liability. See an accountant if the amounts are 'large' relative to your financial situation. If they are expiring and in the money and the company is private, talk to your HR department about selling enough shares back to the company to cover the tax liability. Seek professional advice if the amount is material for you.
_Startup 1_
Joined in 2000 as employee #35 and left in 2004. Exercised options for ~$300. Company acquired in 2014 and options worth $0. Reported a long term capital loss that year.
_Startup 2_
Joined in 2005 as employee #3 and left in 2011. Never exercised options. Company still going today w/no plans to grow or sell.
_Startup 3_
Joined in 2011 as a Principal Eng and promoted to VP Eng in 2014 and had option for a little over 1% of the company. Company was acquired in 2016. Value of my options was $0.
I've repeated this many many many times. You don't work at a startup to maximize your net worth. You'd be better off working almost anywhere else and come out on average with a higher net worth.
you work at a startup because the salary is sufficient for your needs/goals and its work you want to be doing and dont think you would be able to do elsewhere (at least with the same ease). If either of those 2 choices aren't being met, you probably shouldn't be working at a startup. If both are met, you might not be caring that you aren't maximizing your net worth and hence why are willing to work there.
I've got 3 in the bag that match your #2 experience. I would love to know how common this outcome is.
My overwhelming experience is that companies rarely "fail". A good idea just chugs along with an owner making well into the 6 figures. Somebody else (like me) built the infrastructure that allows the owner to outsource the maintenance development work.
This became my reason for doing CTO as a service type solutions. A lot of people were doing this 5 years ago or so, which makes me think your #2 is fairly common.
Had a 5% equity stake in a startup that got acquired for ~$20M + earn-out. Actual payout was low due to investor 2x prefs and all kinds of shenanigans, but after earn-out/taxes it was enough to put a down payment on a nice house. Only took around 2.5 years to pay off.
Couldn't 83b at the beginning because I didn't have enough liquid cash, so I ended up paying a lot of taxes in the end. Company could have easily failed / not gotten acquired so I don't blame people who don't exercise early.
Currently have a larger stake in a startup that's dying due to COVID killing their industry, so I'll likely leave with nothing. Womp.
The problem is that you never know when a liquidity event will happen, and not all outcomes involve you at least breaking even.
The company I have my exercised options with hasn’t gotten acquired, hasn’t gone public, it just hobbles along failing to make a profit year after year receiving round after round of funding by investors who just hope to turn the company viable.
I was only able to buy a few hundred bucks of shares, and I considered the proposition to be like a night out at the casino. Plus, I get to satisfy a little post-employment curiosity by getting to read investor information like balance sheets and income statements.
In my opinion, equity compensation and/or stock options suck. They probably only make sense for people working for Microsoft, Apple, Google, Amazon, and the like. I don’t want thousands of dollars in my investments riding on the success of one single company, especially is that company doesn’t have a street named after itself.
> I don’t want thousands of dollars in my investments riding on the success of one single company
Myself as well. For the private companies where I had options, most never worked out as being worth anything so not acting on them was the actual money-saving move. For the public companies, act on them if they're worth something when they vest and take the profit over to a mutual fund; I have had some options vest at 2x the current stock price making them useless, so you just play it vesting date by vesting date and hope for some profit on each chunk.
> They probably only make sense for people working for Microsoft, Apple, Google, Amazon, and the like.
Having worked at Google, I'm pretty sure that most of us only took stock because that was simply "how it was done"; it saves the company money versus paying you in cash (I guess! not an expert here). There is an infinite amount of paperwork that results from being paid in stock, and while it's obviously worth it for $200,000 a year on top of your base salary and bonus... it is still kind of a hassle. You have to file with the IRS your plan for selling shares (so they know you're not making insider trades), you can only access your money inside trading windows (unless you set up the aforementioned auto-sale or other trading plan), and your taxes become a $700 ordeal with tax professionals every year. Honestly, I just did my taxes myself and I messed them up one year. It takes the IRS 3 or so years to notice, and then one day you have a sternly-worded letter from the government demanding $60,000 immediately because your brokerage sent the IRS incorrect paperwork. Then you pay someone to fix that, then your state says "whoa, the IRS just got $60,000 from you! we want our cut!" and then you say "no no, those papers I mailed you a year ago show that they were wrong", then you wait a year... and get a $30 check in the mail because it turns out they owe YOU money. It's a big pain. My TL;DR is you don't know how much you owe, the government doesn't know how much you owe, and you will have to pay someone to take a guess that the IRS agrees with, and hope they agree. If they don't, be ready to pay even more money to persuade them that they are wrong.
I miss the days where I got a W-2 and filed a 1040EZ. It's ultimately worth it to take the stock, of course, but it's kind of a hassle. My advice is to find an accountant your first year at a FAANG and let them handle everything. Don't do it yourself.
I did an early exercise (83b election) when I started at a startup a few years ago, paid about $30k to exercise all my options, granting me about 0.3% ownership. Five years later, AWS made our product obsolete, and company was acqui-hired, all regular share holders were wiped out, so I lost my $30k (and worked for five years at well below market). Oops.
Didn't exercise my options before acquisition, didn't need to. Was paid the same. (Not a life changing amount of money; roughly what I would have gotten by staying at FAANG for the same amount of time. I still consider it a good outcome.)
The only difference from not exercising was I skipped a bunch of paperwork both at exercise and at acquisition time. On the other hand, the paperwork might have been interesting to learn more about how startup acquisitions work, and might have contained numbers that I would have liked to see. So in hindsight, I wish I had exercised at least a few of my options just for the sake of participating in the acquisition process as a shareholder.
I don't know if my experience is representative, though. I can certainly imagine that some exits might treat option holders differently than shareholders. I don't know the legality of that.
Worked for a startup in 2000 which Sun Microsystems bought. My options get switched to Sun options, and had a strike price higher than the value of the shares. Right before the options were set to expire, I got a call from someone at Solomon Smith Barney (remember that) who was like "I know the answer is no, but do you want to exercise these?" lol
That job, and especially my time at Sun, super kickstarted my career (I really valued my time at Sun), so I wasn't bitter at all.
I exercised 8.5k shares for $25k right before Company raised at a “unicorn” valuation to avoid paying AMT because I had no idea where the FMV would end up.
Strike price was ~couple dollars, preferred shares from the round were high teens, and the FMV ended up being a little more than double my strike price.
I’m happy I’m an owner, but probably could of waited until the next round if I knew the FMV was going to be lower. IPO hopefully coming in 18-24 months.
I've had options at 3 companies that all went through some event.
1 - Company acquired after I left. I paid 3k for my shares when I left, made 3k net. Not bad.
2 - Company was self-funded when I left, paid about 2k for shares. When they took external investment years later, I needed to sell my shares, net 6k.
3 - Company I was still working for was acquired. I'm acquihired at a better salary & benefits, plus retention bonus after a year. Exercised my options at 4k to net 55k.
I've had a run of good luck, and, in each case, the cost to exercise my options was one I could afford to lose if things turned. If it comes up again, I'll have to evaluate where I am at that time. Each event is unique, you have to judge your specific circumstances.
Worked at company for 4 years. About a month after I left, the company was acquired. Fortunately, I could still exercise my options. I paid around 10K to exercise my options and got about 70k once the sale was finalized. Honestly, I was expecting more but I'm not complaining.
I left about $20k in options on the table when I left a company that was acquired about 4 months after I left. My coworker who stayed ended up doing great, but not because of options. The company put him on a $100k-per-year retainer for 4 years to stay on and help port the project.
Retainers are often much better for the little people.
I exercised 3700 options at 28c shortly before the company let around 25% of staff go. Found out just a few days ago that the company is being acquired with shares at $1.20. Pretty good for what I thought was going to be worthless.
I got compensated for my unvested options at an acquisition, with a mix of cash and stock of the acquiring company. I was paid a fair salary (initially, at least) and did not have to buy any shares, so I kind of earned extra 30 k€ (before taxes) without any investment besides working full time. I ended up owning the smallish amount of the acquirer's shares for 3,5 years and their value raised 50% during that time, profiting 1500 € more.
The acquiring company, a listed one, had an options programme I left before vesting due to bad working conditions and some lack of vision. Shortly after I sold my first batch of stocks, the stock price crashed, and my options would be worthless now if I had decided to stick with the company. Some of my colleagues are still suffering there and the total price of their vested options has stayed below 500 € all the time.
Joined a company in 2000, got 14_000 shares at $4.75/share. Company went public that same year, and stock climbed to over $50/share. I was a black box QA Engineer w/ barely any work experience and I was sitting on ~$750_000 USD of paper money. By the time I started vesting & could sell, the stock price was down to about $12/share, and I started selling everything I had vested. I ended up w/ maybe $25K in cash. A few months later the stock was at $2/share & it never back above my stock price.
A few years later I joined a company that gave me about 15_000 options at $7/share. Less than a later, the stock was over $55/share. I made pretty good money on that one.
Worked at a company almost 2 years, exercised my stock options (only $2k, it was my 2nd junior position and I didn't negotiate for equity at all). 4 years later I have no idea how much they're worth, if they even still exist, or if there's been any liquidity event.
If I had to guess based on the company's revenue, they're probably worth about 4x what they were when I exercised, but I'm planning on holding off on trying to do anything with them unless I see the company in the news for a big liquidity event in the future.
Not at a start up but I worked at a company that had yearly options or RSU grants (your choice) and a share purchase plan. Got acquired after 2.5 years and hand't exercised/sold anything up to that point. Acquiring company accelerated grants and employer match so I ended up with about 60k CAD post tax. Would have only been about 20k if they didn't accelerate.
Piggy backing here, I exercised options 2 years ago when quitting my job. The company had a down round and I don't believe they have much of a future so I'd like to sell my stock back to the company, the stock at least being worth more now than the $30k I paid on exercise. Has anyone sold stock back to their company? What was the process like?
I tried to once when quitting by asking the CEO. He said the company was not interested. If the company you left don't have a future, chances are they're don't want their stock back. Start by asking if they're interested, then give them a high but fair price.
[+] [-] kabdib|5 years ago|reply
My options? "Extinguished" in some "event" 18 years ago. My guess is that's the event where they screwed as many employees as they could.
[+] [-] daenz|5 years ago|reply
[+] [-] Fire-Dragon-DoL|5 years ago|reply
[+] [-] tintor|5 years ago|reply
[+] [-] reureu|5 years ago|reply
Worked at another company that supposedly on the IPO track. Didn't buy my shares, and they ended up being acquired in a fire sale and gave 1 penny per share to those that did exercise. Company had gone through three rounds of layoffs ("normal trimming down before you IPO" lol), and I still had friends that exercised their shares.
For me, I'm willing to take the tax hit by waiting to exercise since I've seen so many companies fail.
[+] [-] dripton|5 years ago|reply
2. Exercised some NQ options that company B, a customer of company A that I worked with, gave me. They got acquired by company C and the stock zoomed, I sold all, then the acquiring company went bust. Most employees of company B never made any money because their shares were locked up during the period that company C was worth something. I was lucky I was a contractor and not locked up, so I cashed mine in. Made about $60k, or about 4 times what I made from Company A who I actually worked for. The moral of this story is that if you have a lot of restricted stock in a company that's worth a lot of money now but might not be worth anything later, don't assume it will be worth anything.
3. I was an employee at company D when the got acquired by a big company E and all our stock got cashed out. This was a riskless exercise-and-sell transaction, and I made about $20k for my small amount of stock. Not bad, but not life-changing.
4. I was an employee at a pretty big famous public company F that gave us RSUs, and the RSUs roughly doubled in value when I was there. I sold most, kept some, and then the company got bought by bigger more famous company G, causing my remaining shares to turn into cash at another premium. Good deal but I didn't have enough stock for it to be life-changing. I think I made about $40k all told.
5. I was an employee at another big famous public company H, that gave me a significant number of RSUs, and during the term of my employment the stock went up and to the right a lot. This one was life-changing money: I can now afford to retire.
6. I'm now an employee at another big famous public company I, that gives me a decent number of RSUs. Like most of the market, the stock went down a lot back in February and March due to COVID-19 and is since up a lot.
The takeaway? Big company RSUs > startup options, in my limited experience. Of course it really comes down to how the individual companies do, but there are so many more ways employees can get screwed with private companies.
[+] [-] 11thEarlOfMar|5 years ago|reply
Generally, only exercise if the shares are in the money and 1) you are immediately going to sell or 2) the options are expiring. If you're going to exercise and hold, sell enough to cover your tax liability. See an accountant if the amounts are 'large' relative to your financial situation. If they are expiring and in the money and the company is private, talk to your HR department about selling enough shares back to the company to cover the tax liability. Seek professional advice if the amount is material for you.
Schwab has some good common-sense advice[1]
[0] https://www.chicagotribune.com/sns-tech-taxes-story.html
[1] https://www.schwab.com/resource-center/insights/content/unde...
[+] [-] fatnoah|5 years ago|reply
_Startup 2_ Joined in 2005 as employee #3 and left in 2011. Never exercised options. Company still going today w/no plans to grow or sell.
_Startup 3_ Joined in 2011 as a Principal Eng and promoted to VP Eng in 2014 and had option for a little over 1% of the company. Company was acquired in 2016. Value of my options was $0.
After 17 years, I was done with startups.
[+] [-] compsciphd|5 years ago|reply
you work at a startup because the salary is sufficient for your needs/goals and its work you want to be doing and dont think you would be able to do elsewhere (at least with the same ease). If either of those 2 choices aren't being met, you probably shouldn't be working at a startup. If both are met, you might not be caring that you aren't maximizing your net worth and hence why are willing to work there.
[+] [-] throwaway9191a|5 years ago|reply
My overwhelming experience is that companies rarely "fail". A good idea just chugs along with an owner making well into the 6 figures. Somebody else (like me) built the infrastructure that allows the owner to outsource the maintenance development work.
This became my reason for doing CTO as a service type solutions. A lot of people were doing this 5 years ago or so, which makes me think your #2 is fairly common.
[+] [-] drchopchop|5 years ago|reply
Couldn't 83b at the beginning because I didn't have enough liquid cash, so I ended up paying a lot of taxes in the end. Company could have easily failed / not gotten acquired so I don't blame people who don't exercise early.
Currently have a larger stake in a startup that's dying due to COVID killing their industry, so I'll likely leave with nothing. Womp.
[+] [-] dangus|5 years ago|reply
The company I have my exercised options with hasn’t gotten acquired, hasn’t gone public, it just hobbles along failing to make a profit year after year receiving round after round of funding by investors who just hope to turn the company viable.
I was only able to buy a few hundred bucks of shares, and I considered the proposition to be like a night out at the casino. Plus, I get to satisfy a little post-employment curiosity by getting to read investor information like balance sheets and income statements.
In my opinion, equity compensation and/or stock options suck. They probably only make sense for people working for Microsoft, Apple, Google, Amazon, and the like. I don’t want thousands of dollars in my investments riding on the success of one single company, especially is that company doesn’t have a street named after itself.
[+] [-] gravitas|5 years ago|reply
Myself as well. For the private companies where I had options, most never worked out as being worth anything so not acting on them was the actual money-saving move. For the public companies, act on them if they're worth something when they vest and take the profit over to a mutual fund; I have had some options vest at 2x the current stock price making them useless, so you just play it vesting date by vesting date and hope for some profit on each chunk.
[+] [-] jrockway|5 years ago|reply
Having worked at Google, I'm pretty sure that most of us only took stock because that was simply "how it was done"; it saves the company money versus paying you in cash (I guess! not an expert here). There is an infinite amount of paperwork that results from being paid in stock, and while it's obviously worth it for $200,000 a year on top of your base salary and bonus... it is still kind of a hassle. You have to file with the IRS your plan for selling shares (so they know you're not making insider trades), you can only access your money inside trading windows (unless you set up the aforementioned auto-sale or other trading plan), and your taxes become a $700 ordeal with tax professionals every year. Honestly, I just did my taxes myself and I messed them up one year. It takes the IRS 3 or so years to notice, and then one day you have a sternly-worded letter from the government demanding $60,000 immediately because your brokerage sent the IRS incorrect paperwork. Then you pay someone to fix that, then your state says "whoa, the IRS just got $60,000 from you! we want our cut!" and then you say "no no, those papers I mailed you a year ago show that they were wrong", then you wait a year... and get a $30 check in the mail because it turns out they owe YOU money. It's a big pain. My TL;DR is you don't know how much you owe, the government doesn't know how much you owe, and you will have to pay someone to take a guess that the IRS agrees with, and hope they agree. If they don't, be ready to pay even more money to persuade them that they are wrong.
I miss the days where I got a W-2 and filed a 1040EZ. It's ultimately worth it to take the stock, of course, but it's kind of a hassle. My advice is to find an accountant your first year at a FAANG and let them handle everything. Don't do it yourself.
[+] [-] oppositelock|5 years ago|reply
[+] [-] seattle_spring|5 years ago|reply
[+] [-] cambalache|5 years ago|reply
[+] [-] modeless|5 years ago|reply
The only difference from not exercising was I skipped a bunch of paperwork both at exercise and at acquisition time. On the other hand, the paperwork might have been interesting to learn more about how startup acquisitions work, and might have contained numbers that I would have liked to see. So in hindsight, I wish I had exercised at least a few of my options just for the sake of participating in the acquisition process as a shareholder.
I don't know if my experience is representative, though. I can certainly imagine that some exits might treat option holders differently than shareholders. I don't know the legality of that.
[+] [-] aproductguy|5 years ago|reply
That job, and especially my time at Sun, super kickstarted my career (I really valued my time at Sun), so I wasn't bitter at all.
[+] [-] cofuente|5 years ago|reply
[+] [-] meagher|5 years ago|reply
Strike price was ~couple dollars, preferred shares from the round were high teens, and the FMV ended up being a little more than double my strike price.
I’m happy I’m an owner, but probably could of waited until the next round if I knew the FMV was going to be lower. IPO hopefully coming in 18-24 months.
[+] [-] jadell|5 years ago|reply
1 - Company acquired after I left. I paid 3k for my shares when I left, made 3k net. Not bad.
2 - Company was self-funded when I left, paid about 2k for shares. When they took external investment years later, I needed to sell my shares, net 6k.
3 - Company I was still working for was acquired. I'm acquihired at a better salary & benefits, plus retention bonus after a year. Exercised my options at 4k to net 55k.
I've had a run of good luck, and, in each case, the cost to exercise my options was one I could afford to lose if things turned. If it comes up again, I'll have to evaluate where I am at that time. Each event is unique, you have to judge your specific circumstances.
[+] [-] alwaysroot|5 years ago|reply
[+] [-] ed25519FUUU|5 years ago|reply
Retainers are often much better for the little people.
[+] [-] thelittlenag|5 years ago|reply
[+] [-] fabioborellini|5 years ago|reply
The acquiring company, a listed one, had an options programme I left before vesting due to bad working conditions and some lack of vision. Shortly after I sold my first batch of stocks, the stock price crashed, and my options would be worthless now if I had decided to stick with the company. Some of my colleagues are still suffering there and the total price of their vested options has stayed below 500 € all the time.
[+] [-] PopeDotNinja|5 years ago|reply
A few years later I joined a company that gave me about 15_000 options at $7/share. Less than a later, the stock was over $55/share. I made pretty good money on that one.
[+] [-] nikisweeting|5 years ago|reply
If I had to guess based on the company's revenue, they're probably worth about 4x what they were when I exercised, but I'm planning on holding off on trying to do anything with them unless I see the company in the news for a big liquidity event in the future.
[+] [-] cofuente|5 years ago|reply
[+] [-] n00bskoolbus|5 years ago|reply
[+] [-] not_a_moth|5 years ago|reply
[+] [-] hankmander|5 years ago|reply