Not a terrible story, but I was an early employee in a startup and was given a small batch of options to start (and some measure every year as bonus) -- nothing exciting. I think the strike price was like a $.05 a share or something with 20 million total shares and I had ended up with something like 20,000 shares.
As I moved up the ladder I replaced a VP and took on his shares instead as an incentive. It was 1.5 million shares. One year I landed a couple huge deals for the company and brought in bonuses worth more than the strike price on all of that and almost bought them.
While I was thinking about it, the executive in charge of marketing and sales left and I ended up meeting him in a local parking lot to pick up his laptop and some other things. He handed me and envelope and told me to give it to the CEO and that it was confidential. Being curious I looked in the envelope anyways and it was around 4 million shares in stock certificates in the company. I have no idea why they were being transferred but I'm sure it was some contractual contingency to return the shares based on some trigger in his contract.
Being honest, I turned in the stock certificates as instructed, but decided that something felt "off" and I chose not to execute on purchase of my options.
Over the next 12 months we tried to exit at a $25m valuation (which would have made me on paper at least a small time millionaire), failed to find a buyer, the CEO left, I became President of the company with the task to shut it down rendering my options worthless anyways.
In exchange for sticking it out and helping shut the company down, I left with a very nice parting bonus and a promise of strong reference from our VCs as a former corporate officer which helped me get my next position with another startup (which ended in disaster but that's a different story). All that was worth well more than my options in the end so I guess it was worth it?
I worked for Real Networks in 2000. It was my first job out of college. I remember the recruiter probably thought she was clever telling me that "Your salary is low but you've got a lot of options." I had no idea what options really meant. I got 30000.
In six months those options were worth $5M. Wired wrote up a great article by this guy who played a great practical joke on everyone. The greed was so bad, people would check the stock every five minutes. This guy setup a proxy, and when people went to the bathroom he would switch their proxy settings to point to his proxy. His proxy did one thing: take any numeric values and half them when the page had our stock symbol. People would return to their desk and freak out that they just lost half their portfolio value.
I quit on my 1.5 year vesting date, and my options were still worth $150k. I waited a month and they went underwater.
A friend of mine got a bunch of stock options, and exercised them. Then they tanked. He got hit with a tax bill so large it more than wiped him out. His family wound up in a trailer.
Moral 1: When exercising options, sell enough on the same day to pay the tax bill.
Moral 2: When dealing with large sums like that, consult with a CPA.
I've heard a variation on this that never quite made sense to me. Its possible that some relevant details were just lost in the retelling, and it goes like this:
The employee exercised his options shortly after an IPO, but before he could sell the shares. By the time he could sell the shares, the stock had fallen to the point that the proceeds from sale didn't cover his taxes due. It wasn't enough to drive them to the poor house, but it was the difference between making money and losing money.
Why would you exercise the options in this time window at all? What's the upside versus just sitting on them until the window opens up?
Why would you even be able to exercise the options in the trading blackout window? Doesn't that count as trading itself?
If both trades happened in the same calendar year, then wouldn't the capital loss from the sale wipe out the capital gain from the exercise, such that he only owed tax on the difference between the strike price and final sale price?
Why do people pay taxes that put them in real risk? Isn't the point of taxes to contribute financially to the continuance of the place that is doing something for you? I currently owe like 5 years worth of taxes, but paying it would compromise my well-being, so they can wait. Seems perfectly rational. If you have 50000 to pay in taxes, but only 10000 in savings and $3k a month in expenses, or even $50k in savings, only a small amount should be legally required from you. Maybe the U.S is different.
Not to say I'm not working on it though, but if paying taxes would put me on the street, guess what, I'm not paying them until whatever they pay for lets me live a life. Just like any other debt, if I'm put in a vulnerable position, debts don't get paid unless they someone else owns the thing I'm living in or depend on, or they can break my legs, like the bank. One could argue you shouldn't have made that particular risky financial move, or you shouldn't be taxed on reception of illiquid assets, which would also both be valid.
Former boss told me a similar story from the first dotcom. He worked at Sun, things were looking great, a bunch of people vested and were paper millionaires. Two days later the market imploded and they were wiped out. He was one of the few who actually sold their equity straight away. Almost everyone else on his team now had a huge tax bill and nothing to pay it with. They went from thinking they were millionaires to bankrupt in less than a week.
> When exercising options, sell enough on the same day to pay the tax bill.
That assumes the stock is trading publicly or at least you can legally sell them.
In India most of the companies ask you to exercise your options within 2-3 months of quitting job. And most of them are not public companies. So there's a big dilemma. Exercise and take tax hit and hope that the company goes public and doesn't tank post IPO. Don't exercise and possibility of big regret. So..sort of a bummer.
Ironically (and sadly) two of the most publicised IPOs in India (PayTM and Zomato) have tanked since their IPO.
I sold 2000 options in June. The following April I had to sell 15,000 to pay the taxes on the 2000. The following April I had to sell another 10,000 to pay the taxes on the 15,000.
If I had sold 20,000 instead of 2,000 and used that to pay taxes, I would have been in a far better financial situation.
Fortunately, I never went into the red, but I know people who did.
Oof, this sounds awful. This obviously doesn't matter now, but my understanding is that call/put options are not taxable if you exercise them[1], rather they get included in the cost basis for whatever you end up owning once you exercise. I can see your friend losing lots of money due to the price fluctuations, but hopefully he didn't pay tax he didn't owe.
I'm not a lawyer or accountant so if I'm wrong, happy to learn. :)
Tried to leave a FAANG, was offered huge handcuffs in the form of more RSUs. Left anyway a few months later for a startup at 0.5% equity. Left that startup in 9 months to go _back_ to said FAANG, leaving my startup options unvested.
Returning to FAANG left me with less than half the RSUs I originally had (since then worth about $2m), and that 0.5% options in the startup? Said startup was bought right after I left and my options would _also_ have been worth about $2m.
So I was ultimately right back where I started, having narrowly avoided lots of money two separate times.
The most famous must be the Skype story right? Have a bunch of language in the employment contract, which gives the employer the right to take back all the vested shares you have been granted if you are "fired for cause"? Then fire everyone for cause right before liquidity event.
I agree with danluu, and strongly disagree with yosefk. My experience in New Zealand is the payoffs for equity are far worse because the rewards versus the risks are so bad (because VC is batshit mental in NZ), and I expect the problems are equally bad in other countries. The USA is an outlier.
Second that comment on NZ. The VC system there is still in its infancy, VC treat startups like they should be grateful to even have a conversation, then offer peanuts for a large stake. No wonder the more successful startups always go offshore for funding. Net result is that the opportunities for meaningful payouts are low. Great place to bootstrap, but you need to go offshore as soon as you launch.
I don't have any experience with VCs in NZ but was planning to try out start up when I do return home. I'm interested in stories if you have some around VCs in NZ, just so I know what I would be getting into :D
I started at Akamai in July 2002 and I received an option grant as part of my offer. Since I had options before, I thought they were all priced at the closing price on the day they were approved by the board. But Akamai had a provision in their option agreement that priced the options at 4 different prices. The price of the first quarter of my stock was the closing price the day the grant was approved by the board. The 2nd quarter was priced 90 days later, the 3rd 90 days after that, and the final price as 270 days after the initial grant. No one mentioned this odd pricing during the interview process, and I never thought to ask about it in the interview process, I just assumed they priced them all at once like my previous options.
I was told after I complained to HR, that they did this for MY benefit! Because their stock went straight to $300/share at the IPO and then started a slow decline. This was a good policy for people that started after the stock hit $300 and before I started because each quarter of their stock was priced lower than the previous quarter. But for those of us that started close to the bottom $2/share, it sucked!
One guy who started after me quit when he found out about the 4 different prices.
Joined as employee #2 of a startup. Over the years, accumulated about 1.9% of the company shares. At one stage, the company was valued at ~$300M. Several buyers approached over the years, the chairman only wanted to sell at a ridiculous near $1B. So it never got sold. Several in-fightings, layoffs and a few years later, we exited with $18M acquisition.
Oh man, that hurts.
As much as when I rejected an early position and at least 1% of a company that is now worth $1 B, because they demanded me to shut down a website I had at the time that was remotely related to their business and doing well ( I was super proud of it, we where getting some news coverage locally and even offers to sell) I would probably have joined if it was not for that demand, I think.
The most expensive thought of my life was "those fuckers will not tell me what to do".
I don't regret it, since it led me to the best part of my life after that site was eventually shut down 3 years later, but man... Sometimes late at night, alone over a drink, it comes back and bites.
I have never had a stock option that was worth anything. As a result, I count their value as zero if they’re part of an employment offer, although it’s been a while since I’ve had them as a putative benefit as well.
I tried to negotiate stock options as part of a compensation with an employer. They seriously considered it and almost gave in. After actually doing the research I realized, they would be worth nearly zero (there was some dodgy stuff on the financial records too). Then I decided to quit because it would be a waste of time and effort working there.
Anyway, the moral I took from that was to seriously reconsider working at a place where the stock options are worth nothing. Probably consider consulting for them or something else more cash heavy.
With my own money I purchased approximately $15k in shares over the course of 8 years out of a 13 year tenure. Company was purchased by private equity. The CEO lost his crackers, I left, and it took the company 4 months to send me a first right of refusal with the value at $30k. Within that agreement, I had to sign away holding the company liable for anything and never threaten to sue — this is after the CEO torpedoed a job offer of mine, said some racist things, and sent me a cease and desist for a former customer calling me about a job offer.
In any event, I still own the shares. I wish I didn’t because it would have been a cleaner break without a non-compete. But, I’m stuck… don’t want to sign away rights for what is my own money. Just holding onto them to see what happens as any legal fees outweigh what they are worth.
Sure: famously, a bunch of people that paid to exercise their @stake options (@stake was one of the first large security consulting firms, funded by Battery Ventures) after they left the firm got zero when @stake was eventually acquired by Symantec; the deal carved out retention grants for existing employees, which of course weren't extended to former employees. A bunch of people were out 5 figures, as I recall.
When I left Arbor Networks, I didn't exercise my options, in large part because of that horror story (further rationalized by having started a company of my own --- Matasano --- and deciding that if I was going to put money down on any company, it might as well be mine). I probably would have made some money when Arbor eventually sold! So: bad stories in both directions. :)
First startup job in the dot com era, employee #30 at a pre IPO startup. Started same day as another guy I will call Steve. I got a nice stock grant but didn’t really understand it so I bought a few books and read up on options and AMT.
Two years later and we are a public unicorn. I carefully exercised my options and sold my stock, keeping track of my taxes and paying an accountant just to be sure.
Steve exercised his, held the stock and rode it down in the crash. Ended up completely bankrupting him, he lost everything due to a massive AMT bill. He’d used H&R Block to help with taxes and back then they had no idea about AMT.
One thing I will add - I did fine but if I’d known about ETFs back then I’d be a lot wealthier. Don’t make the mistake of trading actively and especially don’t make the mistake of investing your tech gains in more tech until you have diversified enough that you don’t care if you lose it.
I negotiated for more stock and less salary on joining (poor choice in retrospect) and exercised on leaving ($3k). Four years later they did a reverse stock split (90k:1) at a low valuation and I was forced to sell my shares back to them for $700.
The fair market value was $3 per share. I calculated my AMT to be $0 and exercised. The company then retroactively quadrupled their fair market value price and I suddenly had a $10k AMT bill. The company was private, so I couldn't even sell the shares to pay for it.
I quit my job to start a company, trusting the legal to my business partner. We exchanged a written egalitarian cap table, but he secretly gave himself >100x more shares than listed. Yet, he called me "co-founder" and wrote that I held the most shares of anyone. In actuality, I vested <0.5%/year. Nearly a year in I found out, causing me to leave after having drained my savings in exchange for almost no equity.
Long time ago, promised 2% of the company with a 5 year cliff, got kicked out a week before cliff ended, company is wildly loved among developers around here too. Lessons learned, perspectives changed.
Not me but my friends: My first job was at Sendmail. A few friends exercised all their options when they left, writing checks to the company for 6 months of salary.
A decade later they company sold for a fraction of what they took from VCs, and no one made any money (and only the VCs got anything back).
Ten years before they could finally write off their loss!
This was fifteen years ago. I realized that something was coming up and decided to sell fonds titles. I opened the online banking system and sent the order. Two days later the crash happened.
Have I been lucky? No.
The bank patiently waited three days before executing the order.
I am afraid they immediately sold the titles and kept the difference. After all no risk here. If the prices would have went up they just would have backdated the sell. I realized why bankers are rich. They have the power and can turn the game to their profit. They just have many possibilities to tweak something such that I lose. </tinfoil>
Ten year later I retried somewhere else, crypto, to realize that the same crowd is also in crypto.
Luckily I didn't go all in. Twice. I can afford the losses.
> to realize that the same crowd is also in crypto.
If you bought btc/eth; so far the crypto believers have been right about one thing at least; when your holdings are down, just hodl. I am aware this can backfire terribly and I have no holdings, but for 12some years, they have been right.
I feel like just how people say always get a lawyer when you get some legal paperwork like a cease and desist - I say get a CPA when exercising options. Many times you can book them for a one time appointment, it'll probably run you somewhere between $150-$300. Totally worth it when I had to do it. (although no horror story here)
[+] [-] bane|4 years ago|reply
As I moved up the ladder I replaced a VP and took on his shares instead as an incentive. It was 1.5 million shares. One year I landed a couple huge deals for the company and brought in bonuses worth more than the strike price on all of that and almost bought them.
While I was thinking about it, the executive in charge of marketing and sales left and I ended up meeting him in a local parking lot to pick up his laptop and some other things. He handed me and envelope and told me to give it to the CEO and that it was confidential. Being curious I looked in the envelope anyways and it was around 4 million shares in stock certificates in the company. I have no idea why they were being transferred but I'm sure it was some contractual contingency to return the shares based on some trigger in his contract.
Being honest, I turned in the stock certificates as instructed, but decided that something felt "off" and I chose not to execute on purchase of my options.
Over the next 12 months we tried to exit at a $25m valuation (which would have made me on paper at least a small time millionaire), failed to find a buyer, the CEO left, I became President of the company with the task to shut it down rendering my options worthless anyways.
In exchange for sticking it out and helping shut the company down, I left with a very nice parting bonus and a promise of strong reference from our VCs as a former corporate officer which helped me get my next position with another startup (which ended in disaster but that's a different story). All that was worth well more than my options in the end so I guess it was worth it?
[+] [-] Akronymus|4 years ago|reply
Why would you accept to deliver/look into anything that you have been told is confidential? Thats liability I'd really rather not have, personally.
[+] [-] teruakohatu|4 years ago|reply
[+] [-] xrd|4 years ago|reply
In six months those options were worth $5M. Wired wrote up a great article by this guy who played a great practical joke on everyone. The greed was so bad, people would check the stock every five minutes. This guy setup a proxy, and when people went to the bathroom he would switch their proxy settings to point to his proxy. His proxy did one thing: take any numeric values and half them when the page had our stock symbol. People would return to their desk and freak out that they just lost half their portfolio value.
I quit on my 1.5 year vesting date, and my options were still worth $150k. I waited a month and they went underwater.
Oh well.
[+] [-] WalterBright|4 years ago|reply
Moral 1: When exercising options, sell enough on the same day to pay the tax bill.
Moral 2: When dealing with large sums like that, consult with a CPA.
[+] [-] brandmeyer|4 years ago|reply
The employee exercised his options shortly after an IPO, but before he could sell the shares. By the time he could sell the shares, the stock had fallen to the point that the proceeds from sale didn't cover his taxes due. It wasn't enough to drive them to the poor house, but it was the difference between making money and losing money.
Why would you exercise the options in this time window at all? What's the upside versus just sitting on them until the window opens up?
Why would you even be able to exercise the options in the trading blackout window? Doesn't that count as trading itself?
If both trades happened in the same calendar year, then wouldn't the capital loss from the sale wipe out the capital gain from the exercise, such that he only owed tax on the difference between the strike price and final sale price?
What am I missing from this picture?
[+] [-] throwawaybae420|4 years ago|reply
Not to say I'm not working on it though, but if paying taxes would put me on the street, guess what, I'm not paying them until whatever they pay for lets me live a life. Just like any other debt, if I'm put in a vulnerable position, debts don't get paid unless they someone else owns the thing I'm living in or depend on, or they can break my legs, like the bank. One could argue you shouldn't have made that particular risky financial move, or you shouldn't be taxed on reception of illiquid assets, which would also both be valid.
[+] [-] glenngillen|4 years ago|reply
[+] [-] vishnugupta|4 years ago|reply
That assumes the stock is trading publicly or at least you can legally sell them.
In India most of the companies ask you to exercise your options within 2-3 months of quitting job. And most of them are not public companies. So there's a big dilemma. Exercise and take tax hit and hope that the company goes public and doesn't tank post IPO. Don't exercise and possibility of big regret. So..sort of a bummer.
Ironically (and sadly) two of the most publicised IPOs in India (PayTM and Zomato) have tanked since their IPO.
[+] [-] shagie|4 years ago|reply
I sold 2000 options in June. The following April I had to sell 15,000 to pay the taxes on the 2000. The following April I had to sell another 10,000 to pay the taxes on the 15,000.
If I had sold 20,000 instead of 2,000 and used that to pay taxes, I would have been in a far better financial situation.
Fortunately, I never went into the red, but I know people who did.
[+] [-] lizknope|4 years ago|reply
https://www.latimes.com/archives/la-xpm-2001-apr-13-mn-50476...
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] evdubs|4 years ago|reply
[+] [-] cl42|4 years ago|reply
I'm not a lawyer or accountant so if I'm wrong, happy to learn. :)
[1] https://www.investopedia.com/articles/active-trading/053115/...
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] ninkendo|4 years ago|reply
Returning to FAANG left me with less than half the RSUs I originally had (since then worth about $2m), and that 0.5% options in the startup? Said startup was bought right after I left and my options would _also_ have been worth about $2m.
So I was ultimately right back where I started, having narrowly avoided lots of money two separate times.
[+] [-] coryfklein|4 years ago|reply
[+] [-] gwicks56|4 years ago|reply
https://techcrunch.com/2011/06/26/skypes-worthless-employee-...
[+] [-] robocat|4 years ago|reply
From danluu’s well argued article that options are mostly bad: https://danluu.com/startup-options/
With the opposite argument from yosefk in Israel: https://yosefk.com/blog/stock-options-a-balanced-approach.ht...
I agree with danluu, and strongly disagree with yosefk. My experience in New Zealand is the payoffs for equity are far worse because the rewards versus the risks are so bad (because VC is batshit mental in NZ), and I expect the problems are equally bad in other countries. The USA is an outlier.
[+] [-] drunkenmagician|4 years ago|reply
[+] [-] creakingstairs|4 years ago|reply
I don't have any experience with VCs in NZ but was planning to try out start up when I do return home. I'm interested in stories if you have some around VCs in NZ, just so I know what I would be getting into :D
[+] [-] dougb|4 years ago|reply
I was told after I complained to HR, that they did this for MY benefit! Because their stock went straight to $300/share at the IPO and then started a slow decline. This was a good policy for people that started after the stock hit $300 and before I started because each quarter of their stock was priced lower than the previous quarter. But for those of us that started close to the bottom $2/share, it sucked!
One guy who started after me quit when he found out about the 4 different prices.
[+] [-] sideproject|4 years ago|reply
[+] [-] cfontes|4 years ago|reply
The most expensive thought of my life was "those fuckers will not tell me what to do".
I don't regret it, since it led me to the best part of my life after that site was eventually shut down 3 years later, but man... Sometimes late at night, alone over a drink, it comes back and bites.
[+] [-] moharoune|4 years ago|reply
[+] [-] dhosek|4 years ago|reply
[+] [-] muzani|4 years ago|reply
Anyway, the moral I took from that was to seriously reconsider working at a place where the stock options are worth nothing. Probably consider consulting for them or something else more cash heavy.
[+] [-] marssaxman|4 years ago|reply
[+] [-] Cthulhu_|4 years ago|reply
[+] [-] TameAntelope|4 years ago|reply
You have the power to effect that outcome, and giving up that power makes me a decent amount less likely to enjoy working with you.
[+] [-] kylixz|4 years ago|reply
In any event, I still own the shares. I wish I didn’t because it would have been a cleaner break without a non-compete. But, I’m stuck… don’t want to sign away rights for what is my own money. Just holding onto them to see what happens as any legal fees outweigh what they are worth.
[+] [-] tptacek|4 years ago|reply
When I left Arbor Networks, I didn't exercise my options, in large part because of that horror story (further rationalized by having started a company of my own --- Matasano --- and deciding that if I was going to put money down on any company, it might as well be mine). I probably would have made some money when Arbor eventually sold! So: bad stories in both directions. :)
[+] [-] pnw|4 years ago|reply
One thing I will add - I did fine but if I’d known about ETFs back then I’d be a lot wealthier. Don’t make the mistake of trading actively and especially don’t make the mistake of investing your tech gains in more tech until you have diversified enough that you don’t care if you lose it.
[+] [-] jefftk|4 years ago|reply
(Full details: https://www.jefftk.com/p/stock-options)
[+] [-] lkesteloot|4 years ago|reply
[+] [-] lutorm|4 years ago|reply
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] throwaw87|4 years ago|reply
[+] [-] beeboop|4 years ago|reply
[+] [-] bitL|4 years ago|reply
[+] [-] garagemc2|4 years ago|reply
[+] [-] propter_hoc|4 years ago|reply
[+] [-] JoeAltmaier|4 years ago|reply
If you had the value of your stock option in cash, would you invest it all in a speculative Silicon Valley company? No? then diversify. And do it now.
[+] [-] jedberg|4 years ago|reply
A decade later they company sold for a fraction of what they took from VCs, and no one made any money (and only the VCs got anything back).
Ten years before they could finally write off their loss!
[+] [-] _nalply|4 years ago|reply
Have I been lucky? No.
The bank patiently waited three days before executing the order.
I am afraid they immediately sold the titles and kept the difference. After all no risk here. If the prices would have went up they just would have backdated the sell. I realized why bankers are rich. They have the power and can turn the game to their profit. They just have many possibilities to tweak something such that I lose. </tinfoil>
Ten year later I retried somewhere else, crypto, to realize that the same crowd is also in crypto.
Luckily I didn't go all in. Twice. I can afford the losses.
[+] [-] llampx|4 years ago|reply
[+] [-] tluyben2|4 years ago|reply
If you bought btc/eth; so far the crypto believers have been right about one thing at least; when your holdings are down, just hodl. I am aware this can backfire terribly and I have no holdings, but for 12some years, they have been right.
[+] [-] cbanek|4 years ago|reply