

ESO Fund pools $25M to float former employees exercising stock options - vtry
http://venturebeat.com/2012/08/06/eso-fund-pools-25m-to-float-former-employees-exercising-stock-options/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Venturebeat+%28VentureBeat%29&utm_content=Google+Reader

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ChuckMcM
This is an interesting concept but half baked. The biggest challenge to folks
exercising their options seems to be the tax hit from AMT rather than coming
up with the funds to buy the stock.

After the down-votes: Look at this this way, you get 200,000 shares in an ISO
when you start at this startup. The valuation gives you a strike price of say
a 5 cents per share. Now two years later you have vested 100,000 shares and
you are leaving the company, and the company has gone through another round of
funding and the strike price is not 10 cents per share. The cost to borrow is
: 100,000 * .05 or $5,000 and the 'gain' in value is also $5,000. You pay AMT
on the gain of 35% * 5000 or $1,750 in tax (Which ESO didn't loan you). Now
your company exits in an acquihire or something and you're common stock is
worthless. You're out $1,750 in tax, except ESO forgives the loan they gave
you, that is another $5000 in income you have to report and $2,500 in tax due.
So At the end of this you're out $4,250. Win? (You do get a $3000 capital
gains loss you can write off that year from your adjusted gross income, only
covers a bit more than half the $5,000 fogiveness income. So maybe you end up
paying only $2,750 in taxes. Oh and you had to itemize which meant you spent
probably double the amount of time you normally do on your taxes.

That is what I mean by 'half baked', coming up with the funds to buy the stock
is only half the problem.

