
An Early Engineer's Guide to Early Stock Option Exercise - aveshcsingh
https://medium.com/@aveshcsingh/should-you-early-exercise-dd9dfe25accb
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CalChris
There’s no mention of _Qualified Small Business Stock_ , QSBS. If you are
early on, this is more important than 83b or early exercise although more
difficult to manage.

[https://www.andersentax.com/services/for-private-
clients/bus...](https://www.andersentax.com/services/for-private-
clients/business-owners-and-entrepreneurs/qsbs)

~~~
j_s
QSB seems to be circling back into the limelight recently here:

What Is QSB Stock and Why Does It Matter for Startups? |
[https://news.ycombinator.com/item?id=15495873](https://news.ycombinator.com/item?id=15495873)
(2017Oct;21comments) <\- content is 2016Jul grellas

> _When you do qualify, the benefit can be up to $2M_

Ask HN: How do I minimize the taxes from selling my startup? |
[https://news.ycombinator.com/item?id=2502623](https://news.ycombinator.com/item?id=2502623)
(2011May;52comments)

> _proceeds of the original and the new investment are treated as long term
> capital gains [...] if the proceeds stay in a QSB for more than 5 years, the
> whole thing is tax free_

Tell HN: 100% exemption for angel investors extended through 2011 |
[https://news.ycombinator.com/item?id=2018041](https://news.ycombinator.com/item?id=2018041)
(2010Dec;16comments)

>grellas: _My two cents_ ...

~~~
CalChris
It was created in 1993 but prior to 2009, it wasn’t worth anything. Now it’s
worth quite a bit (thanks Obama!).

[https://static1.squarespace.com/static/5422fa91e4b09109bad5a...](https://static1.squarespace.com/static/5422fa91e4b09109bad5a2ee/t/59dfe60646c3c4f859b17021/1507845757071/chart12.png)

[http://www.founderscircle.com/what-startup-founders-and-
empl...](http://www.founderscircle.com/what-startup-founders-and-employees-
need-to-know-about-qualified-business-stock-qsbs/)

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throwaway2016a
My problem has always been that startup pay is often below market and when you
are already making below market, shelling out $20k to exercise is prohibitive.
In my case that would mean spending more money than I put on the down payment
of my house or pay for a year of my kid's daycare.

With that said, if you can afford it it is a great way to lesson the tax blow
in the event of an exit.

~~~
Clubber
From what I understand, a banking or trading institution will execute the
transaction, leaving you with the net for a moderate fee.

~~~
throwaway2016a
I'd be curious to know about this. Do you or someone have more information?

Every company I've been at it involves writing a check to the company unless
the company is public. I don't know why a bank would take on the risk on a
private company.

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Lunar_Lamp
Just to be clear, though I'm sure it won't shock anyone, the article is very
US specific and therefore it's entirely likely that parts of the advice will
not carry over into other tax jurisdictions. I only comment this as I had
assumed it was a more general article than dealing with the tax specific
aspects of options.

~~~
aveshcsingh
That's true. The only part of this post that applies generally is the
discussion of golden handcuffs; the rest is specific to US tax law.

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devy
I went to a workshop hosted by eShares Inc. regarding stock options a few
years ago. They've since put it up on their blog. Highly recommended:
[https://blog.esharesinc.com/equity-101-stock-option-
basics/](https://blog.esharesinc.com/equity-101-stock-option-basics/)

Btw, if your employer haven't used eShares Inc for cap management, they
should. It's much more streamlined with the electronic stock certificates and
exercised (no messy paper trials to keep!)

~~~
ellisv
Former company uses eShares but current one doesn't :(

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thoreauway
The spreadsheet with formulas is more helpful than I would have imagined
(remember to look at the assumed constants tab).

~~~
aveshcsingh
Glad you found it useful!

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auspex
80% of startups fail and 20% succeed in some fashion. Which means if you
normally make $50,000 and take a $5,000 paycut to work there you will lose
$20,000 over the 4 year vesting period in salary.

80% of the time when the startup goes bust you make 0 on equity and still lost
money due to the paycut. For a total of 8x20 or $160,000 loss.

The two times you are successful you make 2xEquity.

This means your equity has to be at least worth $80,000 each time you
succeed.... just to break even with salary.

Factoring in the risk of your equity being 0 you should be getting a LOT more
equity.

It's very similar to calculating expected value in poker.

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creaghpatr
Really great article. I hope the government repeals the AMT tax as expected in
the coming tax cut bill. You are right that there is little material out there
for resources.

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ellisv
Another resource is [https://github.com/jlevy/og-equity-
compensation](https://github.com/jlevy/og-equity-compensation) (was posted
here a couple years ago). It has the benefit of being "open source" so it
might be easier to contribute to.

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onewayonly
Great read- thank you!

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Phanyxx
I 10/10 thought this was going to be about doing squats at my desk. Sigh.

~~~
ellisv
Standing desks, treadmill desks, squatting desks, where does it stop?

