
Our Stock Option pledge - maccman
http://blog.clearbit.com/stock
======
throwaway1124
I appreciate the thinking here and message but am concerned about this line
"This will cost a few hundred dollars at most".

Clearbit has raised a $2M seed round from top-tier investors implying a post-
money valuation likely over $6M. A conservative FMV of the common shares would
suggest a $1.2M valuation. To exercise a 0.5% of total equity grant would cost
$6,000. Something doesn't add up here.

If I am correct, will Clearbit help its employees exercise their options?

See: [https://www.fenwick.com/publications/pages/playing-with-
fire...](https://www.fenwick.com/publications/pages/playing-with-fire-loans-
to-exercise-options.aspx)

~~~
technotony
Yes, and the tax on that is a fraction of that... which is a small cost
compared with cost of recruiting. remember the cash from excising the options
goes back to the company so it's not really a cost (you just have to pay tax)

~~~
JonFish85
Does one end up paying double taxes in such a case? Because you're "getting"
the money to buy the stock and then immediately buying the shares--is that
first step technically income?

~~~
russell_h
The taxes aren't double though. A highly simplified example:

    
    
      1. Your company gives you $1400 to exercise options (I don't think Clearbit is doing this, to be clear)
      2. You pay $400 in taxes and early exercise $1000 of options in exchange for 1000 shares at $1 each
      3. Later you sell those 1000 shares for $1m total
    

At step 3, you will pay capital gains tax only on the $999,000 of actual gain.
You don't have to pay taxes again on the original $1k.

------
win_ini
As someone who recently got stuck in poor option execution situation, this is
great. It is certainly better for companies to compete with each other on
transparency and honesty - rather than foosball and free meals.

A big problem is all the inertia in the marketplace where Option Pools, and
policies of many companies are already established and written into investment
rounds, legal paperwork and usually needs a board decision that may not be in
their own interests.

It would be awesome if Glassdoor has some sort of info about this(Option
Exercise Policy: XXXX) per company.

~~~
maccman
Yes it would be great to get more public exposure about stock option policies
and encourage the status quo to change.

@holman has started a GitHub project listing companies with favorable exercise
windows. [https://github.com/holman/extended-exercise-
windows](https://github.com/holman/extended-exercise-windows)

------
nazka
I came across a very good article on HN about funding. It gives you a complete
explanation to know what happen to your stocks through each series. The charts
and the dynamic ones at the end are making it even better:

[http://dlopuch.github.io/venture-dealr/](http://dlopuch.github.io/venture-
dealr/)

~~~
ErikVandeWater
Loved this. They are also creating a tool for those actually designing rounds:

"Like what you saw? Send some social love and encouragement for Venture Makr:
a full editor to create your own rounds with custom valuations and equity
distributions. Turn the knobs on your own creations and see how scenarios
might unfold differently."

~~~
floatrock
Author of that thing here, glad you guys found it helpful!

There's an original HN thread with some discussion on it around here
somewhere, but if you have anything on your wishlist, let me know!

~~~
hamburglar
Very cool visualizations. It would be interesting in the last interactive one
(illustrating liquidation preference) to see how a liquidation multiplier
affects things. I'm a little unclear on the calculations for the preferred
stock holders continuing to get money after their liquidation preferences are
fulfilled.

------
OliverJones
This is obviously good for recruiting. BUT: It would be helpful for employees
relying on the representations in this letter to have the commitment of the
lead investors to this policy. It would also be helpful to see an accounting
set-aside to cover the costs of the policy.

The problem here is that the CEO is "fighting the good fight" on behalf of
insiders, but he may be fighting that fight against the investors.

Guess who wins in that case?

------
gwintrob
I'm glad more companies are removing the stock option golden handcuffs.
Pinterest made a similar move last year:
[https://medium.com/@michaeldeangelo/unlocking-the-golden-
han...](https://medium.com/@michaeldeangelo/unlocking-the-golden-
handcuffs-6ac855a371f9)

~~~
hkmurakami
Don't forget Quora (who are often forgotten in this conversation), who were
the first ones to implement such a plan and set the number at the maximum 10
year exercise period allowed by law.

~~~
gwintrob
Good point. sama points that out here: [http://blog.samaltman.com/employee-
equity](http://blog.samaltman.com/employee-equity)

------
jaz46
This is a great trend that I'm seeing a lot of YC companies do. Early Exercise
+ 83b is an absolute must for all seed stage companies.

I really like the notion of helping employees exercise their options too with
cash compensation and it's something we're looking into too at Pachyderm as we
just started hiring.

What's the legal structure of that cash repayment? Is it a bonus or can the
company just pay the exercise price themselves and that's that?

~~~
loumf
You can do whatever you want. If your FMV is much higher than the strike, the
bigger problem is the tax bill.

~~~
hkmurakami
That's why it makes sense if you're at the seed round and the FMV is still
peanuts.

Post-A round makes it much harder.

~~~
iykwimthrowaway
I would ask the OP to consider going even further and figuring out a way to
facilitate some liquidity so the employees could sell enough to cover their
taxes even if they don't do early exercise.

You have employees who own shares but need a nontrivial amount of cash to
cover taxes. You have investors who may be interested in acquiring more shares
(or the company may want to buy them itself). You have a notion of a current
valuation of the shares. Broker a sale at a price that's beneficial to both
parties.

What is the company's incentive to block such a transaction?

I'd love to see this become standard.

~~~
tlrobinson
_" Once our valuation rises and the cost becomes prohibitive, we’ll move to an
extended exercise period model instead, where you will have 10 years to
purchase your options. By that time we’ll either have had an exit (in which
case you can do a cashless exercise), or we will have arranged some other form
of liquidity."_

The 10 year exercise window likely makes this unnecessary, but if not he says
they will arrange for some form of liquidity.

~~~
iykwimthrowaway
Yeah, that seems good, but I'm suggesting the plan for "some other form of
liquidity" be a little more explicitly stated. I know this isn't what plays
well with the HN crowd, but there are other paths to success besides the
explosive exit, and one of those is spending a long time building a good solid
business, which can take more than 10 years.

If there's a good path to the employee owning their shares (or some fraction
thereof) outright, that is more desirable in some ways than an outstanding
option agreement with a ticking clock.

------
Animats
Is this a binding contractual commitment, or just PR that can be repudiated
later?

------
arasmussen
As a startup founder, I have every intention on following suit here. I really
appreciate Alex for his transparency and for fighting the good fight.

------
pcl
That's great! Would you be willing to share the paperwork you used, so others
can build off your docs?

------
kmonsen
This doesn't address equity preference which is another common problem. But
still a good statement.

------
avodonosov
> People should stay because they want to, not because they have to.

"From each according to his ability, to each according to his needs". Just
reminded me.

