
Fuck Your 90 Day Exercise Window (2016) - mooreds
https://zachholman.com/posts/fuck-your-90-day-exercise-window/
======
mharroun
Equity is monopoly money. So many ways for it to fall thought so few for it to
actually pay out.

As someone whos spent ~12 years in the startup space... when you take a job
expect only the money guarnteed to you. If your not happy with that move on...
Equity? That is a windfall.

~~~
jonny_eh
But do I buy the options when I leave the startup? That's a hard choice.

~~~
randycupertino
Not to mention the savings account on the side you have to start building to
buy your options when you resign! I never factored that in until I realized I
had to come up with $15k on the spot to quit if I wanted to take my options
with me. Now I know and am prepared, but for 24 year old me fresh out of
college leaving my first startup job, that was a tough realization.

~~~
ahakki
If the options are worth something, shouldn’t getting 15k in credit feom a
bank be pretty easy?

~~~
jeremysmyth
That's often a big "if".

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KorematsuFred
Thanks for writing this. I quit my "startup employer" last year. I was leaving
at a critical juncture and the company begged for me to stay at least for 3
months to complete an important project. I said "fuck you" and left. I had
$300K worth of ISOs and 90 days exercise window which I let expire.

In fact the 90 days window is what made me quit before completely 1 year.
Quiting sooner is better than wasting 5 years.

~~~
avip
I'd strongly advise against saying "fuck you" to anyone. Leaving on good terms
is important, and pays off. Make it a habit early on.

~~~
justinjlynn
You know, there are times when it's entirely appropriate. Perhaps we could
treat each other as adults and simply ask if there was a particular reason
they didn't think parting amicably was an option? They may have had one.

~~~
praneshp
> Perhaps we could treat each other as adults

A good adult like thing to start with is not literally say "fuck you" when
leaving.

~~~
int_19h
Depends a lot on the context behind that leaving. There are absolutely
situations where it can be warranted - abuse (including verbal), for example.
Politeness is the default state of affairs, but depending on how you behave,
you might lose that privilege.

~~~
faissaloo
In any case where a 'fuck you' is warranted deadpan silence works better.

~~~
nojvek
Sometimes the company deserves it.

you usually don’t want to burn bridges, true. However don’t ever let anyone
treat you like shit. Walk away. Burn that bridge to the ground.

Like the time where one of the seniors was clearly an asshole and was right on
the border of racism. My manager wouldn’t do anything to jeopardize his
promotion. He was clearly a bully.

Fuck that bullshit. I walked away as soon as I got my green card.

~~~
faissaloo
My point is that losing your composure is undignified, let them be the angry
ones, they should understand that you have lost nothing and it should eat away
at them. Giving a 'fuck you' is in a way providing closure for them.

~~~
int_19h
So, basically, don't do it to hurt them more?

What if you want to provide a closure for _yourself_ , and don't care about
them?

~~~
faissaloo
Exactly. You should be good enough at what you do that you are never the one
in need of closure.

~~~
int_19h
Closure is an emotional thing that is not necessarily (in fact, I'd say not
usually) connected to "being good enough" in any meaningful sense. If
anything, it can be the opposite - when you realize that you have been treated
in a way that is far beneath the value that you were providing, the
realization of that fact can very well lead to a "fuck you".

------
no_wizard
Maybe I am alone in this but goood ol fashioned profit sharing has again and
again been a better long term value for me

I have found employees & employers tend to do more favorable in a number of
ways:

* All levels of employees get to participate in compensation

* do in part to that, participants (in my albeit subjective look at things) tend to work equally as hard

* there seems to be a natural tendency to reduce waste of resources everyone gets some of the revenue slice

The only real down side I can think of is the same ones stock options have
(except for the vesting period, to be frank): the longer you have been with
the company and or the higher you climb the ranks usually the more you get.

Also it is true that in profit sharing a lot of times a buyout may not always
be spread around, unlike with options (though it happens with options too)

To me at least with straightforward profit sharing the gains are realizable In
a consistent and judicious manner

~~~
AndrewKemendo
Startups generally have no profit to share.

~~~
maxxxxx
They can share only future profit which is in the form of stock.

------
manigandham
It is strange that the typical window is so short, or that employees accept
_the ability to buy_ something as compensation in the first place.

~~~
phamilton
> the ability to buy something as compensation

While that is indeed the mechanics, really what you get is exposure to upside
without exposure to downside. The fact that it's options is a (probably
outdated) structure that is beneficial from a tax perspective.

~~~
jonny_eh
Only if the company IPOs. More commonly you buy the options, pay taxes on
them, then the company goes under before you make your money back.

~~~
phamilton
While that is common, that is unrelated to my point.

Being given an option grant does not expose you to downside. Exercising the
grant can result in a loss, sure, but exercising is not necessary to have
exposure to upside.

As the OP points out though, 90 day windows force you to exercise (and be
exposed to downside) or forfeit your upside.

------
xkcd-sucks
Has anyone successfully negotiated their way out of a 90 day exercise period
or is it the kind of thing that can only be negotiated at a new job?

~~~
ath0
(Not A Lawyer disclaimer)

There's a tax law reason why this isn't a trivial change. Best reference I
could find is here:

[https://thestartuplawblog.com/incentive-stock-options-
post-t...](https://thestartuplawblog.com/incentive-stock-options-post-
termination-service-exercise-periods/)

In short, to be treated as an Incentive Stock Option - which comes with
benefits for you (taxed as capital gains, not as income, if you hold 1 year
from exercise and 2 years from grant) and for the company (different
accounting treatment and they don't have to withhold taxes at exercise time) -
the option must expire within 90 days after your employment.

Some companies are now moving toward treating options as NSOs if you keep them
after your employment, and ISOs if you exercise them during this period - but
this kind of change comes with lawyers and accountants (and maybe even a
change to the stock option plan approved by the board of directors) attached,
so it's not easily negotiated for a single employee.

~~~
xkcd-sucks
So, in your (uninformed, nonlawyerly) opinion, is a NSO grant with 90 day
expiration just taking the piss?

------
nsenifty
For someone who was an uninformed early stage employee who has seen the
company grow but far from being public, I find AMT to be a much bigger problem
than the 90 day window. Although I suppose if I had a longer window, I could
potentially avoid AMT by waiting.

------
deanmoriarty
I feel obligated to repost a recent comment of mine (full thread at
[https://news.ycombinator.com/item?id=19020085](https://news.ycombinator.com/item?id=19020085)):

One of the former companies I worked at never allowed early exercise and
issued standard ISO with 90 day expiration upon leaving, which is
unfortunately essentially the analogue of "standard and clean" when it comes
to employee compensation. By the time I was ready to leave (4+ years, I was
very early) all my equity was vested, and buying it required spending ~250k
(USD!) between cost of exercising and AMT taxes, all while the company shares
were illiquid as ever. The company had no interest in helping me, despite me
asking for an extension to the option expiration, they were too bitter that I
was leaving and creating significant "damage" to the business.

It was incredibly painful and I felt very cheated and stupid for agreeing to
those terms in the first place (actually faced some deep depression and anger
against the world for a few months because of this, and thought about going to
therapy), but what did I do in the end? I paid out the money. Yes, I wrote a
check to my employer for 60k, and another check to the IRS for 190k, depleting
my non-emergency savings (and this is from a very frugal person, who never
even spent more than 8k on a car, car being my biggest expense ever). There
were funds who would lend me the money, but wanted 50%+ of the proceeds, and
if the company goes under you're still on the hook for a taxable event when
the loan is forgiven.

Luckily AMT for ISO exercise can be slowly (very slowly) recouped in future
tax years (and the new tax law made it a bit easier by increasing the
deduction and the phaseout limits), but I still had to waste so much of my
after tax money just to leave with what I matured over the years. And that
money is now sitting in the government pockets for years, producing me no
interest and losing value with inflation until I recoup all of it.

Fortunately, a year after I bought those shares one of the investors contacted
me and bought some of my equity, so I was able to recoup all what I originally
put in (and then some). But it's simply insane, and I am still in the hole for
all that AMT that I will recoup in ~10 years, no less.

Other coworkers who left and didn't have the money to come up with the
exercise and tax liability, simply lost them, justifying to themselves "well,
they're probably not going to be worth anything anyway" (which could be
totally true even after paying thousands to exercise them!).

It's a plain insult to startup employees. I wish all startup employees would
rebel against this and refused to accept any startup offer unless there was
early exercise paid by the company upon joining, or option expiration window
of 10+ years.

I, for one, know that will never __ever__ join another startup again for this
reason.

~~~
sonnyblarney
Very few people have $250K in liquid assets lying around, especially for such
a risky venture.

I'll tell you a worse story: your company _does_ allow early vesting so people
exercise their options at grant time, long before the vest. This way you avoid
the whole taxation problem were the exercising to be happening later.

But guess what? The company does a _down round_ and lays off people,
effectively 'buying back' the stock that laid off employees had paid for by
'early exercising' (i.e. the unvested remainder). Since the company buys back
the shares at the same price employees bought it at, you think, hey - 'even
stevens'? No! Because it's a down round, you're selling something 'above fair
market value' (even though it's the price you paid) - and you have to pay
taxes!

So consider that: you have to pay taxes on stock that you never properly
owned, and never made a dime on!

Ex: you have 10K shares with strike price of 50 cents, vest over 4 years. You
exercise them all right away (before vesting) at 50 cents. After 2 years, you
get laid off, the company buys back 5K shares at 50 cents. Same price. But
since there's a 'down round' the shares are only worth 20 cents each. You now
owe taxes for selling 5K of something you bought at 50 cents, sold at 50
cents, but are only worth 20 cents, ergo 30 cents a share 'profit' \- that you
never realized on shares you never actually owned!

The company in the meantime, bought something at 50 cents only worth 20 cents
and gets a tax write off.

The IRS is ballpark neutral, so it's really like the company taking money from
employees they just laid off.

Now, the company can issue a ton more shares and wipe out the value of laid
off employees equity, and issue _new_ equity to the staff that stayed on to
keep the current staff happy.

In terms of % ownership, this has the effect of simply transferring ownership
from laid off staff to the current staff + owners.

This happened to me, I'm not sure how common it is, but surely it's not that
rare.

------
nwatson
83(b) with pre-vesting exercise if you can, probably only works at early early
stage. I did that twice with different outcomes, overall positive.

~~~
Lightbody
“If you can”... I’ve never quite figured this out. Is this something the
company has to offer or can anyone do it with the financial means and acccess
to a good tax lawyer / accountant?

~~~
sulam
You mention financial means, but keep in mind that depending on the stage the
company is at, "financial means" ratchets upwards. The last "real" pre-IPO
company I joined would have required a ~$300K check from me to early exercise.

~~~
toast0
You don't necessarily need to early exercise all of your options.

------
hspak
Does anyone actually understand the consequences of turning ISO's into NSO's?

It's easy for someone to say "oh yeah, just convert the ISOs to non-quals and
give me my 10 year exercise window". What does it actually mean for the
companies (and yourself on the other side) to support this?

~~~
x0x0
We went through a giant hassle to provide this for our employees. Oddly
enough, they don't appear to give a shit. At all. My cofounder and I thought
this would be a big selling point.

The downside to an employer is: first, you know that in a 90-day exercise or
lose them world, lots of ex-employees don't exercise. That's great for your
options pool. Second, our employees seem not to care. Third, anything
nonstandard raises questions in future rounds. Fourth, there's apparently some
more complex tax accounting according to our cfo.

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geggam
I have had to walk away from several hundred thousand like this. Sickening

------
lxmorj
Seems like an obvious opportunity for a specialized financing firm...

