

Ask HN: Do I have to forfeit my options if I leave? - anon330

Hey, I'm an early employee at a startup. Due to various delays, I've been employed for almost ten months with no equity agreement in place, but the draft ESOP is now available to myself and the other employee. I have a few concerns, about which I was hoping to get some outside opinions, specifically this section:<p>---
12. Termination of Employment<p>(a) Subject to Section 12(b) hereof, if an Optionee’s employment with the Corporation
terminates for any reason other than Just Cause, any Option granted to but not
exercised by such Optionee shall thereupon terminate, except that each such Option,
to the extent then exercisable, may be exercised for the lesser of one (1) month from
the date of termination or the balance of such Option’s term. If any portion of an
Option has not vested by the date of termination, that portion of the Option may not
under any circumstances be exercised by the Optionee. For greater certainty, the date
upon which an Option ceases to vest and be exercisable shall be determined without
reference to a “notice period” or “severance period” or any other period after notice
of termination or dismissal is given. If an Optionee’s employment with the
Corporation terminates for Just Cause, any Option granted to but not exercised by
such Optionee shall thereupon terminate immediately.
---<p>I'm of the understanding that this plan is only a lightly customized version of some common template, but I'm just wondering how common this kind of lock-in is. I'm being paid (salary) about 40-50% below my market value, and this plan is supposed to represent the balance of my compensation.<p>I feel concerned that should I want (or need) to move on, I will be unable to, because of the substantial options I'd be walking away from. And yet, the contributions that I've made will continue to benefit the company after I was gone, if I left.<p>Should I be pushing back on this, or alternatively, insisting on a salary closer to what I could get elsewhere?<p>Thanks.
======
elbrodeur
It's just saying: If you end your relationship for any other reason than Just
Cause, you have one month to exercise your options. This is pretty standard.
Typically a grant like this (signed late into employment) will start vesting
at the date of employment, with a typical one year cliff. If that's the case
you have two months before you can exercise any options. After the 1 year
cliff, if you decide to leave you can exercise any options that you've vested
up to that point.

~~~
anon330
Interesting. I've been told that these options will not be convertible to cash
except in the case of a buyout or IPO, etc.

Should I be ensuring that these options will vest over time, rather than all
at once in case of a liquidity event, etc?

~~~
elbrodeur
Yeah, the type of shares generally given to employees are what's called common
stock. Common stock can only be turned into money in a liquidity event, these
days. Your common stock is not worthless, though, as each type of stock has a
set of rights associated with it.

Your investors, however, and probably your founders are issued Preffered
stock, which allows them to get liquidity from things other than IPO or M/A.

~~~
anon330
Hmm. So, just to clarify,

"After the 1 year cliff, if you decide to leave you can exercise any options
that you've vested up to that point"

If the options are not cash-convertable, is that because they haven't vested,
or because they've vested and aren't preferred stock?

~~~
elbrodeur
A share is a part of the company. You are, essentially, becoming an investor.
This is why companies like Google are forced to go public: They have too many
employees and investors who own parts of the company, and the SEC's threshold
says: "After 500 people own a portion of your company you have to go public;
being private is too much of a risk to the shareholders."

So whether you get preferred (which is usually issued shortly after the
investment or founding) or common, you're unlikely to see that piece of the
company be worth anything until the company sells, goes public or issues
dividends. In the case of a preferred shareholder, you can also get some
liquidity in the event of bankruptcy or shutting the company down.

To put it simply, when you are given options, you can exercise them by
purchasing them at a very low valuation. Until those shares are worth
something, you can not sell them.

~~~
anon330
Right. I understand that these things are done to retain employees, so it's
really not even remotely worth working at this company unless I'm committed to
doing so for the 4 years until an exit. I guess the real thing to figure out
at this point is whether I want to walk now, or stick around--- and that's
basically just a function of whether the options offered are sufficient.

------
answerly
>but I'm just wondering how common this kind of lock-in is

This is very common. One of the primary purposes of employee stock options is
to create the lock-in effect you are talking about. That is why they are
sometimes called "golden handcuffs".

