
Ask HN: Company is firing all employees – should I still exercise my options? - Lindathefounder
About 2.5 months ago I left my executive position at a promising blockchain startup. As I am nearing the end of my 90 day period for option exercising, i&#x27;ve come to know that the company sent out prior notice to all employees a few days ago, as it is struggling to raise money. All 3 founders are at work trying to raise capital in the upcoming month before money runs out and they are also planing on continuing to do so after all employees leave. 
On one hand, I am very hesitant to exercise because of the current status. On the other hand, the company has a remarkable product (which they might decide to sell) and the industry is still very much in it&#x27;s diapers, meaning there is tons of true potential.<p>i have a lot of faith in the founders but the recent news really threw me off. Would love to hear your thoughts!<p>More information:
-Company size: 15 employees
-Exercise price: $20 (679 options&#x2F;2.3% of the company)
-Company raised from several VC&#x27;s and also via ICO.
-I still hold company&#x27;s digital currency.
-Status: recently launched product (fully functional) after 1.5 years of development with very few customers but high growth rate.
======
chadash
I don't know your financial situation. Maybe $13K isn't much to you. However,
I probably wouldn't buy these shares for the following reasons:

1) The company just fired all of its employees

2) The company just fired all of its employees

3) The company just fired all of its employees

That's a really bad sign. Even if they raise additional money, it likely won't
be on good terms. With the price of bitcoin way down from it's peak, and much
of the "fools" money in this space dried up, I can't imagine that a company
who is so close to the edge that they have to fire all of their employees is
going to get great fundraising terms.

But take my advice with a grain of salt, as you obviously know and understand
the company better than I do.

As an aside, the fact that you are asking here likely means that you have an
emotional investment in the company. I get it. If you really have FOMO, you
can always split the difference and maybe exercise _half_ the options, or
whatever amount you wouldn't mind losing. I once exercised a few thousand
dollars of options _knowing_ that it was a bad investment, but also knowing
that if I was wrong and the company did well, I'd have a terrible regret. And
it's purely because I worked there for a few years... it's not like I obsess
over the fact that I didn't make an early investment in Amazon (where I never
worked), even though logically that's the same thing.

~~~
Lindathefounder
Thanks for your answer! You hit the spot with some things. I am definitely
emotionally involved with the company and considered the option of exercising
only some of the options - that might be the best option at the moment. One
thing to point out is that there is still a month worth of raising time (with
all employees still in the company), which is significant in startup terms.

~~~
fatnoah
Even if the company did sell, it could be at a fire sale price and you could
be inline to get paid after investors, founders, etc. IIRC, the term is
Liquidation Preference. I held options for about 0.5% of my company when it
was sold. They were worth $0 due to such preferences.

------
mchannon
$13k for 2.3% of the company is one thing, but how about $13k for 0.023% of
the company? Your company could be headed for a "washout round".

In the end it's a question of how dear that $13k is to you. If you've got
millions in the bank, do it. If gathering that $13k would require you to max
out a couple of credit cards and call in your last couple of favors, then
don't do it.

Wherever you lie on that huge section in between is going to determine your
decision, I think. There are a couple of companies that even for nonpublic
stock will buy your exercised units, so if they value each unit/share at $200
then this is a simple decision: exercise and sell (some or all).

Alternatively, you might be able to stretch that $13k a lot further by
investing in the next round. Get a good finger on the pulse of the ask price
and see how low they'll go before they give up. Your $13k may be the lifeline
that buys the company the 15 days it needs to not die, and should be valued
accordingly.

------
awinder
If you want to take a long shot bet on something I'd just take the 13.5K and
place some ridiculous march madness bets. I'm damn near convinced given the
info here that you can get similar odds / price with however you wanted to
structure those bets, and you can find out within a few days/weeks what
happened as opposed to having that money locked up for who knows how long.

I'm mostly kidding, but also not really -- I would seriously put some thought
into whether any part of you thinks that this is really a unique investment
opportunity, if you're really on some "inside edge" or discounted price given
the admittedly subpar position of the company, and if this really differs in
any marginal way from any other more liquid form of speculation or downright
betting. I don't have the details but this screams "poor financial decision"
from where I'm sitting.

------
mikekchar
Just a bit of reading between the lines (from your previous postings ;-) ):
Yeah... I wouldn't touch those shares with a ten foot pole while wearing a
hazmat suit (the goggles, they do nothing!)

Unless I'm inter-line-reading incorrectly, the company raised $1m giving away
50% of the cap table. They ran out of money and pivoted. Loaded labour rate of
about $150K initially I guess... Then raise money from an ICO -- must have
been something around $3-4M given the 15 employees now. That money is gone.
Originally 2 founders, now 3 (cap table is shrinking). I think there is no way
at all that they will be able to raise money. Even if they sell the IP, it
will be a fire sale.

This is not financial advice. I am not any kind of financial expert. I can't
tell you what to do. I might be entirely wrong, but I don't see recovery at
this stage, no matter what the business is.

~~~
Lindathefounder
LOL. loved your comment! You hit the spot with your assessments and thanks for
doing the research behind it. I think I should probably run best and worst
case scenarios with the cap table alongside me. I agree that from the looks of
it, it's pretty risky.

------
berberous
How much is $13k to you, as a percentage of your net worth?

If you believe in blockchain and want to make an extremely risky, but
potentially high payoff, bet, I'd personally just split the 13k across BTC and
ETH. Those can also go to zero, or grow another 10x+, but you are at least
exposed to the entire industry, rather than a single startup. The investment
would also be far more liquid, and you could sell at anytime. Even the most
successful crypto startup (Coinbase) hasn't done as well as an investment in
BTC.

Don't get trapped into overvaluing the options because you already own them.
If you had never worked at the company, and they called you today asking to
buy 2.3% for $13k, would you do it over buying BTC?

~~~
tom_
This would be my advice as well. If you're determined to throw away $13,500 on
some blockchain-themed boondoggle, this is a better drain down which to tip
it.

Past performance is no automatic guide to the future, but speculating on
Bitcoin has often turned out pretty well. Sounds like speculating on the
company you used to work for, by contrast, will have reliably turned out
poorly.

------
duiker101
> \- blockchain startup

> \- struggling to raise money

> \- tons of true potential

Run.

~~~
navigatesol
My sentiments exactly.

From promising startup to out of money in 2.5 months? As an executive, did you
not have insight into these things?

~~~
glerk
Crypto prices took a serious beating these last few months. I can imagine most
of the company’s assets were in cryptocurrency.

------
lasereyes136
I have done this before, more than once. Some companies were in better shape,
some this bad. Every one of them failed. Every dollar I spent was wasted. You
may get different results.

Don't kid yourself into thinking this is a good bet. It is a huge gamble that
most likely will not pay off. If you can accept that and still want to do it,
go ahead. If you don't want to take the risk, don't.

------
athrowaway3z
Couple of perspectives you could take. Here are two:

1: Would you be willing to invest $13K into the company right now with your
own money in exchange for 2.3%?

2: What are the most extreme odds you are willing to take for

[ X % -> $50K+ , Y % -> $13K , Z % -> $0 | X+Y+Z = 100%]

Then figure out what others are saying the chances of X and Y are.

P.S. My (generous) uninformed bet would be X=1-5% and Y=30%

------
jacknews
I would exercise at least a single option, or whatever 'gambling play money'
you have.

If the company eventually unicorns, you will regret having been a part of it
but not benefiting financially at all. Even a single share could be a
consolation and may actually end up valuable.

If you max out all your options, assuming that's more than your 'play money'
budget, you may much sooner regret the decision if the company tanks in a
month or two which seems like a definite possibility.

------
muzani
Very, very few companies do well after a large firing round. What I would look
at is how they handled the firing. Did they do it respectfully? Did they
apologize or did they blame the people who they fired? Is morale still high
after the process? Did the founders handle the firing themselves or did they
outsource it to someone?

Generally the companies that have done turnarounds after a firing round have
done it respectfully. Often morale floors after a bad round, smart people
leave, remaining people are unproductive. Combined with whatever reasons
triggered the firing, most companies don't recover.

------
brogrammernot
As others have pointed out, you’re going to get diluted tremendously if they
raise another round.

When a startup is trying to survive they’ll give up a tremendous amount of
equity because the alternative is 80% of nothing or 40% of something.

Does that $13k hurt you to pay out? If it’s not that painful, you can weigh
that.

For what’s its worth, I didn’t exercise my options when leaving the last two
companies and I felt so sick to my stomach when the last one sold for a couple
hundred million but then I looked & saw they sold for less than their last
valuation so my shares would’ve been even more watered down in value.

------
oldprogrammer2
1\. Setting the exercise window to 90 days instead of a more reasonable window
(measured in years) should be a strong indicator that whoever is structuring
their deals is not at all interested in the welfare of _your_ equity.

2\. You no longer have a seat in the company (much less at the deal table).

3\. Their desperation will be apparent, and they will accept very bad terms in
the round (firing your staff = no leverage).

Even if they manage to stay in business, your investment is unlikely to be
worth anything. As someone else said, would you really want to invest in this
company if not for your history? Why not put that $13k into another
investment?

~~~
maccio92
A 90 day exercise window after leaving a company is the most common situation
I've seen

~~~
oldprogrammer2
The trend is to move to 10-year exercise windows. Plenty of arguments to both
sides, I suppose.

------
lowlevel
Personally I wouldn't touch it. We're going on 10 years of 'blockchain' being
inappropriately applied to anything and everything and you can still count the
winners on one hand. It's illegal to set money on fire... but that would
probably have a better chance of paying off. This is not financial advice.

~~~
spookthesunset
The only winners in the blockchain game are the scammers who are laughing all
the way to the bank with all the dirty fiat handed to them by a bunch of naive
rubes.

Everybody else, including all the spectators, lose. After all, those coal
fired power plants dump a lot of crap into the air to power the energy hog
that is Satoshi's Blockchain.

------
QuackingJimbo
> promising blockchain startup

This can't be a serious post

~~~
icedchai
I am convinced most blockchain startups are solutions looking for problems.
Yes, there are exceptions... Maybe this person is involved with one them?

~~~
QuackingJimbo
There are exceptions or there could hypothetically be exceptions one day?

I agree with the latter

If the former, please provide examples. I am all ears

~~~
icedchai
I was thinking more of the latter. I'd be interested in hearing more details
on the company...

------
kabdib
Blockchain industry . . . firing employees . . . few customers.

I wouldn't bother, you're going to lose your money. If the company pulls
through, or finds a buyer for their product, it's _highly likely_ they will
play games and essentially extinguish your shares.

------
wolco
Why would you exercise them? Literally throwing away 13k on a company about to
implode. The best you can expect is another round allowing a pivot making that
2.3% .23. Pass.

------
codemusings
Without knowing anything about the product or your engine of growth it's hard
to give any meaningful advice. Especially since people seem to slap the word
blockchain on anything to get potential investors excited.

------
testpostpls
Assume the company succeeds. You’ll probably get screwed out of your current
“2.3%” unless the founders create investor FOMO, which it sounds like they
can’t.

I’d stay in touch with the founders.

------
cimmanom
How would you feel, and what position would you be in financially, if you
exercised your options and a month from now the company simply went out of
business? Consider that a very real possibility. This does not sound like a
company that’s in a good position to succeed.

------
CPLX
> About 2.5 months ago I left my executive position at a promising blockchain
> startup

And that's exactly where I stopped reading.

The simple answer is no. Run away. There's no such thing.

------
issa
This might be besides the point, but isn't it strange for a company to issue
~25,000 shares total? More to the point, it seems like this (and almost all)
crypto companies will rise and fall based on the price of crypto. You might be
better off just buying a few bitcoin with your money.

------
mariusz331
No one's mentioned this yet, but if you do exercise it may cost you more than
$20 a share. In the US at least you need to pay taxes on the difference
between the exercise price and the fair market value of each share. If FMV >
$20, the difference is counted as income by the IRS.

~~~
phonon
Not correct for ISOs.

------
logicallee
A quote from somewhere:

>Baron Rothschild, an 18th century British nobleman and member of the
Rothschild banking family, is credited with saying that "the time to buy is
when there's blood in the streets."

But I don't think even he meant _all_ the blood. :) If your company is firing
_all_ of its employees, then I would say it's not pining, it's passed on. It's
no more - ceased to be. Expired and gone to meet its maker. Bereft of life.
R.I.P. Kicked the bucket. Shuffled off this mortal coil. Joined the choir
invisible.

 _This_ is an _ex_ -company.

~~~
Lindathefounder
Loved the Monty Python reference :)

------
veryworried
If you had $13k to spend and felt like making a wild bet I'd just dump it all
into AMD right now and sleep like a baby for the next few years.

------
bobs_your_uncle
As someone who has invested in over 100 startups, I can absolutely guarantee
that every single penny you would spend buying those options would be lost.

You are buying common. The investors have preferred. You won't get a cent from
a sale of the company.

Additionally, the founders will not be able to raise money in this situation
even though VCs coffers are overflowing right now.

------
tinyhouse
If you have a lot of faith in the founders that's a great sign. Good teams can
always pivot. However, if they fired everyone and don't have any money then
their pivot might be a new company. It also sounds like that their best bet
currently is an acquihire that won't be worth much. But you never know.

------
remyp
Read your agreement again, carefully - maybe you got lucky and cashless
exercise is available to you.

------
elamje
Calculate the amount you afford to completely lose right now. Exercise that
number of options. In your personal mental accounting, set the options value
to $0. Check back with the company in a year or two, expecting nothing. You
might be surprised

------
mhluongo
Hard to answer without more details- there are a ton of negative signs here
but with the whole crypto market down, this might also be a good opportunity.
Contact details in my profile if you want to chat with a crypto founder about
it.

------
gorbachev
What's the growth trajectory of a company that lays off all of its employees?

------
mikek
It really depends on your financial situation and what $13K means to you. I
would probably hedge my bet in case the company does succeed and you end up
kicking yourself. Maybe exercise some part of it, not the full $13K.

------
throw03172019
Blockchain has really cooled off. If the founders didn’t sell ETH at the peak
their capital raised is now down 10x. This is the same reason a lot of ICO
companies are shutting down.

I’d run away OR buy 50% just for fun.

------
hemantv
Exact things happened in case Slack. When they were pivoting.

The fired all their to leave an impression (to existing employees) there is no
point of exercising the stock and then after 2 months re-launched as Slack.

Food for thought.

------
JoshuaAshton
> promising blockchain startup

Yeah... sure. You kinda shot yourself in the foot here.

------
temp129838
Nah. If you believe in crypto, just use the money to buy BTC or something
else.

The only other situation where I think it could make sense is if you plan to
write it off to offset capital gains elsewhere.

------
im3w1l
Are they trying to raise money at higher or lower valuation than your options?
Taking liquidation preferences into account are you getting a better or worse
deal than the investors?

------
fgonzag
Would you buy a 13K lottery ticket? If you have enough money that you would go
ahead man, but the chances of striking it big probably aren't much better at
this stage.

------
dyeje
The company is literally dead in the water. Unless you have some information
leading you to believe they will be bouncing back, there is no point in
exercising.

------
CameronBanga
I'd run. The only chance the company sells at something that makes this
worthwhile, is if they take on more investment and dilute your value
significantly.

------
alex_dev
Your options will be diluted to practically nothing - the best case is that
you get your money back. You're better off investing the traditional way.

------
myrandomcomment
If you have a few $m in the bank, go for it. It's a loss you can write off on
your taxes. Otherwise run away. If they are laying off and desperate to raise
funding the next round will dilute your % so much to be worthless. I am on my,
hum, 6th startup, making millions on one, 3 crashing and waiting / zombie on 2
others. It is all a risk game, easier to play if you already have the buy in
stake. If you do not, do not bet the pot on a suite pair in the hole.

~~~
spookthesunset
> It's a loss you can write off on your taxes

Investment loses aren't tax credits. You don't magically get all the money
back. You'll only "get back" whatever your marginal tax rate is. You'll still
be out the remainder of the cash you forked over.

~~~
myrandomcomment
Losses from investments may be used as tax deductions if the conditions in the
tax law are met.

~~~
spookthesunset
Tax deductions aren’t tax credits. Investment losses are deductions not
credits. It is a huge difference.

“Writing off” a investment loss only reduced your bill by the marginal tax
rate of your loss. If it was a credit, you’d be marking down the tax bill by
the entire amount of the loss, which isn’t what happens for investments.

To many people think that something being deductible makes it “free”. No. They
basically give you a discount for the item equal to your marginal tax rate.

Note: I am not a CPA. Please see one before doing your tax if you are
confusing credits and deductions.

~~~
myrandomcomment
My quote was from a document prepared by a CPA. I agree with what you said -
you need to check, but in most cases, someone in the Bay Area making the
typical pay can write off a loss from a startup over a period of a few year.
Your milage might vary.

------
docker_up
NOPE. At best, all existing shareholders will get wiped out. Your options are
worthless. Don't exercise.

------
crb002
Sell them to a VC with the option to buy back half at some price. VC gets more
pie, you avoid losing upside.

------
Obi_Juan_Kenobi
Run away. Put the money in a 'blue chip' crypto if you think that's where the
money is.

------
RantyDave
No. It isn't worth anything.

------
icedchai
Exercise a percentage... say, 50%. Put the rest in a more liquid investment.

------
mad182
I have a bridge to sell you

------
nihonde
I notice that you fail to mention revenue. That’s a red flag.

------
who-knows95
are your hopes the company will sell to a larger business, and you will
receive a large payout?

sorry for the question, just don't know a huge amount about this stuff.

~~~
Lindathefounder
Yes, at this point I believe the company might sell the product or manage to
raise sufficiently to rehire employees and exit at a later stage. In the first
scenario the payout will not be as big, but it might still be significant.

~~~
notahacker
Or the payout might be _less significant than the amount you paid for your
options_

Consider that (i) based on what you've told us the original VCs have declined
to put any further money in to keep the company alive and have therefore
probably written off the entire investment and (ii) any buyer probably needs
to hire the founders for a couple of years to actually be able to use the IP,
and therefore wants to apportion a sizeable proportion of any money they're
willing to pay for the IP to their earnout package rather than compensating
shareholders and creditors of the dead company.

And the product apparently doesn't generate non-trivial revenue and was built
in 18 months for ~$3m by a team who are all available for hire, so it's not
like there's an obvious reason for another party interested in the space to
pay massive amounts for the IP - remarkable or otherwise - even if there
wasn't pressure to conclude a deal asap...

------
sergiotapia
Blockchain is a meme.

------
duado
“Promising blockchain startup”

------
shoo
here's a few perspectives:

zeroth perspective: there are many alternative assets and asset classes for
investing your hard-won capital , benchmark any decision against standard
alternatives, such as investing in real estate, buying into passive ETFs of
the world stock market, buying options of highly-liquid public companies that
run at a profit and have years of audited financial reports you can read to
help you determine a fair valuation, etc.

if this was a company with a liquid options market, you could sell your
options, and with the cash from selling them, consider investing in some new
options with a longer expiry time and more attractive strike price -- say +12
months, not 90 days. is anyone willing to buy your options? for what price?

you could attempt to do some discounted cash flow model of the company: e.g.
does the company have enough cash and resources to limp along burning cash
slowly until its revenue has grown enough to run at a profit? how long might
that take under pessimistic or optimistic assumptions about revenue growth?
this analysis would be hugely speculative and sensitive to assumptions, but
might help you come to a conclusion. to make the analysis simpler you could
assume that you own 100% of the company and there are no other shareholders
and try to figure out what you think the company is currently worth to you, if
you were the sole owner. if there's basically no chance that the company can
become profitable without taking a large amount of new investment then
arguably the value of the company it its current form as a going concern is
zero, although it may have some small value if the company were liquidated
immediately and any residual cash left after paying off creditors was
distributed to shareholders.

if your rough valuation of the current value of the entire company is less
than $590k = 20 * 679 / 0.023 [1] then the intrinsic value of your options is
$0 and the remaining time value of the options is rapidly approaching $0 if
you are nearing the end of the 90 day exercise window. This is fine, it just
means that the financial instrument you currently own, these options, are
currently almost worthless and are likely to become completely worthless in
the very near future [2]. There are plenty of other far less speculative ways
to invest that have a far better chance of giving you a modest return on
investment and not destroying your capital.

another angle: let's assume the current value of each option is approximately
$0 and ignore them. if you are open to the possibility of investing some of
your capital into this startup, instead of becoming a shareholder, would it be
a better idea to instead become a creditor? e.g. supposing you had $20k cash
you were open to investing, do you think the company would agree to terms
where they get your $20k and you become a bondholder with a bond entitling you
to e.g. 20% dividend payment per year for n years then full return of your
initial $20k capital, and status as a secured creditor with the first claim to
any remaining assets when the company goes bankrupt? Supposing the company
were having a fire-sale of its assets, how much would you pay for the IP (or
the desks or other physical assets with resale value...) [3]

yet another angle: on an unrelated note, you say you already hold the
company's digital currency. how much is this currently worth in USD? if it is
worth > $0 USD, can you sell this digital currency in exchange for cash?
failing that, can you sell this digital currency back to the company to cover
the cost of exercising the options?

[1] this assumes each option is for 1 share in the company not 100 shares in
the company, as would be the case for options typically traded on the market
... if the latter case is true it would cost $20 * 100 * 679 = $1.36 million
to exercise the options, and would only make sense if you valued the company
as currently being worth more than $590m

[2] worthless in an optimistic scenario where you refrain from exercising the
options. if you exercise when the strike price is above the value of the
underlying share, you destroy the time value (maybe slightly more than zero),
and take the immediate loss for trading $20 cash for a share worth less than
$20.

[3] this is almost certainly not a sensible scenario but thinking about it
provides quite a different perspective. If you are willing to invest, is there
some way to structure the investment so you win or don't lose too much in the
high-probability scenario where the company goes bust?

~~~
Lindathefounder
Thank you for taking the time to write this! Extremely helpful and thought
provoking. I did not consider the option of leveraging my high amount of the
company's crypto (which is indeed worth > 0$.

------
arnon
No

