
Former Uber employees have gone into debt to exercise options they can’t sell - chollida1
https://qz.com/1149381/uber-softbank-shares-debt/
======
ChuckMcM
This -- _" One of those former employees paid about $100,000 to exercise more
than 20,000 incentive stock options (ISOs), plus a tax bill of over $200,000.
The other paid about $70,000 to exercise about 5,000 ISOs, and then about
$160,000 in taxes. Both former employees took out loans from family members to
make the payments, and requested anonymity to discuss their personal financial
situations."_

Is how many many Silicon Valley horror stories begin. In the dot.com days it
was "How working for a startup bankrupted me, and ruined my relationships."
All because some situation forced a person to make the bet of whether or not
their illiquid asset (stock in a private company) would ever become liquid.
And that when it did, selling it would be more valuable than what you paid for
it.

Clearly not everyone is as out there as the person mentioned in the article
is, although I knew many people who had anywhere from $5K - $50K at risk
because they had exercised and were holding. I had stock losses from the dot
com implosion that I wrote off for over 10 years (at $3,000 a year) and it
would have gone on for the rest of my life if we hadn't had a bit of long term
gains to offset it later.

~~~
hkmurakami
Yeah this just looks like poor/risky financial calculus on the part of the
former employees.

Also I always incorrectly think that these sorts of option traps are public
knowledge, but then every now and then I'm prove wrong by even very smart
people I personally know, not being aware of these traps.

Not sure how we fix this situation tbh. For starters "don't join a company
without an extended option exercise period" is a decent first order heuristic,
but not everyone has that luxury.

~~~
rconti
I'd say "risky" rather than "poor". They probably knew it was "risky" in the
sense that they were extending themselves but perhaps underestimated the tax
consequences or risk of the company's fortunes turning.

Many people just stick it out with their employer hoping that their options
become liquid; in some ways that can also be risky/poor decision making. Maybe
it's an unhealthy work environment or you've stopped learning/advancing in
your career, or there's a real opportunity cost where you're foregoing a
higher salary.

Maybe these people left because it was the better life decision (or maybe they
were terminated), but regardless, most of us would think long and hard about
giving up, say, millions of dollars in potential value. Hell, even at $300k in
debt it might be a good or worthwhile gamble.

It's easy to dismiss this all as poor decision making, but there are real
risk/reward calculations to be done here, and "walk away from millions of
dollars" is not always the smart answer, even if it kills in the comment
threads.

~~~
gfodor
if you are optimizing for regret minimization I'd probably argue that it's way
less regrettable to end up in $200-300k in debt due to a crazy, unexpected
snafu occurring (like an economic crash or company crash) than have to know
for the rest of your life you could have been a millionaire if you just had
bet on the (at the time) reasonably high probability event of eventual
liquidity, by exercising options that you worked hard to earn. especially
because in the crash scenario, you are surrounded by commiserating peers who
also got burned, but in the upside scenario you missed out on, all of your
peers except you are living the high life shaking their heads at your
"foolish" (in hindsight) risk aversion.

edit: not sure why the downvotes. if you are interested in a treatment of
peer-based utility functions that affect risk premia, see
[https://www.amazon.com/Missing-Risk-Premium-Volatility-
Inves...](https://www.amazon.com/Missing-Risk-Premium-Volatility-
Investing/dp/1470110970) \-- in other words, risk may not be best measured as
volatility but instead as the expected relative wealth gain/loss to your
market peers. for private employee equity, those peers are other
optionholders.

~~~
LeifCarrotson
I was following you for a while...but can you explain how this is different
than taking out a home equity loan, going $200-300k in debt, and buying lotto
tickets for a chance to become a millionare? Aside from the fact that you
wouldn't know whether you would or would not have won that lotto.

~~~
kemitche
The chance of winning the lotto is much much smaller than the chance of Uber
surviving to an IPO with value at/above the fair market value that triggered
$300k in AMT.

~~~
gfodor
Yep I was referring specifically to the idea of Uber options converting to
stock worth some reasonable price. The idea of Uber completely imploding to $0
seems rather far fetched, but it depends on strike price, etc.

------
abalone
This reflects one of the more notable changes of late in the basic SV startup
template. More companies are going with so-called "extended" exercise windows,
converting from 90-day-window ISOs to multi-year-window NSOs upon exit. Zach
Holman (ex-Github) wrote a short, fun post on this a couple years ago.[1] Y
Combinator has made it their standard around when Pinterest did it as well.[2]

It was fun to watch Andreessen Horowitz criticize[3] ten year windows and then
backtrack[4] after a public flogging. That was when the power balance shifted
towards more employee-friendly terms.

The part of this I'm still trying to figure out is when does it makes sense to
offer RSUs over ISO/NSOs. My general sense is it works better for bigger
companies than tiny startups, but I forget the details.

[1] [https://zachholman.com/posts/fuck-your-90-day-exercise-
windo...](https://zachholman.com/posts/fuck-your-90-day-exercise-window/)

[2]
[https://news.ycombinator.com/item?id=11198991](https://news.ycombinator.com/item?id=11198991)

[3] "A 10-year exercise window is really a direct wealth transfer from the
employees who choose to remain at the company"
[https://a16z.com/2016/06/23/options-
timing/](https://a16z.com/2016/06/23/options-timing/)

[4] "the 90-day exercise essentially pits cash-rich employees against cash-
poor ones. And that isn’t right." [https://a16z.com/2016/07/26/options-
plan/](https://a16z.com/2016/07/26/options-plan/)

~~~
hkmurakami
RSUs vs ISOs > before a priced round (83b is cheap at this point), and after
you're a massive company, say $2-5B range (option upside is too small so you
put a double trigger vest clause in to protect employees from taxes on
illiquid shares)

~~~
jalonso510
Early stage would be plain Restricted Stock, as opposed to Restricted Stock
Units, which are what is typically granted later on once the company gets
large. RSUs are "units" not actual shares of stock with associated ownership
rights. The recipient gets an award calculated based on the value of the
stock, without actually owning stock.

------
JumpCrisscross
Uber is specifically and wilfully shitty when it comes to employees’ stock.
Large investors have always been able to sell, in part because they hold their
shares in LLCs. Smaller investors, however, get blocked.

When the price started crashing, the big guys got out. The little guys remain
locked inside. Something similar happened at Palantir. When a big little guy
sued, things changed [1].

[1] [https://www.bloomberg.com/news/articles/2017-03-18/at-
peter-...](https://www.bloomberg.com/news/articles/2017-03-18/at-peter-thiel-
s-palantir-allegations-of-theft-and-deception)

 _Disclaimer: I am not a lawyer. This is neither legal nor securities advice._

~~~
gamblor956
Uber isn't publicly traded, so its stock price couldn't have "started
crashing."

Large investors aren't able to sell because they hold their shares in LLCs.
They're able to sell because selling rights are part of the terms they
negotiated as part of their agreement to invest. The form of ownership has
nothing to do with it, and indeed the use of an LLC as a holding company for
corporate stock usually complicates the legal and tax considerations for the
sale of stock held by the LLC.

Also not sure why you're including a disclaimer? You're not offering any sort
of advice so you don't need to disclaim anything.

~~~
JumpCrisscross
> _Uber isn 't publicly traded, so its stock price couldn't have "started
> crashing"_

"Crashing" is a function of value, not registration status. For example, CDOs
"crashed" in the crisis [1].

> _Large investors aren 't able to sell because they hold their shares in
> LLCs_

With all due respect, this is wrong. Selling SPVs (or stakes therein)
containing the shares of a single company is a common institutional tactic.

[1]
[https://www.bloomberg.com/news/articles/2016-06-14/goldman-s...](https://www.bloomberg.com/news/articles/2016-06-14/goldman-
sachs-agrees-to-end-1-billion-lawsuit-over-cdos)

 _Disclaimer: I am not a lawyer. This is not legal nor tax advice._

~~~
gamblor956
_With all due respect, this is wrong. Selling SPVs (or stakes therein)
containing the shares of a single company is a common institutional tactic._

It sure is. But that's not why the large investors get to sell their stock of
Uber. They get to sell because they negotiated the right to sell, which may
have included the right to use an SPV to hold their Uver stock. The SPV could
have been a corporation, partnership, or LLC; the choice of the LLC form is
not what gives the large investors the right to sell. Though based on your
response, you probably meant in your original comment to refer to SPVs rather
than LLCs.

 _Disclaimer: I am a lawyer. This is not legal advice, it 's legal commentary.
The difference: advice applies to a client's specific legal circumstances;
commentary applies to third parties._

~~~
JumpCrisscross
> _But that 's not why the large investors get to sell their stock of Uber.
> They get to sell because they negotiated the right to sell, which may have
> included the right to use an SPV to hold their Uver stock._

Lots of preferred stock does not carry the right to be transferred (or to be
transferred free of other restrictions, _e.g._ a right of first refusal). SPV
transfers are a convenient, if mutually-overlooked, workaround. Their
existence is rarely explicitly negotiated.

Another case, more directly tying power and economics: Some companies require
Board approval for transfers. Guess who tends to get Board approval.

> _you probably meant in your original comment to refer to SPVs rather than
> LLCs_

LLCs are a common way to structure special-purpose vehicles (SPVs). This is
Hacker News. Most here are familiar with LLCs; fewer with SPVs.

 _Disclaimer: I am not a lawyer. This is not legal nor any other kind of
advice._

~~~
gamblor956
_Lots of preferred stock does not carry the right to be transferred (or to be
transferred free of other restrictions, e.g. a right of first refusal). SPV
transfers are a convenient, if mutually-overlooked, workaround. Their
existence is rarely explicitly negotiated._

Are you assuming that most corporate M&A lawyers don't know a basic holding
structure taught the first week of the M&A class in law school? SPVs are not
mutually overlooked workarounds, they're usually not worth the hassle in most
situations. When they exist, they do so because the use of an SPV to hold the
stock of the issuing company was explicitly negotiated as part of the
investment because the securities law, tax, financing, and other
considerations for stock held through an SPV, especially through a pass-
through SPV like an LLC, can be very different from stock held directly. This
is especially true for startups or other privately held companies with
relatively complex ownership structures. (The use of SPVs is not negotiated
for publicly traded companies, because the company's permission isn't required
to acquire their stock.)

~~~
JumpCrisscross
Large investors bought stock. Small investors (employees) bought stock. Price
went up. Price went down. The former could get cash for their shares, the
latter could not. Price kept going down.

You don’t need to be an M&A lawyer to see why that’s problematic.

~~~
gamblor956
I agree with you that it's not fair that the employees got screwed, but they
got screwed because Softbank and Uber decided not to make the offer open to
the employees that didn't have at least 10,000 shares.

It has absolutely nothing to do with US securities law (or any other US laws),
as the current laws don't prevent acquirers from buying stock from
unaccredited investors.

~~~
JumpCrisscross
> _It has absolutely nothing to do with US securities law_

Nobody said it did. The top of the thread specifically calls out Uber, not
securities laws, for being shitty.

~~~
gamblor956
Sorry, you're right about that but you're still misplacing the blame.

Softbank made the offer, not Uber. Under US law, the board didn't have much
justification for rejecting the offer due to Uber's capitalization needs--the
boardmembers could have been sued if they rejected it. Note that the board
didn't approve the deal itself, they merely approved Softbank making the offer
to the shareholders. The deal is contingent upon enough shareholders
participating in the offer.

(Uber's capitalization needs matter here because it goes to whether the board
is acting in the best interests of minority shareholders. In this case, the
Board can say that w/o investment, those interests become worthless. This is
different from a normal, revenue-generating company, like say Qualcomm, where
the board can reject this sort of offer if they feel it undervalues the stock
of the company, because in such case the lack of a deal doesn't impact the
company's ability to operate as a going concern.)

------
eddieplan9
Why is this even news? This is the case for pretty much every privately-held
company in the valley, because the tax law dictates that [1]. When Pinterest
changed their exercise window from 90 days to 7 years, it was big news [2].
When you leave a privately-held company, you have to convert your stock
options to stocks to hold onto them, and then AMT kicks in and taxes you on
the spread and that often hurt a lot. But in the case of these employees
mentioned in the article, they are guaranteed to make a huge profit in the
tender offer.

Next up: evil companies in Silicon Valley invalidate employees' RSU when they
leave the company.

[1]
[https://news.ycombinator.com/item?id=9254299](https://news.ycombinator.com/item?id=9254299)
[2]
[https://news.ycombinator.com/item?id=9253497](https://news.ycombinator.com/item?id=9253497)

~~~
JumpCrisscross
> _This is the case for pretty much every privately-held company in the
> valley_

Many companies allow employees and ex-employees to sell shares.

~~~
Groxx
Being able to sell shares would imply it's a public company, not a private
one, right?

~~~
JumpCrisscross
> _Being able to sell shares would imply it 's a public company, not a private
> one, right?_

"Public" means your shares are registered [1]. "Private" usually means shares
offered under Rule 506 of Reg D [2]. Public and private shares can be bought
and sold. The processes, and their respective ease and restrictions, vary.

Palantir [3] and Airbnb [4], for example, recently bought back their
employees' shares.

[1] [https://www.sec.gov/fast-
answers/answersregis33htm.html](https://www.sec.gov/fast-
answers/answersregis33htm.html)

[2] [https://www.sec.gov/fast-answers/answers-
rule506htm.html](https://www.sec.gov/fast-answers/answers-rule506htm.html)

[3]
[https://www.nytimes.com/2016/06/29/business/dealbook/palanti...](https://www.nytimes.com/2016/06/29/business/dealbook/palantir-
buyback-plan-shows-need-for-new-silicon-valley-pay-system.html)

[4] [https://www.nytimes.com/2016/08/12/technology/airbnb-and-
oth...](https://www.nytimes.com/2016/08/12/technology/airbnb-and-others-set-
terms-for-employees-to-cash-out.html)

 _Disclaimer: I am not a lawyer. This is neither legal nor investment advice._

------
mabbo
> To qualify for the tender offer, participants must have at least 10,000 Uber
> shares and be “accredited investors,” an SEC designation (pdf) for wealthy
> individuals.

From the SEC link:

> An accredited investor, in the context of a natural person, includes anyone
> who:

> earned income that exceeded $200,000 (or $300,000 together with a spouse) in
> each of the prior two years, and reasonably expects the same for the current
> year, OR

> has a net worth over $1 million, either alone or together with a spouse
> (excluding the value of the person’s primary residence)

Wow. There are actually laws in place that say the rich are able to do things
that poor people can't.

If you're a former Uber employee who moved somewhere with lower incomes and
cost of living, you probably no longer meet the criteria needed to sell these
stocks.

~~~
gamblor956
_Wow. There are actually laws in place that say the rich are able to do things
that poor people can 't._

This has been discussed many times on HN. The purpose of the law isn't to
prevent "poor people" from doing anything. The purpose of the law is to
prevent companies from making unregistered sales of stock to people who aren't
(1) saavy enough to evaluate the risks of their investment or (2) wealthy
enough to survive a financial loss if the investment does not bear fruit.

In a nutshell, the law requires companies wishing to sell to the general
public to register with the SEC and meet certain financial disclosure
requirements, such as disclosing financials using standardized accounting
practices, so that the people buying their stock can judge the financial
condition of the company they're investing in.

Startups _choose not to register_ or adhere to these disclosure requirements
so they can peddle their BS financial "metrics" to investors using magical
unicorn fairy dust bookkeeping.

But to address the direct issue: there are few, if any, Uber stockholders who
hold 10,000 shares of the company but would somehow not qualify as an
accredited investor. The tender offer isn't intended for small stockholders
with de minimis ownership, it's intended for stockholders with enough stock to
represent significant fractions of the ownership of Uber.

~~~
ryandrake
> This has been discussed many times on HN. The purpose of the law isn't to
> prevent "poor people" from doing anything. The purpose of the law is to
> prevent companies from making unregistered sales of stock to people who
> aren't (1) saavy enough to evaluate the risks of their investment or (2)
> wealthy enough to survive a financial loss if the investment does not bear
> fruit.

This is all true, however laws should be judged by their effect, not by their
purpose. This law _effectively_ allows rich people to do things that poor
people can't. It also may protect un-saavy investors, although I would argue
that an un-saavy investor will inevitably find some other way to lose their
money regardless of the accredited investor law. They're probably buying
bitcoins right now or something.

~~~
gamblor956
_This law effectively allows rich people to do things that poor people can
't._

You're still not getting it. The law does not stop poor people from investing
in a private company. It simply prevents the company from _advertising_ its
stock to "poor people" unless the company registers with the SEC and
demonstrates at least a minimal level of financial controls. A company can
sell its stock to poor people as long as it does not solicit them. This is why
employees and friends/family can buy stock of private companies.

I will repeat again for emphasis: there is no law that prevents "poor people"
from buying private company stock.

~~~
rrix2
The only entity buying stock here is Softbank (AFAIK), who is definitely not a
"poor person".

Outside of the handful of companies who have previously invested in the
company (who are surely accredited), most entities who would qualify for this
tender would be individual early employees. The accreditation requirement is
also being held to those _individual stock holders and option holders at the
company_ who want to tender a sale of them to Softbank. Many are random
engineers on this forum and other early-ish employees. Many may not meet the
requirements for SEC accreditation, rules which specifically delineate around
the wealth of the entity.

------
02thoeva
Have seen this far too often. I was at a successful UK based startup very
early on, so my strike price was pennies. Those who joined a year or two later
were looking at strike prices in excess of £30 with hundreds shares. Recent
investment rounds put the share price at around £120, but as always current
employees can't sell until a full sale or IPO.

The result? A swell of employees who want to leave/move on but can't afford to
buy their shares and leave. It's lead to a number of people just hanging
around, even when their enthusiasm and passion is waining.

Not what options are designed for!

~~~
gaius
_Not what options are designed for!_

Not "deferred compensation"?

~~~
02thoeva
Point being, lots of companies offer options on the 4 year vest, 1 year cliff
in order to keep great employees. If the end result is that mediocre employees
end up hanging around, not motivated, then it works for neither the employee,
nor the business.

------
niuzeta
>> One of those former employees paid about $100,000 to exercise more than
20,000 incentive stock options (ISOs), plus a tax bill of over $200,000. The
other paid about $70,000 to exercise about 5,000 ISOs, and then about $160,000
in taxes.

Maybe it's a common knowledge amongst the Silicon Valley engineers, but for
those of us who are not in startup, could someone please explain how this is
possible? Specifically, in what logic would you owe more tax to exercise the
option(which amounts to purchasing at this point) for _half_ the amount of tax
you'll pay? How does purchasing something of $X force you to pay $2X in taxes?
I've combed through this thread for answers and it seems like a commonly
understood problem.

~~~
gshulegaard
Disclaimer: This a lay-man's understanding...

So you join a shiny new "start up" and they offer you some stock options as
part of their compensation package. This is typically done to improve
compensation without requiring additional liquidity which is typically a
limited resource for a start up.

These "ISOs" (Incentive Stock Options) are usually option agreements where the
company agrees to let you "purchase" shares of the company in the _future_ at
a strike price equal to current valuation. So even if you "exercise"
(purchase) the stock 2+ years later you pay the same price you would have if
you had purchased the stock on your first day at the company.

The problem with tax here is that in those 2+ years before exercising your
"options" your company may have grown/raised more money with greater
valuations...so the value of the stock may have doubled, tripled, or increased
in even greater value. Well lucky you! According to your ISO you can purchase
the stock for the value it was worth 2+ years ago!

"Hold on just a minute," the IRS says, if you purchase a share for $5 that is
"valued" at $25 now...what you actually have is an immediate realized gain of
$20. Since you spent $5 and acquired an asset worth $25...you should be taxed
AMT on the realized gain of $20. Makes sense.

The issue is with "valued" here. In the case of pre-IPO startups the stock you
purchased cannot really be sold. Value of a pre-IPO company's stock is more or
less correlated to what investors agreed to in your last round of funding
(e.g. I <insert_investor_here> agree to give your company $XXXXXXXX for YY% of
your company). But at the end of the day, you pay $5 for a piece of paper that
says you have stock in a company that is estimated to have the value of
$25...but isn't actually worth anything since you can't actually turn it into
money. You can't sell that piece of paper for $25 (in fact, you can't sell
that paper at all).

Which means you end up owing taxes on a $20 realized gain on an asset you
can't sell. That is, you can't turn around and sell some of that newly
acquired stock to pay your tax...again it's not really worth anything...it's
_estimated_ value is just higher than what you paid for it.

So the question is...where do you come up with the money to pay this tax?
Well, in the case of these individuals, you go into debt.

~~~
chii
The strange thing to me is why you get taxed before the sale of the asset
(i.e., at the time of purchase).

~~~
iamcasen
You're right to think it's strange, because it is. It's a tax that was created
long ago to try and close a loophole used by executives, but in today's world,
it functions as a barrier to participation in the wealth created by young
companies.

One could view the AMT as explicitly serving as a way to prevent poor/middle
class people from becoming wealthy by way of stock options.

------
luckyt
The day Uber goes public there will be a mass exodus of employees waiting for
years to leave the company. I wonder if Uber will stay private permanently to
prevent this?

~~~
influx
There is a year lockout of Uber employees after an IPO. Source: ex Uber
employee.

~~~
marioestrada
If you quit during that time can you sell?

~~~
mikeokner
I think the same rules apply. You can exercise but you'll owe taxes and can't
sell any shares to cover the tax.

------
osteele
Something similar happened to Microsoft employees:

* "Microsoft Employees Face Tax Nightmare", AccountingWEB, Apr 19, 2001. [https://www.accountingweb.com/tax/irs/microsoft-employees-fa...](https://www.accountingweb.com/tax/irs/microsoft-employees-face-tax-nightmare)

* "Why Microsoft's Stock Options Scare Me", The Motley Fool, Feb 17, 2000. [https://www.fool.com/archive/portfolios/rulemaker/2000/02/17...](https://www.fool.com/archive/portfolios/rulemaker/2000/02/17/why-microsofts-stock-options-scare-me.aspx)

* "Gates Regrets Ever Using Stock Options", Martin Wolk, NBC News, May 5, 2005. [http://www.nbcnews.com/id/7713133/ns/business-eye_on_the_eco...](http://www.nbcnews.com/id/7713133/ns/business-eye_on_the_economy/t/gates-regrets-ever-using-stock-options/#.WjA3QLaZPOQ)

------
bob_theslob646
>Until this year, Uber gave former employees 30 days to exercise their
options, an unusually short window of time.

Is this the standard time window for exercise?

~~~
rsynnott
Huh. Not in the US, but I get 7 years, which is pretty normal around here.

~~~
NonEUCitizen
Where are you?

~~~
rsynnott
Ireland. Every options scheme I'm aware of allows years after options mature
to exercise them. Quite surprised that it isn't the same in the US; I don't
know why anyone would take the risk of exercising options in a private company
while it's private.

------
foo101
Can someone tell me what the rules are from companies who are already listed
on NASDAQ and trading publicly?

For example say if I join company X today (where X could be Intel or Cisco or
a similar company) and I have 40 RSUs vesting over 4 years. After 2 years I
decide to leave X. 20 RSUs would have been vested.

I clearly understand that I am going to lose the 20 unvested RSUs completely.
My question is about the 20 vested RSUs. Is there a maximum time limit before
which I must sell these 20 vested RSUs? Or can I keep these vested RSUs with
me for life and choose to sell them whenever I wish?

If it is indeed true that I can keep these vested RSUs with me for life, how
exactly would I be selling these RSUs, say after 20 years? I mean, the company
does not give me these RSUs directly on printed paper. The RSUs are held in an
account in a website of a finance company such as UBS. I log into my UBS
account to access my RSU details and sell them. What if UBS goes out of
business in 20 years?

~~~
hkmurakami
You can keep them in perpetuity.

UBS is only holding those shares for you under your own name (a key
distinction from having a structure where the shares are actually owned by UBS
and you legally own a part of UBS' contract with you).

In the worst case you can ACATS transfer your position to another brokerage (I
did this with stock resulting from exercised options). I imagine there are
federal laws regarding protecting your equity holdings (cash is more at risk
than equity in this regard since they lend it away I think?)

~~~
jdavis703
US banks are protected via FDIC insurance. In a similar manner your stocks are
protected by SIPC insurance. They don't insure you against loss in value to
the stocks. But if the firm winds up going bankrupt and somehow looses your
stock, the CEO absconds with the money, they get hacked, etc, then you'll be
protected up to $500,000.

------
sjg007
Uber employees have to be accredited to participate in the SoftBank tender?
That sucks...

------
tzhenghao
How many employees are allowed to participate? Seems like they need to be
accredited investors. Many will be left out of this.

under Wikipedia:

In the United States, to be considered an accredited investor, one must have a
net worth of at least $1,000,000, excluding the value of one's primary
residence, or have income at least $200,000 each year for the last two years
(or $300,000 combined income if married) and have the expectation to make the
same amount this year. [1]

[1]
[https://en.wikipedia.org/wiki/Accredited_investor](https://en.wikipedia.org/wiki/Accredited_investor)

------
somic
[http://www.somic.org/2015/12/28/on-employees-investing-in-
th...](http://www.somic.org/2015/12/28/on-employees-investing-in-their-
startups/)

------
conanbatt
If you could sell your options as an employee, employees in total would be
richer and these circumstances wouldn't exist.

Let's thank the sec for suppressing wages.

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post_break
I think GoPro did this. Offered up stock and had an insane valuation that is
useless since the tax is worth more than the stock.

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jessriedel
Can employees reasonably hedge the risk of Uber taking a nose dive by buying
put options?

~~~
huac
If it were a public company sure but it's difficult to find a counterparty (at
some point of the hedging process, somebody is gonna need to settle the trade
with a share of Uber stock, and Uber stock is notoriously illiquid, and we're
back to step 1).

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jessriedel
A good point, thanks.

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sockgrant
Yet another reason why taking startup stock sucks.

Oh? You managed to actually get stock in a startup that seems to be worth
something? And you didn't get diluted to a pittance? And the board / founders
didn't try to fire you or ask you to give stock back to the pool? Lucky you,
you're one of the 1% of the 1%.

Now stay there until the company sells or goes public.

Wait -- they got bought? Congratulations, you just won 2+ years of golden
handcuffs at Parent Corporation! Enjoy your new corporate job!

Alternative storyline: You leave startup early, exercise options and go into
debt, startup dies, you lost money.

~~~
bsimpson
Another detail that's not well-known unless you know someone who's gone
through it: buying your shares comes with a huge tax bill.

As I understand it, you have to pay tax on the difference between the option
price and the value at the time you buy them. So if you have a bunch of
options to buy at $10 per share, and the company grows to $90 per share by the
time you quit/have to buy your shares, you're taxed on $80 a share. Remember,
stock in a private company is worthless until you find a buyer, which is one
of the reasons the people referenced in the article had to go into debt to
exercise their options.

30% of a large amount of imaginary money ends up causing a gigantic tax bill,
paid in actual money.

~~~
rb808
I dont understand this. if they're worthless & you can't sell, why do you pay
tax as if the stock is worth $90?

Edit: Can someone point me to IRS docs? or blog explaining?

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khuey
Because they're not worthless, they're just not liquid.

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robrenaud
I wish one could just give a fraction of your stock equal to your marginal tax
rate to the IRS, perhaps plus a small fee.

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seanmcdirmid
The IRS wants to be paid in cash, not illiquid stock.

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SilasX
Right, and they also want to tax _income_ , not accumulation of untradeable
shares. They seem to want to treat it as income for purposes of _determining_
tax liability, but not income for purposes of _satisfying_ the very same tax
liability. That's like trying to have your cake and eat it too.

Reminds me of California's debt crisis and "Hey! How dare you turn down state
IOUs as payment? These are _every bit as good_ as cash. ... Wait, you want to
pay your state tax bill with state IOUs? Get that crap away from us!"

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seanmcdirmid
The rules are definitely not fair but that’s beside the point.

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SilasX
Beside the point of the GGGP's wish that tax liability on an unsaleable asset
could be satisfied in kind?

~~~
seanmcdirmid
I thought GGGP’s post was to propose a solution that worked under current
rules.

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xster
Can someone ELI5 this?

