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Curious if your experience was that startups were also more flexible on adapting legal boilerplate?

I'd imagine employee #1 vs #289 asking for a change get different results.




At an early startup (definitely anything pre-Series A, but arguably including many Series A startups), any pushback on changing these kinds of terms would be a major red flag to me regarding the founders. If you're early on the team and not asking for anything outrageous or subject to terms they've already agreed to with their investors, I'd see it as a sign that the founder would choose to put their own interests at odds with their employees when given the chance to choose to align them.


Changing the employee stock agreement after the A round for an individual hire probably requires a board meeting about that hire.

Don't take a job whose comp terms are incompatible with your goals; of course not. But again: be careful imputing intentionality. It's not a "red flag".


Once again I agree with the first part of what you said and disagree with the rest. Yes, changes in some of the clauses do require board approval, and no, I absolutely do impute intentionality to abusive contracts. It’s not like the company lawyers (and therefore founders) don’t know the details of the contracts: founders themselves sign some corrected variant of it. Therefore they do not get to use malice/incompetence platitudes in their own defense. I do now consider the presence of certain clauses in an option contract a _major_, deal breaking red flag.


Depends on how much they want you, they might accommodate. Obviously this is unlikely to work if you're fresh out of school and have no track record to speak of.

You are not asking for anything extra here, you're just asking, de facto, for conditions that would let you value the options part of your compensation at anything greater than zero. You got dinged for it on the base salary after all, and it costs the company very close to zero to give you this paper wealth. If the contract is abusive, you can be sure you'll be treated 100% in line with the letter of the contract and your options are very likely to be worth nothing.

Don't be afraid to offend, this is just business. Don't speak in confrontational tone either though, and be prepared to walk away, just like in any other negotiation. The worst outcome is nothing changes, but you had that to begin with. If you're aggressive, the second move will be an email from the company lawyer telling you the changes you've suggested are out of the question. After that, if you're prepared to walk away, they will agree to a part or all of it.

The net benefit of this is you could introduce numerous improvements into your option contract if you succeed, i.e. eliminate or weaken the clawback clauses, negotiate early exercise, take care of accelerated vesting or option replacement in case of an acquisition (otherwise you could be left with literally nothing after the exit), vastly extend the exercise window (from the default 0-90 days after you leave to many years), negotiate that you get to keep shares if you're _fired_, etc, etc. A good lawyer could write a thick tome on this, and you're NOT going to be able to learn it in your spare time.

If equity is substantial, and you think it might eventually be worth anything, I also advise hiring a tax accountant with experience in such matters. There are different types of stock options, with different levels of taxation (conditioned on your exercise strategy). Under some strategies you could end up on the hook for six-seven figure amounts of tax even though you can't sell your shares, and might never be able to do so.

But for most startups, given the low probability of success and the many ways you can be screwed (dilution, clawback, liquidation preferences, etc) you'd need to have A LOT of faith in your startup (and in the soundness of your options contract) to exercise early.

If you do nothing else, try to negotiate that: a). You're not required to sell _vested_ stock back to the company if you leave / or even get fired, b). You get _something_, preferably full, immediate vesting, in the event of an acquisition, c). Your exercise window spans many years after you leave, so that if the startup does exit you can get something for the vested portion of your option without exercising it before you leave (and potentially exposing yourself to massive reaming by the IRS).

None of the above is a replacement for proper legal / tax advice though, it's merely a distillation of the advice I received that was applicable to my particular circumstances at the time.


A philosophy I have for founders is if it is too much money to early exercise all of it, covering the cost with a sign on bonus, you should be giving RSUs at that point.

82b sign on bonuses are cheaper than the actual cost, since the money is really the employee's marginal tax rate, since early exercise money comes back to the corp.

That is typically around series A or B, which is a lot earlier than the typical switch to RSUs.


A really nice idea, although my sense is that companies in the $5-20mm paper valuation range fall into a sort of "valley of death" where the options are too expensive to exercise, RSUs would be laughably premature, and the odds of success are still very, very thin.


Are they really laughably premature? Is it really that much more work to start issuing RSUs vs options for new hires? From what I know, it's a board meeting and other kind of equity contract that is presented.


The paperwork shouldn't be crushing, but RSUs are not too appealing when the company stock is far from liquid. Grant 0.5% of a $10mm company--assuming no aggressive discount on common stock--pay something like $15K in tax with 83b election? Or, no early exercise and pay perhaps much more tax on vest with no market to sell.


$15k in tax isn't that big of a sign on bonus then, since I'm assuming it's a $37.5k grant? When paying $XXXk in tax starts sounding crazy for a company to do as a sign on bonus, that is the time to go RSU, because it's triple crazy for your employee to pay the exercise cost themselves.

In practice, unless the cost is so cheap that doing an 83b is not hard, then an RSU is no different than an option to an employee. The employees will only exercise when there is some sort of liquidity.

No employee is going to have the capital to exercise any other time either, because it's only to get more expensive with AMT as time goes on.

By RSU I mean stock that is granted only when you have met the time requirement as in normal stock options, and when the company is liquid (acquisition or IPO). Cheap stock options that don't expire when you leave also work too.




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