You have to pay for the privilege of owning the stock (exercise price) plus whatever gains the valuation has increased it to. So, if you got options at $1/share and bought them when they were privately valued at $10/share... You have to pay $1 per share plus $9/share in whatever your marginal tax rate is. The upside here is that if the company goes public later at $20/share... You only pay $10/share in capital gains tax rates than $19/share in marginal income tax rate. (Assuming you hold them for a year after purchase)
Downside? You just paid tens of thousands of dollars in hard cash and taxes for lottery tickets. The company could still go under, you'll never sell unless they get acquired or ipo, and you'll be out all that money you spent.
In general, I think it's horrendous advice to forward exercise. Great way to lose money.
If you early-exercise there should be no spread at all between the strike price and taxable quasi-value.
Early exercise is a solid choice, provided the strike price is low enough such that exercising is not a major expense / unreasonable qty eggs in one basket.
By joining the startup with its startup salary, you've already thrown away tens if not hundreds of thousands of dollars of hard cash you could have earned by taking that Google offer instead. So if you feel that this is a rational decision, spending another $10k to minimize a lot of tax pain down the road is also entirely rational.
It's also an interesting quirk of human psychology that we value the loss of something we have (here $10k in cash) so much more than the cost of not having something in the first place.
Sure but it pays very handsomely to make up for the boringness. I'm already bored/soul-crushed at startups - so I'd be much happier to be bored and getting paid a lot more for it. Politics still seem ridiculous even at the startups I've been at.
Some companies have started to offer extended exercise windows [1], which means there's no pressure to exercise your stock options early.
If your exercise window is only 90 days, then you need to exercise at least some of your options and file an 83b. Otherwise you'll be stuck at the company until a liquidity event, which can take 10+ years. If the company is successful and you need to leave early for any reason, you're potentially throwing away millions of dollars.
