90 days to exercise startup options is unfair, ridiculous and should be stopped

Feb 9 54 Comments

VCs and founders should be ashamed of the policies that force employees to buy options within 90 days or get nothing upon exit or termination.

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TOP 54 Comments
  • Cisco / Otherendofdays9
    A company I worked for had a VC propose that we revise the employee stock agreement claw back exercised vested from any employee who departs shares because “we are all in this together and anyone who leaves doesn’t deserve to profit from the work of others.”

    Think about how surreal that is.
    Feb 92
    • Intel NM.Enchant
      That’s deserving of naming and shaming the vc
      Feb 9
    • Cisco / Otherendofdays9
      Which, unfortunately, would be a dead giveaway. I assume it’s not all that rare.
      Feb 9
  • SocialChorus BillythKid
    What is the alternative? Do you think you should just forever have the option? Then no one would ever invest...
    Feb 97
    • New / MediaoNqW15
      They shouldn’t offer equity beyond what the cap table can support. Vesting schedule is the retention tool - if they want to make sure to keep people with equity then adjust the vesting schedule but what’s vested should be cashless exercise
      Feb 9
    • OP
      Pinterest gave their employees 10 years to exercise vested options. Seems like they’re doing ok.
      Feb 9
    • SocialChorus BillythKid
      That is the thing, if your a unicorn, it is ok. If you have three pivots, it's a nightmare. Options should be used for retention, once your gone, you should make a decision. By the way, you can negotiate this piece, but except for a very rare exception, I see no reason why the company would do it
      Feb 9
    • New / MediaoNqW15
      Many companies are now doing it: Pinterest, Quora, asana, amplitude, coinbase to name a few. It’s the misapprehension that options are just a retention tool that has workers calling bs. If you are early stage senior level employee directly building and impacting the business then you have earned your equity
      Feb 9
    • Bloomberg iVX372
      It's untrue that no one would ever invest with a 10-year share exercise window. Vested options should be unavailable to investors, period. If the founders didn't have their shit together and pivoted too many times, and gave up too much stock, that's their own damn problem. They can sell some of their disproportionate share in the equity, which is all the more disproportionate due to not having their shit together.

      Investors will invest in whatever fraction of equity remains if there is still value in the company. Whether or not there is business value in the company is the primary responsibility of the founders. Failing to create it should penalize them over any early senior employee who flawlessly executes the the founders' flawed business plan.

      A 90-day share exercise window is pure exploitation. There's no other fair way to describe it.
      Feb 9
    • MapR Technologies / DataSelect73
      You can sell pre-IPO shares, right? How?
      Feb 9
    • OP
      ^ no you cannot unless the founders have created a secondary market. Most options agreements prohibit transfer.
      Feb 9
  • Compass / Eng
    FUPayMe

    CompassEng

    PRE
    Google
    FUPayMemore
    100% agree. They could extend it up to 10 years and would still be in compliance with the law. 90 days is a choice.
    Feb 97
    • Oscar 🐨koala
      What law?
      Feb 9
    • Cloudera ghost 👻
      Tax law says ISO options must be exercised within 90 days of termination but some companies such as Pinterest convert ISO to NSO after 90 days post termination and you can exercise the vested options for up to 7 years after that. But taxes are due on the spread as ordinary income at exercise time with NSOs.
      Feb 10
    • Oscar 🐨koala
      I’d just give away the stock forever to the employee
      Feb 10
    • eBay / IT
      manorama

      eBayIT

      BIO
      Coder
      manoramamore
      @ghost If it is ISO , what part is marginal tax , and what part is considered capital gain ?
      Feb 10
    • Cloudera ghost 👻
      @manorama ISO tax law is complex. The spread is considered income for AMT purposes only at exercise, not considered ordinary income or capital gains. When you sell you owe the spread between strike price and sale price as cap gains (there are rules re. whether it’s LT or ST). You get double taxed potentially due to the AMT but you can claim AMT paid due to ISOs as a credit in future years where you don’t owe more AMT than ordinary gains. tl;dr: too complex to explain on Blind. Look up ISO AMT credit and read some articles about AMT
      Feb 10
    • eBay / IT
      manorama

      eBayIT

      BIO
      Coder
      manoramamore
      Thanks 🙏🏼 got the gist of it . You basically get double taxed initially- AMT for paper gains , and then LT or ST for real gains on same spread. Now to fix the double tax issue , you can claim back AMT paid before , however you need to find a tax year where you would not get hit by AMT, and then you can claim credits on that same year
      Feb 10
    • Cloudera ghost 👻
      Yep you got it 😉
      Feb 11
  • New / MediaoNqW15
    This is the situation I’m now negotiating. It’s stupid bc they won’t budge and as a result I’m actively seeking work elsewhere bc to me my options mean nothing with this stipulation
    Feb 93
    • OP
      Smart move
      Feb 9
    • Apple Snut Ella
      Run, don’t walk away. Seems like a scheme to get you to help fund the company.
      Feb 9
    • New / MediaoNqW15
      I will as soon as I find something else
      Feb 9
  • Google / Product
    Urs

    GoogleProduct

    PRE
    Microsoft, 500 Startups
    Ursmore
    Negotiate that upfront before you join the startup
    Feb 91
    • Cloudflare monsterbub
      Absolutely zero startups will negotiate that.
      Feb 9
  • Facebook public2
    It's a negotiation, you just lost.
    Feb 911
    • New / MediaoNqW15
      I’m negotiating it with my company now. To be honest I am currently losing but I’m also actively considering offers as a result and will leave a huge hole if so so ‘losing’ is subjective
      Feb 9
    • Facebook public2
      Worked at several startups and sold two if that helps ya :) everything is negotiable, everything.
      Feb 9
    • New / MediaoNqW15
      What kind of equity/ exercise did you offer?
      Feb 9
    • OP
      You were a kind founder then if you gave leeway on your exercise post employee exit. The overall point of my post is some things should be standard not negotiated. Negotiation favors the privileged.
      Feb 9
    • SocialChorus BillythKid
      The privileged should be favored. If you are director level or below, you are just a replaceable cog. Options are a fair return, not free equity that you aren't even willing to pay below market cost for.
      Feb 9
    • New / MediaoNqW15
      It’s not about being willing to pay or not; it’s that many times startups will offer equity as part of total comp to people who pour blood, sweat and tears into making the company work but who never- even if they wanted to - would be able to afford to buy their options at grant price if they need to leave. So those people who built the company will be left with nothing. IMO if your opinion is that is fair, you shouldn’t even be offering options you should be offering salary and bonus only
      Feb 9
    • OP
      ^ this is correct
      Feb 9
    • SocialChorus The Kid
      You can have a third party pay for them, and if there is a successful exit, you will see some benefit. Or you can just exercise as many as you can afford. No matter how much you are making, you should be investing and saving some amount. Disagree that the people you poured their sweat and tears will be left with nothing.... 1) lots of people, of all pay ranges excercize at least a partial amount 2) everybody that built and STAYED will benefit. 3) in my experience, those that left and didn't excercize were the ones whose "mess" someone else had to clean up. Thanks for your sweat, but I often give the most credit to those that are there when it sold, not those that happened to get lucky and pick the right start up, but then not be so lucky (or wise) to be around when it exits
      Feb 9
    • OP
      I’ve seen so many startups go to $0 truly what are you smoking
      Feb 9
    • New / MediaoNqW15
      So true - I’ve been at multiple startups that went for $0. I don’t think people want your credit or care about ‘how you see loyalty’ (whoever you are) they literally just have to make practical decisions like ‘I need to leave this company so I can go move back to my home town/ country and take care of my ageing parent’ or whatever and can not afford to spend even $100k on a bunch of equity that may be worth nothing and get totally screwed. These are just facts
      Feb 9
  • Lyft Zero-one
    Is your situation not wanting to pay for the options that might be worthless or not being able to afford the AMT on the paper gains?
    Feb 99
    • OP
      Yes. But it’s just a horrible policy overall and unfair to workers.
      Feb 9
    • New / MediaoNqW15
      Both
      Feb 9
    • SocialChorus BillythKid
      Anyone can afford them, that is ridiculous. There are plenty of companies that will put up the money for you and take a cut. You can find a new job, but you will just find more of the same. I don't understand the entitlement.. Once you leave, why does the company have to give you an interest free perpetual loan?
      Feb 9
    • New / MediaoNqW15
      But then if they become worthless you have to pay someone back hundreds of thousands of dollars so clearly not ‘anyone can afford them’. And it’s not a loan - if you build a company from a scratch in return for equity as part of comp - you have earned that piece of the company. It’s not entitled it’s been happening since they invented companies!
      Feb 9
    • SocialChorus BillythKid
      That's not true. If they become worthless, it is the company that put up the money that losses out. They take the liability, and the majority of the upside. Your sweat earned you options, not equity. If you want free equity, that is equivalent to a loan.
      Feb 9
    • New / MediaoNqW15
      If someone loans me $500k to buy my options - I owe them $500k regardless of what the options end up being worth when the company exits
      Feb 9
    • Lyft Zero-one
      There are no-recouse loans.
      Feb 9
    • New / MediaoNqW15
      I assume you mean promissory notes etc? Yes but there are massive downsides for the option owner with those, tax being just one. It still puts the onus on the employee to behave like an investor when they are not set up to do so
      Feb 9
    • Lyft Zero-one
      No, I mean if it's a decent bet for them to make, there are people who loan you enough money to pay for the options and the AMT, with no money owed if there is no exit. I was offered a deal like this. But there was a significant cost on the back end.
      Feb 9
  • New / MediaoNqW15
    So unfair and so short sighted bc workers are getting savvier about this stuff
    Feb 90
  • New DvVM00
    it’s a legal requirement for ISOs
    Feb 90
  • New / MediaoNqW15
    That’s the position of my company now. Nuts
    Feb 90
  • Oscar 🐨koala
    True. have to buy their option is brutal.
    Feb 90
  • Why do you think it's bad? Seems OK to me.
    Feb 121
    • Cisco ex2.19
      You must have very little experience.
      Feb 12
  • Apple Snut Ella
    This is a thing now? Damn. What kind are of strike price are we talking about?
    Feb 90

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