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 / Other endofdays9
    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 9 2
    • Intel NM.Enchant
      That’s deserving of naming and shaming the vc
      Feb 9
    • Cisco / Other endofdays9
      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 9 7
    • 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 / Media oNqW15
      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 / Eng 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 / Data Select73
      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

    Compass Eng

    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 9 7
    • Oscar 🐨koala
      I’d just give away the stock forever to the employee
      Feb 10
    • eBay / IT
      manorama

      eBay IT

      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

      eBay IT

      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 / Media oNqW15
    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 9 3
    • 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 / Media oNqW15
      I will as soon as I find something else
      Feb 9
  • Google / Product
    Urs

    Google Product

    PRE
    Microsoft, 500 Startups
    Ursmore
    Negotiate that upfront before you join the startup
    Feb 9 1
    • Cloudflare monsterbub
      Absolutely zero startups will negotiate that.
      Feb 9
  • Facebook public2
    It's a negotiation, you just lost.
    Feb 9 11
    • New / Media oNqW15
      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 / Media oNqW15
      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 9 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 / Media oNqW15
      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 / Media oNqW15
      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 / Media oNqW15
    So unfair and so short sighted bc workers are getting savvier about this stuff
    Feb 9 0
  • New DvVM00
    it’s a legal requirement for ISOs
    Feb 9 0
  • New / Media oNqW15
    That’s the position of my company now. Nuts
    Feb 9 0
  • Oscar 🐨koala
    True. have to buy their option is brutal.
    Feb 9 0
  • Why do you think it's bad? Seems OK to me.
    Feb 12 1
    • 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 9 0