Beware! Biggest Problem with pre IPO startup comp

Affirm ninjatark
Oct 8, 2018 19 Comments

When I got offer from affirm last year, I was so happy that I could be a millionaire when the company goes public. I got around 70k shares which is really huge.

After an year, I felt the biggest punch! I found out that i cant leave the company until the company goes public. If I leave , say for example, after 2 years, I would have to pay 35k into 4$ strike price equaling 140k to keep my options. If I stay for 4 years, that's whopping 300k when i leave...

I am not really sure if I should invest 300k in any pre IPO company if I plan to leave. If you dont have money, you are messed up. I know that affirm is doing really good but still.

What do u guys think? Am I missing something? I am wondering how people do at slack, stripe and all where strike price is much higher. I do agree that lot of bay area millionaires happened because of startups only.

God bless uber and Lyft employees! I heard uber is at 50. Lol.

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TOP 19 Comments
  • Lyft QHft34
    Lyft grants double trigger RSUs. No tax implication until liquidity event.
    Oct 8, 2018 3
    • Affirm ninjatark
      OP
      But if u leave the company before IPO, do u have to pay to buy the options or nothing?
      Oct 8, 2018
    • Lyft QHft34
      I have RSUs, there is nothing to exercise and no tax implication until they vest based on time spent working here _and_ liquidity event. Current RSU grants last 10 years from issue date regardless of if you are still employed by Lyft or not.

      Employees who have been here longer have options which would have tax implications on exercise date, regardless of liquidity event.
      Oct 8, 2018
    • Stripe gNTf16
      Stripe does the same @OP
      Oct 24, 2018
  • Collective Health Mr. Feets
    The situation you’re describing is extremely common and it is shitty. Every company I’ve spoken with that has a 90 day window defends it as industry standard. First off, that doesn’t matter if that standard is shitty. Secondly many company do not do this and are just fine. Zach Holman has been maintaining a list of companies that don’t do this.
    https://github.com/holman/extended-exercise-windows
    Oct 8, 2018 2
    • Affirm ninjatark
      OP
      Wow...u are life saver, I didnt know affirm had 7 years ! That's changes certain things...should have read the terms clearly..
      Oct 8, 2018
    • Collective Health Mr. Feets
      Keep in mind, this list is not authoritative. Def. confirm any of these time frames with the company. And if you find out any of these numbers are wrong please make a PR to update it.
      Oct 8, 2018
  • OmniTier Storage
    omnitier

    OmniTier Storage

    PRE
    Google, Facebook, Apple, Salesforce
    omnitiermore
    Uber/Lyft grant RSUs not options. Since your company allocate options, you need to buy them when u leave. Lyft/Uber employees don't have such problems.
    Oct 8, 2018 2
    • Uber jf583us
      We did if you joined years ago
      Oct 8, 2018
    • LinkedIn 🐓sucker
      when did uber stop giving out options?
      Oct 8, 2018
  • Dropbox jnhB37
    This is why I would not join a unicorn that’s still giving options. RSUs are lower risk at that point.
    Oct 11, 2018 2
    • Uber / Eng
      kBfU5h

      Uber Eng

      PRE
      Google
      kBfU5hmore
      RSU IPO tax is huge. Usually half of your money will be blown away. What risk can be higher than that?

      Option can exercise early and pay long term capital gain tax at IPO.
      Oct 11, 2018
    • Dropbox jnhB37
      RSUs are only taxed after IPO, where as ISOs are subject to AMT upon exercise. Many people have to exercise before IPO (e.g. if they leave), and pay the strike price in addition to the AMT tax, which is easily a few hundred thousand $, for stock that might not IPO for another decade. That’s very risky.
      At least with RSU at IPO, you can use your shares to pay the tax.
      The only advantage with ISOs is if you exercise at least a year before you sell, to get long term capital gains rate, which tops out at ~24% with Medicare surtax, vs 37% top federal income rate.
      Oct 12, 2018
  • Affirm fMrA46
    What are you talking about? Affirm allows you up to seven years to exercise if you leave after your two year mark.
    Oct 17, 2018 0
  • Sprinklr youmeweus1
    Yeah - it’s normal that you have to exercise (buy) to have them, depending on how early you joined, which also affects your share price to buy. This is often why people stay until an “event” - purchase or IPO. Or you can purchase them on your way out and think of it as any other investment risk.
    Oct 8, 2018 0
  • Why do you want to leave anyway ? They hired you so you can work for them. Forgot about these technicalities. Focus on doing good work.
    Apr 22 0
  • Dropbox pu5h33n
    You didn’t look up the difference between RSUs and ISOs before you joined and you didn’t ask if your company offers extended exercise windows for employees leaving. Unfortunately most tech people are similarly clueless so companies can get away with it. I would recommend people avoid ISOs with high exercise price unless you really understand the risks.
    Jan 11 0
  • Uber / Eng
    jH3ndu

    Uber Eng

    PRE
    Google
    jH3ndumore
    Merely 300k shouldn't be a problem.
    Oct 8, 2018 0
  • Facebook public
    Yea duh
    Oct 8, 2018 0