Company had a really good run, grew exponentially (now 120 employees) and was able to secure pretty solid rounding at a reasonable valuations.
However, growth is now slower as the competition caught up, and we have massive execution/quality gaps. It would be the perfect time to sell the ship and probably cash in 200M valuation, which would make the founders super rich, and early employees like me would get low 7 figures (I am fully aware of current cap table, dilutions and all that, I’ve been kept in the loop).
However, the founders are instead doubling down and want to turn things around and move into the 1B valuation with a plan that consists in keeping the company around for 3 more years and make 5-10X more revenues than now.
I’m in despair. I can’t leave because I would have to pay too much to exercise my options, and there is no secondary market for the equity.
- Rubrik / Eng“”””0Voice this concern to the founder and ask for a secondary liquidity opportunity for employees, make them realize it’s a concern for many and if they don’t provide some liquidity, they won’t have a team to get them to 1b
- Find a new company that is willing to give you a signing bonus to cover your options.
- I’m talking about $500k+ between cost of exercise and amt liability (amt is really the dominating factor). I was really really early so all the appreciation from ~0 to 200M is counted as AMT. Never heard of companies giving that much POST tax for a rank and file engineer.Dec 3, 20181
- I’ve been saving a lot. In fact I have a liquid net worth of 1.4M all in index funds, but I’m not going to blow a third of that on startup options, it’s beyond my risk profile.
The real problem is that when I initially joined the startup they told me the ideal target would have been in the 100M valuation. Now that we reached and surpassed it, they changed their strategy and want to go even bigger, which I couldn’t have predicted.
Certainly a lesson learned for the future, but I don’t know what I could have done differently in this situation if not staying out of the startup altogether.Dec 3, 20182
- Could have exercised earlier but there’s no point in pointing out via hindsight. There are firms that will let you borrow money for your options but I’d recommend you against if it you can
Alternatively you can ask your founders to do a secondary offering so you can sell some shares to cover your exercise.
- Yeah I looked at esofund but it’s a legalized scam essentially. They take 50%+ of your proceeds, and if the company goes bust and your loan is forgiven you are still on the hook for a massive taxable event because the forgiven sum is considered income. I’d rather rot here for a couple more years ugh.
- Google X0r0qHow are you 'in the loop' if you can't discuss this directly with the founders?
- Because at every investment round I hammered them with questions about the details of the round and they also let me see the cap table a year ago. I expressed my concerns, they just dismissed it and say I’m too pessimistic and things will turn out great. In the end I’m not an executive.
- Ask the founder to give you longer exercise period after leaving, like 5-7 years. Doubt they will grant that to you but won’t hurt to ask.
I lost $3M+ on paper money from my last startup :) btw.
- This is interesting. Why did you lose that much? Were you terminated? Or you didn’t think it would become as valuable and so left without buying the options? I’m in a similar situation, according to the last share price my equity is in the 3-4M ballpark as well.
And for exercise window yeah, I asked in the past and VCs said no.
- Lol are we sure we don’t work at the same company?? Our valuation is also really close to that, and I don’t fucking understand why founders don’t take the cash. At those levels of wealth (they’re going to be making 8 figures for themselves for sure), a 3X growth is not going to make that big of a difference, it’s still life changing. Losing it all would instead be major. Go figure. Thanks for sharing.
- Intel / SalesLastManClassic problem of any startup .. nothing for you to do .. if company is planning another trajectory.. u r not a major stock holder ..
- Yea :( I’ll be much wiser next time. I hate not being in control like that. At least if I was at another company I’d know exactly how much I stand to lose if I were to leave. Here it could literally be anything between -$500k (if I exercise my options and then the company goes bust) and +$5M
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- 1) very hard for normal people to find opportunities to invest in such startups as a normal accredited investor. I know of several people close to the founders who wanted to invest but were turned down, even very early on, since the round was already oversubscribed by VCs who can bring more to the table than money. The reason is these founders have a solid track record (sold a couple companies before that) so VCs wanted to give them even more money. They weren’t gonna accept a 100k check from me, not worth the trouble.
That’s actually part of the reason these founders don’t want to sell. They’re already ballers with 8 figures net worth so they want to shoot for 9 figures for themselves.
- 3) I find it hard to believe the cap table was bs, can’t tell the full story but let’s just say it “leaked” more than they willingly share it lol. Ok I’ll tell the story. One founder was sitting relatively close to me and it was late in the afternoon and everybody went home except us. I couldn’t resist peeking at his laptop when he went to the bathroom and he had the cap table open in front, with all the employee names and amount of equity granted, as well as amount owned by VCs at which price lol. I took a few pictures with my phone. I know, naughty lol
- Do you think their plan is realistic? Also how significant is it if you left? Be realistic here, is your IP enough to cause a significant drop in revenue or customer satisfaction. If your IP is nothing to the company and you're just a code monkey then all you can do is leave.
If you have a significant contribution into the product then you should talk to the owner about some kind of buy out or some kind of separation agreement.
- I’m not a code monkey but at the same time if I left business would continue as usual, little disruption overall.
The problem with leaving as I was saying is that I have $500k+ to shell out to exercise my equity and pay amt, that’s why I loathe these founders for not selling.
- Well the problem is you don't have much leverage and the 500k isn't truly yours in the sense that it is a promise for joining a startup at a lower pay that you can exercise it in the future. The founders have no obligation to sell and you rightfully feel you have been tricked and that's kind of the nature and risk of taking equity as a regular worker in a startup, either your equity gets ipo, bought out, or most likely worthless and company eventually goes belly up or sold at a discount.