Start up equity comp model
For early stage start up equity compensation, is it common for start ups to ask their employees to invest money in the company to get shares as supposed to just giving shares of their company as compensation? By “early” I mean seed or series A with 10 people or less.
The way you worded this is funny. It’s very common to get stock options, idk about some other scheme that is “like a stock option” that could be sketchy
It is not a stock option. Essentially I have to put my own money in to the company now (in the early stage) to get the shares. I was expecting to just get a share in the company as compensation....so I was wondering if this is common
So you pay now, but you get an option? Meaning, you also pay again later when you exercise that option? Definitely not common. How much are you paying? There can be good reasons to early exercise, if the cost is so low now that it’s negligible you’re better off exercising options early so that you only pay capital gains tax later on and only when you sell. The tax situations when holding ISO options can be kinda shitty for employees (AMT tax, golden handcuffs). Point is, it’s possible there’s a good reason for it and it’s actually better for you this way. Or, it’s sketchy and they’re taking advantage of employees. Without more detail on the actual terms and numbers nobody on blind is gonna be able to help.
Stock options grant is common. Sweat equity is common. Never heard of employees investing real money in the company.
In this case I had to fund the company with my own money to get shares, rather than just getting shares as compensation. Not sure if this is common so I wanted to check with you all.
To avoid AMT paper gains, its common to exercise options while the share price still = the option price. Thats investment...
Interesting...
Stock options are good if the strike price is really low and you can exercise your grant without worrying too much. If things go well, you get away with paying long term capital gains tax (and potentially AMT) instead of income tax on your profits. Not sure if it's possible to avoid paying income tax on RSUs if you want to only pay tax when the equity becomes liquid. If it's expensive to exercise the options, getting RSUs instead is much better (sure, potentially worse tax treatment, but way less risky).
Yes but I wouldn’t ever make that mistake again.
tell us your story papa
Please do!