Startup saying they cant offer me any RSUs as part of joining bonus
I recently got an offer from one of the startups in Bay area and they're saying they can't offer me any stock as joining bonus because it is not a publicly owned company. They gave me an option of buying x numver of stocks at a price after 1 year (25%) and 36 subsequent months. I see lot of people here getting stocks, ownership etc. at companies like Uber which are not IPO yet. So is there any difference between the startups and how they can award stocks?
Uber was offering options until 2 years back. This is a very common practice. Almost all companies offer options in the beginning and starts offering RSUs once they are closer to IPO.
Yep, GoPro did this.
I can't talk about the legalities of it but based on my experience at 2 startups (1 successful and 1 not-so much) employees are typically given stock options and not stock. If you exercise those options by giving them a check for exercise price time number of shares, then you have stock. If there is a liquidity event prior to you exercising the options are converted to cash (and you pay income tax rather than capital gains). I've only seen RSUs at public companies with a typical vesting schedule of 3 or 4 years.
I agree with the previous post; it sounds like they're offering _options_ which is typical with a startups. What matters most with startup options are quantity, strike price, total shares available and previous liquidity events, like fundraising. It helps determine growth potential and your stake. FWIW, Netflix did the same thing for years, even after being publicly traded. Many large corporations still offer only options. With a public company, you won't necessarily write a check if you exercise your options and the stock price has gone up. With options, sometimes you win, sometimes you lose. Hold onto them and watch them grow. RSUs just feel better because they feel more like cash in hand.
You are getting offered ISO's. Not RSU's. The difference is indeed that you'll have to buy them.
This used to be a lot more standard. Microsoft gave everyone stock options well into the 90s. Since the startup is new you are hoping that when/if it goes public the option price will be a lot less than the IPO price. It usually ends up being you option price is so low it's almost free stock anyway.
Except that it's not liquid, and you get to pay AMT on the difference between your cost basis and the so called "market value" of the stock if you exercise.
You only pay AMT if you are rich enough to hit AMT. usually the spread is small enough that it doesnt matter
If it's not a late stage startup then this is normal. Legally they CAN offer stock but it's a pain and almost impossible because it will require board approval under most corporate charters. Consider it impossible unless you're an exec and even then, I would think that would be a deal breaker for them because you're upsetting the balance of the exec team. The 4 yr vest/1 yr cliff structure for ISOs is very normal. Id also caution that a lot of companies that give late stage RSUs give at very inflated valuations. Buyer beware as that worth will be set by the market in IPO, not buy the last investment rounds which have been rather high IMHO.
What is the strike price and how many options? Makes all the difference.
Be glad you donβt have to shoulder the tax liability of RSUs if the company most likely tanks.
So you can buy stock but they can't give it to you?
Yes, that's what they are saying. I can write them a check after 1 year to get the 25%, however they cant give me any now "legally" as joining bonus
Sounds weird but then again I'm not a lawyer, and there may be truth in that, maybe giving stock would be diluting value especially if there is a finite number of them. Years ago I worked at a startup (Pharma sales) and they paid me very little but loaded it with pre ipo stock, but it's about the corporate structure I guess