How does paper money work?

Dec 7, 2021 9 Comments

For those who joined pre-ipo companies, how does paper money work? Are these shares tracked by some broker (morgan stanley or others)? What happens if you leave the company, do you leave these behind, if not how do you get the share once the company ipos?

TC: 350K, YOE: 12

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TOP 9 Comments
  • Yes, it is managed by an external company. After stock options are vested, you can exercise it i.e. buy it. You could even sell it in secondary markets before company goes public.
    If you leave the company, you have the option to buy all vested stock options within certain days. You can continue to hold them as long as you like.
    Dec 7, 2021 3
    • Brex / Supply/Log
      awWT22

      Go to company page Brex Supply/Log

      awWT22
      Yes, generally the only time you have upside without disbursing cash is if the company has a liquidity event like and IPO, where generally the outstanding stock options are automatically exercised, and you receive the proceeds already discounted of the strike price (price to buy the options, defined at time of issuance), and also with the tax already deducted.

      If you have the money, it’s tax advantaged to exercise as early as possible. You both reduce the immediate tax you’d have to pay (income rate), and also shift the whole remainder to just cap gains.
      Dec 8, 2021
    • @awWT22, you brought up a very good point. Stock options of a startup is better than public company RSU because you can exercise early and pay very minimal or no income tax. After that any increase in value is a capital gain with lower tax rate.
      Dec 8, 2021
  • Brex / Supply/Log
    awWT22

    Go to company page Brex Supply/Log

    awWT22
    They’re not “tracked” anywhere like a brokerage. Private companies maintain their own cap table “however they want”.

    When stock is issued, a thing called a “certificate”, which states the holder, amount and class of shares, is created and signed by the treasuser and the president (for delware c corps at least).

    That being said, most reasonably large/vc funded company will use some software for this, like Carta. But Carta is not a broker, they’re just a SaaS that, to put it simple, has a better spreadsheet for the cap table than google spreadsheets.
    Dec 8, 2021 0
  • I’ve always wondered this
    Dec 7, 2021 0
  • ISO, NQSO and RSUs are treated differently.
    Dec 7, 2021 2