w**z
发帖数: 8232 | 1 It's a good introduction.
http://jvns.ca/blog/2015/12/30/do-the-math-on-your-stock-option
亮点在最后。
On liquidation preferences: Suppose a VC invests 100M, and is promised a 3x
return on investment. If the company later sells for 300M (or less), the VC
gets all of it and you get nothing. That’s it. Liquidation preferences are
important to know about.
Things you should know about stock options before negotiating an offer
Are you considering an offer from a private company, which involves stock
options? Do you think those stock options might be worth something one day?
Are you confused? Then read this! I’ll give you some motivation to learn
more, and a few questions to consider asking your prospective employer.
I polled people on Twitter and 65% of them said that they’ve accepted an
offer without understanding how the stock options work.
I have a short story for you about stock options. First: stock options are
BORING AND COMPLICATED AND AWFUL. They are full of taxes, which we all know
are awful. Some people think they’re fun and interesting to learn about. I
am not one of those people. However, if you have an offer that involves
stock options, I think you should learn a little about them anyway. All of
the following assumes that you work for a private company that is still
private when you leave it.
In this post I don’t want to explain comprehensively how options work. (For
that, see how to value your startup stock options or The Open Guide to
Equity Compensation ) Instead I want to tell you a story, and convince you
to ask more questions, do a little research, and do more math.
I took a job 2 years ago, with a company with a billion-dollar-plus
valuation. I was told “we pay less than other companies because our stock
option offers are more generous”. Okay. I understood exactly nothing about
stock options, and accepted the offer. To be clear: I don’t regret
accepting the offer (my job is great! I ❤ my coworkers). But I do
wish I’d understood the (fairly serious) implications at the time.
From my offer letter:
the offer gives you the option to purchase 114,129 shares of Stripe stock. [
We bias] our offers to place weight on your ownership in the company.
I’m happy to talk you through how we think about the value of the options.
As far as numbers: there are approximately [redacted] outstanding shares. We
can talk in more detail about the current valuation and the strike price
for your options.
This is a good situation! They were being pretty upfront with me. I had
access to all the information I needed to do a little math. I did not do the
math. Let me tell you how you can start with an offer letter like this and
understand what’s going on a little better!
what the math looks like (it’s just multiplication)
The math I want you to do is pretty simple. The following example stock
option offer is not at all my situation, but there are some similarities
that I’ll explain in a minute.
The example situation:
stock options you’re being offered: 500,000
vesting schedule: 4 years. you get 25% after the first year, then the rest
granted every month for the remainder of the time.
outstanding shares: 100,000,000 (the number of total shares the company has)
company’s current valuation: 1 billion dollars
This is an awesome start. You have options to buy 0.5% of the shares of a
billion dollar company. What could be better? If you stay with the company
until it goes public or dies, this is easy. If the company goes public and
the stock price is more than your exercise price, you can exercise your
options, sell as much of the stock as you want to, and make money. If it
dies, you never exercise the options and don’t lose anything. win-win. This
is where options excel.
However! If you want to ever quit your job (in the next 5 years, say!), you
may not be able to sell any of your stock for a long time. You have more
math to do.
ISOs (the usual way companies issue stock options) expire 3 months after you
quit. So if you want to use them, you need to buy (or “exercise”) them.
For that, you need to know the exercise price. You also need to know the
fair market value (current value of the stock), for reasons that will become
apparent in a bit. We need a little more data:
exercise price or strike price: $1. (This is how much it costs, per share,
to buy your options.)
current fair market value: $1 (This is how much each share is theoretically
worth. May or may not have any relationship to reality)
fair market value, after 3 years: $10
All this is information the company should tell you, except the value after
3 years, which would involve time travel. Let’s see how this plays out!
time to quit
Okay awesome! You had a great job, you’ve been there 3 years, you worked
hard, did some great work for the company, you want to move on. What next?
Since your options vested over 4 years, you now have 375,000 options (75% of
your offer) that you can exercise. Seems great.
Surprise! Now you need to pay hundreds of thousands of dollars to invest in
an uncertain outcome. The outcomes (IPO, acquisition, company fails) are all
pretty complicated to discuss, but suffice to say: you can lose money by
investing in the company you work for. It may be a good investment, but it’
s not risk-free. Even an acquisition can end badly for you (the employee).
Let’s see exactly how it costs you hundreds of thousands of dollars:
Pay the exercise price:
The exercise price is $1, so it costs $375,000 to turn your options into
stock. Your options go poof in three months, but you can keep the stock if
you buy it now.
What?! But you only have 300k in the bank. You thought that was… a lot. You
make an amazing salary (even $200k/year wouldn’t cover that). You can
still afford a lot of it though! Every share costs $1, and you can buy as
many or as few as you want. No big deal.
You have to decide how much money you want to spend here. Your company hasn
’t IPO’d yet, so you’ll only be able to make money selling your shares if
your company eventually goes public AND sells for a higher price than your
exercise price. If the company dies, you lose all the money you spent on
stock. If the company gets acquired, the outcome is unpredictable, and you
could still get nothing for all the money you spend exercising options.
Also, it gets worse: taxes!
Pay the taxes:
The value of your stock has gone up! This is awesome. It means you get the
chance to pay a lot of taxes! The difference in value between $1 (the
exercise price) and $10 (the current fair market value) is $9. So you’ve
potentially made $9 * 375000 = 3.3 million dollars.
Well, you haven’t actually made that, since you’re buying stock you can’t
sell (yet). But your local tax agency thinks you have. In Canada (though I
’m not yet sure) I might have to pay income tax on that 3 million dollars,
whether or not I have it. So that’s an extra 1.2 million in taxes, without
any extra cash.
The tax implications are super boring and complicated, and super super
important. If you work for a successful company, and its value is increasing
over time, and you try to leave, the taxes can make it totally unaffordable
to exercise your options. Even if the company wasn’t worth a lot when you
started! See for instance this person describing how they can’t afford the
taxes on their options. Early exercise can be a good defense against taxes (
see the end of this post).
my actual situation
I don’t want to get too far into this fake situation because when people
tell me fake situations, I’m like “ok but that’s not real why should I
care.” Here’s something real.
I do not own 0.5% of a billion dollar company. In fact I own 0%. But the
company I work for is valued at more than a billion dollars, and I do have
options to buy some of it. The options I’m granted each year would cost,
very roughly, $100,000 (including exercise prices + taxes). Over 4 years,
that’s almost half a million dollars. My after-tax salary is less than $100
,000 USD/year, so by definition it is impossible for me to exercise my
options without borrowing money.
The total amount it would cost to exercise + pay taxes on my options is more
than all of the money I have. I imagine that’s the case for some of my
colleagues as well (for many of them, this is their first job out of school)
. If I leave, the options expire after 3 months. I still do not understand
the tax implications of exercising at all. (it makes me want to hide under
my bed and never come out)
I was really surprised by all of this. I’d never made a financial decision
much bigger than buying a $1000 plane ticket or signing a lease before. So
the prospect of investing a hundred thousand dollars in some stock? Having
to pay taxes on money that I do not actually have? super scary.
So the possibilities, if I want to ever quit my job, are:
exercise them somehow (with money I get from ??? somewhere ???).
give up the options
find a way to sell the options or the resulting stock
There are several variations on #3. They mostly involve cooperation from
your employer – it’s possible that they’ll let you sell some options,
under some conditions, if you’re lucky / if they like you / if the stars
are correctly aligned. This post How to sell secondary stock says a little
more (thanks @antifuchs!). This HN comment describes a situation where
someone got an offer from an outside investor, and the investor was told by
the company to not buy from him (and then didn’t buy from him). Your
employer has all the power.
Again, this isn’t a disaster – I have a good job, which pays me a SF
salary despite me living in Montreal. It’s a fantastic situation to be in.
And certainly having an option to buy stock is better than having nothing at
all! But you can ask questions, and I like being informed.
Questions to ask
Stock options are very complicated. If you start out knowing nothing, and
you have an offer to evaluate this week, you’re unlikely to be able to
understand every possible scenario. But you can do better than me!
When I got an offer, they were super willing to answer questions, and I didn
’t know what to ask. So here are some things you could ask. In all this I’
m going to assume you work for a US company.
Basic questions:
how many stock options (# shares)
vesting schedule (usually 4 years / 1 year “cliff”)
how many outstanding shares
company’s current valuation
exercise price (per share)
fair market value (per share: a made-up number, but possibly useful)
if they’re offering ISOs, NSOs, or RSUs
how long after leaving do you have to exercise?
Then you can do some basic math and figure out how much it would cost to
exercise the options, if you choose to. (I have a friend who paid $1 total
to exercise his stock options. It might be cheap!)
More ambitious questions
As with all difficult questions, before you accept an offer is the best time
to ask, because it’s when you have the most leverage.
will they let you sell stock to an outside investor?
If you can only exercise for 3 months after leaving, is that negotiable? (
pinterest gives you the option of 7 years and worse tax implications. can
they do the same?)
If the company got sold for the current valuation (2X? 10X?) in 2 years,
what would my shares be worth? What if the company raises a lot of money
between now and then?
Can they give you a summary of what stock & options other people have? This
is called the “cap table”. (The reason you might want to know this: often
VCs are promised that they’ll get their money first in the case of any
liquidation event. Before you! Sometimes they’re promised at least a 3x
return on their investment. This is called a “liquidation preference” 1.)
What other downside protection do the VCs have? (see this article for some
of the possibilities)
Do the VCs have participation? (there’s a definition of participation and
other stock option terms here)
Can you early exercise your options? I know someone who early exercised and
saved a ton of money on taxes by doing it. This guide talks more about early
exercising. 2
Do your options vest faster if the company is acquired? What if you get
terminated? (these possibilities are called “single/double trigger”)
If you have more ideas for good questions, tell me! I’ll add them to this
list.
#talkpay
I think it’s important to talk about stock option grants! A lot of money
can be at stake, and it’s difficult to talk about amounts in the tens or
hundreds of thousands.
There’s also some tension about this topic because people get very
emotionally invested in startups (for good reason!) and often feel guilt
about leaving / discussing the financial implications of leaving. It can
feel disloyal!
But if you’re trying to make an investment decision about thousands of
dollars, I think you should be informed. Being informed isn’t disloyal :)
The company you work for is informed.
Do the math
The company making you an offer has lawyers and they should know the answers
to all the questions I suggested. They’ve thought very carefully about
these things already.
I wish I’d known what questions to ask and done some of the math before I
started my job, so I knew what I was getting into. Ask questions for me! :)
You’ll understand more clearly what investment decisions might be ahead of
you, and what the financial implications of those decisions might be.
Thanks for Leah Hanson and Dan Luu for editing help!
On liquidation preferences: Suppose a VC invests 100M, and is promised a 3x
return on investment. If the company later sells for 300M (or less), the VC
gets all of it and you get nothing. That’s it. Liquidation preferences are
important to know about. ↩
On early exercise: I also know people who have lost a lot of money by early
exercising, if it’s expensive and turns out to be worth nothing. The
important thing is to understand what you’re allowed to do. | t**********h
发帖数: 2273 | 2 大哥，还在拿option，发财？
我拿option 亏大了
再也不相信option了
[在 wwzz (一辈子当码工) 的大作中提到：]
：It's a good introduction.
：
：........... | w**z
发帖数: 8232 | 3 early stage startup 都发option
【在 t**********h 的大作中提到】
: 大哥，还在拿option，发财？
: 我拿option 亏大了
: 再也不相信option了
: [在 wwzz (一辈子当码工) 的大作中提到：]
: ：It's a good introduction.
: ：
: ：...........
| v******d
发帖数: 227 | | f*******t
发帖数: 7549 | 5 文章只解释了公司被收购的情况。万一低价上市，比如现在估值的一半，VC有优先权，
员工手头的股票贬值不止50%吗？ | w**z
发帖数: 8232 | 6 我旧东家都file S-1, 我为了long term capital gain benefit， exercise 了一把。
结果交了AMT， 公司有tmd withdraw ipo 了，现在一堆废纸。亏大了。
【在 v******d 的大作中提到】
: 好帖！被铐住的飘过..
| a******3
发帖数: 170 | 7 取决于融资时候的条款。很多late stage 融资有条款保证投资者的收益。如果股票上
市价格低于融资时候的价格， 公司需要增发股份给这些投资人， 结果是员工股票被稀
释。
【在 f*******t 的大作中提到】
: 文章只解释了公司被收购的情况。万一低价上市，比如现在估值的一半，VC有优先权，
: 员工手头的股票贬值不止50%吗？
| f*******t
发帖数: 7549 | 8 惨啊
【在 a******3 的大作中提到】
: 取决于融资时候的条款。很多late stage 融资有条款保证投资者的收益。如果股票上
: 市价格低于融资时候的价格， 公司需要增发股份给这些投资人， 结果是员工股票被稀
: 释。
| t**********h
发帖数: 2273 | 9 所以说，干startup发财的人少，还不如自己琢磨发财，稳定，快多了。 |
|
