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Comment by owenversteeg | Hacker News Reader

Anyone who just cares about the numbers: he was given options of 45,000 shares, of which 15,000 had vested. These 15,000, or 0.0833% of the company, were available to him at $0.27/share, or $4,050 total. So he had the opportunity to buy 0.0833% of the company at a $4.8MM valuation. Given that they recently raised $20MM at an undefined valuation it really says something that he chose not to exercise the options. I really recommend you all read the post.

Also, damn, that email from the CEO about his private Twitter. That's completely out of line.

For those of you that didn't read the article, the CEO called him out about a specific tweet (on a personal account with only 146 followers) where he linked to GitLab's page on Github for crying out loud.

(also, curious note: this comment went from 4 points to zero in less than five minutes. Hmmmm.)

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> Damn, that email from the CEO about his private Twitter. That's completely out of line.

It regarded his professional work on GitLab: https://twitter.com/suprnova32/status/720396175954698240

I think it's completely appropriate that he link instead to GitLab for such a thing, and I think it's remarkable that he didn't think the same. This isn't like the ad world, where if your customer is Coke you can't be seen drinking a Pepsi in public (which I agree is crazy): he was posting about GitLab itself, linking to their GitHub mirror instead of to their own site, which completely undermines the GitLab position.

Not commenting on whether or not this was "right/wrong", but it's worth noting that the GitHub contributor page is showing something different than the GitLab contributor page (adds vs. commits). If adds is what he wanted to show, GitHub may have been the only place to show that.

It's also worth noting that if you search Google for GitLab source code, GitHub is the first thing that comes up. To an uninformed outsider, it looks like GitHub is where GitLab development happens.

It may not have been the best thing to do, but I don't think this tweet "completely undermines the GitLab position".

There doesn't appear to be a GitLab equivalent. And that still doesn't change that it was his personal Twitter with 146 followers. The Tweet got one single like. "Undermining the GitLab position" with a Tweet that has one like seems ridiculous.

"Even GitLab employees use GitHub to track project progress and contributions - look at this senior GitLab employee twitter post. GitHub is clearly superior product" - magazine article or competitor to potential client.

CEO ask to link to GitLab was completely legitimate. CEO could have phrased it more politely but even as it is it's ok and nothing to complain about.

If a tweet like that can undermine their position then the tweet itself is the least of their problems.

Why is GitLab even using Github?

https://github.com/gitlabhq

Nowadays the stuff on GitHub is simply a mirror. Originally, they used GitHub primarily. Why they used GitHub was explained by Sytse (or Sid) in 2013:

"We're just going to stay where the people are. [...] GitHub is where the contributors are."

You can hear him yourself in The Changelog #103 podcast at https://changelog.com/podcast/103. Again, this was from late 2013.

Backup.

That's fine, but why would GitLab execs not insist on keeping it private?

Doesn't inspire confidence in the platform...

I started to refute this, but as I reviewed my post, I came to the realization that I have less confidence in the platform today than I did 12 months ago. Don't get me wrong, I like the Gitlab team, if you could call it that, for their transparency under duress, and how they kept us abreast of the troubles. However, the 'people' is not to be confused with the 'product', and if you're one of the users affected by recent events, then you may be justified in not giving a positive review of their service.

It's just a mirror nowadays. In the past we used to accept merge requests via this mirror as well.

Automated builds with Docker Hub as one of the reasons, IIRC.

I agree with you.

This is not about how many followers see this or if it undermines the company's position. It's about culture. If the CEO of the company lets things like this go, it will keep happening. And it will only get worse.

From my experience, I would rather not have this kind of employee around than trying to play nice with him personally because this kind of attitude spills over and eventually affects the entire team morale.

Wow, you guys are totally off base. Do you realize it's his private twitter account and not company's? How does it matter if it's about his job? If I work for Google and I made a comment on how Bing was funny or DDG respects privacy, I don't expect Sundar to send me a mail.

What if your CEO followed all your social media and day to day life and commented on things? But yeah, from my experience, I would rather not have commenters like you around as this attitude of overseeing my shoulders in my personal twitter account spills over everywhere and affects the entire team morale.

You're comparing one of the largest companies in the world with a startup with just over hundred employees. Of course the CEO of Google has more important things to do.

Also I'm not saying the CEO was absolutely right. I wouldn't follow my employee on Twitter at all personally for the same reason. And I would definitely not enjoy if my CEO told me to change my tweet either.

But that's not what I'm talking about, I'm talking about this guy. Aside from what the CEO did, this guy is a toxic guy, even after reading his own post that's obviously biased towards himself. He was not mistreated. I would understand if he's writing about how the company fucked him over by not letting him take his stock options. But no, this guy came to medium and wrote about how he's NOT going to take the stock options that were offered to him. If you really think this guy is the purely innocent guy and the company fucked him over, then I really have nothing more to talk about.

> Also, damn, that email from the CEO about his private Twitter. That's completely out of line.

It was a tweet regarding his company's platform, but using a competitor's. The e-mail really was not that bad, and that is what he should have linked. It would have been one thing if the e-mail was a massive rant-fest, and did nothing but berate him. I saw it more of "hey, do this instead next time" kind of thing.

> (also, curious note: this comment went from 4 points to zero in less than five minutes. Hmmmm.)

Please resist commenting about being downvoted. It never does any good, and it makes boring reading.

> These 15,000, or 0.0833% of the company, were available to him at $0.27/share, or $4,050 total. So he had the opportunity to buy 0.0833% of the company at a $4.8MM valuation. Given that they recently raised $20MM at an undefined valuation it really says something that he chose not to exercise the options.

I normally don't comment on HN without having read TFA, but this one is way too long and I just skimmed over it. I think OP not exercising their options is more about getting feelings in the way of a financial decision. A 4.8MM valuation is really cheap. And it's not like exercising would incur a huge amount of taxes.

A $20MM raise suggests a $100M valuation or so. That's a 20x increase in the stock price. OP's outlay would be something like $4000 + $35000 (state tax + short term capital gains. Less depending on how he hits AMT.). I don't think that's trivial, even if I'm off by a factor of 2.

It's the 409A valuation, not the funding amount, that matters. 409A value is usually much much less than the funding round.

That'll apply to the strike price as well as the current "valutation", so the multiple factor between the two valuations should be around the same regardless (a strike price of a non trivial number like $0.27 suggests that a 409a valuation was already in place to price the options)

The original 4.8M valuation (which is his strike price - extrapolating from his share price and ownership %) has now increased to ~40M (extrapolated from 20M raise, estimating ~100M preferred shares valuation and 40% of that for 409A valuation[1]). This means 4k outlay for initial stock, but they are now valued at ~33.2k, incurring some short term capital gains of ~5.6k. This still seems like a steal, as is the value dropped on that valuation of 33k I think it can be recognized as a loss to offset other earnings, so generally I don't think the tax is that bad a deal (if the person has the cash on hand).

[1] 41% is average ratio from here: https://www.capshare.com/blog/409a-valuation-guide/

I don't know what the OP's marginal tax rate was, but if he were a California resident, his taxes would be more around 15k.

Thx for the analysis.

Fwiw capital loss can only be applied to offset capital gains, other than 3k/year.

Capital losses also carry forward for your entire life. Either 3k a year of offset ordinary income until you die, offset any future capital gains, or have written off your entire loss.

I actually have no idea what you're talking about.

0.27 strike price was the 409A valuation at the time that the options were issued. There is usually another 409A valuation after the funding round. But we don't know what that value is. You can speculate, but using the funding round as the amount is wrong.

There's typically a lower bound of 1/10 the paper valuation, otherwise you risk the IRS coming after you at some future date. That relative lower bound ratio should be consistent across rounds, hence I'm approximating with a paper valuation ratio with a fudge factor of 2.

The company doesn't control the 409A valuation. That's done by an independent company who determines the 409A. So it's not something that is in the control of the company.

Sure, just like a house appraiser is an independent entity who determines the value of the house... Except that they always take the contract price in mind and basically attempt to not rock the boat. If they can make a case for a valuation close to the contract price, that's what they'll use. If they go too high or low, they risk killing the deal -- and their continuing business with the involved parties. Same problem as with legal arbiters and binding arbitration contracts.

You can't control them, but you can definitely "provide guidance" to the independent company as to what your desires are. They obviously won't give you something egregious but it's you who's paying them and will continue to pay them every year (a 409a valuation needs to be within 1 year to be valid for options). If a firm doesn't do something you like, you'll move onto the next one.

I think you're on the mark here. the capital gains tax liability from buying those shares would be significant, and possibly unaffordable since the shares are not liquid at the moment.

OP mentions that he received NSOs, not ISOs, so he would not be subject to AMT. He also wouldn't be taxed at capital gains rates on exercise but rather the spread would be taxed as regular compensation income. More info is available here: https://www.nceo.org/articles/stock-options-alternative-mini...

Don't some banks let you take out a loan for the amount of the capital gains taxes using the shares as collateral? I'm not sure but I could've sworn I heard about this.

If you never get a chance to sell that stock at a high enough price to cover that 35K loan, are you still personally liable for it?

Generally if a loan is collateralized, you are not liable for it beyond the collateral.

It's called margin, and you can only margin (use as collateral) shares that are liquid - i.e. publicly traded.

I know what margin is, and it's definitely possible to collateralize a loan with private shares. If you had options for 0.1% of Facebook before the IPO I guarantee somebody would write you a loan.

The question I was asking was: does any lender do this as a matter of policy as opposed to one-offs? The answer appears to be yes - Silicon Valley Bank appears to have let customers collateralize loans with private shares.

Yes, but before they're liquid they're close to worthless. A bank can't pay their bill with collateral that they can't liquidate after they repossess it. If the company is already scheduled to IPO, that huge risk mostly disappears, so of course someone would write that loan.

As for Silicon Valley Bank... They're serving the needs of the individuals around them. It's definitely not a common thing, and you're probably not getting anything close to a car or mortgage interest rate. (But still probably better than an unsecured loan.)

From their own copy: [0]

> Our tailored lending solutions can help you unlock the value of your private assets and simplify your financial life—in a way many traditional banks can't or won't.

[0] https://www.svb.com/private-equity-venture-capital/private-b...

For public companies, I know it's true. I'm not sure about private companies.

It's basically impossible with a private company.

Agree. It is dirt cheap. I would have exercised the options anyway given the bad feelings. Bad feelings are the sunk cost. Don't let that affect your future investments.

Yep. Let some other sucker do the hard work and be spiteful by blowing any money gained on something frivolous.

But we don't know their private valuation as of right now. So OP isn't just out $4k+, he's also going to pay taxes on the private valuation of his shares.

Just did a bit more math here.

Given the numbers above, if the company is valued at $100m and not adding shares, the valuation could be ~$5.60 per share.

When buying ISO's you need to pay for the shares and pay the taxes on the difference between the strike price ($0.27) and the fair market value on the date of purchase. Therefore, in this example, tax would be owed on ($5.60 - $0.27) * 15000 or $79k in paper gain. Depending on other income and a variety of factors, tax due may be greater than $28k.

Total cash out of pocket to exercise these options would then be the amount paid for the options plus the tax.

$4050 + $28k for a total of $32k on a valuation of 15000 * $5.65 or $84750.

If Gitlab does not decrease in value, he could benefit about $50k on an investment of $32k. If Gitlab increases in value, the benefit could be larger.

Not a tax guy here so corrections are gladly accepted and appreciated to increase the clarity of the situation.

After reading the article, I think author is not very confident that Gitlab will go for a big IPO. $4k is not a lot of money, but the taxes can really get you. And it gets even worse if GitLab dies before going to IPO or their IPO is nowhere near the current valuation. He can lose a lot of money in the process.

I also feel OP not investing in a company that he feels doesn't have the best interest of employees in mind is a good stance. Gitlab's reputation is tainted in my mind.

> (also, curious note: this comment went from 4 points to zero in less than five minutes. Hmmmm.)

When I have a comment on top of a thread that isn't exceedingly positive, I've seen much wilder swings than that. I wouldn't read too much into it.

you don't actually need 5 grand to buy the options, you just sell 5 grand worth and keep the difference. Sounds like he may have walked away from a lot of money.. he would have had a 34,000 dollar check.. paid out ~25% in taxes and been ahead.. oh well

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