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Comment by pmorici | Hacker News Reader

"two tranches of employee equity that are set to start expiring in November 2020 and in mid-2021; those shares will become worthless if the company is not trading publicly by then, they said."

I don't understand the above statement. How does not being publicly traded make the options worthless? Doesn't it just make them more risky because you have to put up a pile of money w/o knowing when and at what value you will be able to sell?

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Incentive Stock Options (ISOs) apparently have a 10 year expiration window on them. If you were granted ISOs in 2010 but did not exercise them, you may have less than a year remaining to do so before they are lost forever.

You could exercise them, but for an early employee at a company like Airbnb that may mean literally millions of dollars in taxes that would have to be paid on an asset that can’t be sold, one that is still speculative in nature.

This doesn’t just apply to ISOs, either. I’ve learned from friends similar stage companies that even RSUs in a private company have some sort of expiration window on them, meaning if the company doesn’t IPO before that date those shares can also be lost.

There are many ways for startup employees to be screwed over on equity, especially when the company seems to be delaying IPO as long as they possibly can.

with RSUs though, the company can re-up them with no penalties

If the options are expiring, the company can choose to 1) foot the tax bill for the employee via payment or buyback, or 2) reissue the options as RSUs. Only some companies make that choice, but it's certainly legally possible to work through the 10-year legal expiration for ISOs.

I know this from experience, but here is a reference with good detail (no affiliation): https://www.founderscircle.com/10-year-expiration-of-incenti...

Yes, the article seems to not understand why people work at startups. The risk is high that your equity is worth nothing, the the reward at a liquidity event is large.

> [T]he reward at a liquidity event is large

Does anyone have any numbers showing the typical employee being rewarded? Exactly how much money did the median employee at Uber, Lyft, or Slack make?

I encourage you to do your own research, but the general rule of thumb is you will make more money working for an established tech company even if you do pick a unicorn. Since most of the data I have for this isn't public I couldn't share it if I wanted to, but in addition to all of the public data you can Google I personally know about a dozen people who were employee #X (X is a single digit number) at companies that were acquired for more than their last valuation at over $1 billion and only 1/4 of them actually felt like it was good financial ROI.

Options usually have an expiry when granted, i.e. they need to be exercised (employee pays cash at the strike price for it) before the expiry.

You need to pay capital gains tax when the gains are realized, I.e. at exercise.

I’m just speculating here but I think the problem is that the value of Airbnb stock has increased so much that the taxes due on the capital gain large enough that these option holders can’t afford to pay it without a liquidity event e.g IPO, where they could just sell the acquired stock to pay taxes.

So these early employees that were compensated in options are in this weird place where they can’t afford to exercise and are short on luck if their options expire before an IPO.

Also if you leave the company, your options usually expire some time after (perhaps 90 days?). I think that’s why some employees are complaining the lack of an IPO prevents them from moving on.

I presume later employees are conpensated in Restricted Stock Units which don’t have this problem.

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