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Comment by ditonal | Hacker News Reader

Any companies that offer ISOs without at least a ten year exercise window is just spitting in your face and trying to leave an avenue to clawback your hard earned and well deserved compensation.

It’s not that early stage equity is worthless. It obviously isn’t, it can be worth a ton. It’s the instruments that VCs and founders use to offer early stage equity to employees that is worthless. That is a huge distinction that’s worth emphasizing because when people say “oh it’s probably worthless” it’s not just saying that the company is unlikely to succeed, but that if it does succeed you will be scammed out of its value via exercise windows, dilution, getting common instead of preferred shares, etc

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> Any companies that offer ISOs without at least a ten year exercise window is just spitting in your face

I would love to do it at my company.

I've reached out to our lawyers a couple years ago to set it up, and our lawyers strongly pressured us to stick with standard terms (3 months), because from the legal side, things get messy with long excercise windows (I don't remember the exact issues, but could probably dig them up).

A simple solution is to not include stock options in how you value your comp package when going to work at a small company.

As a founder, I offer stock options when I make job offers, but we never hype it up as if they are guaranteed to be worth anything in the near term. I sometimes tell candidates straight out "you can look at them like lottery tickets". I would absolutely not hire someone if they say something like "The salary is too low, but that's ok, the stock options will make up for it" - I would immediately correct them and educate them on how stock options work and the inherent risk so they can make an informed decision.

There are definitely other founders who hype the value of stock options. When that happens, it's not OK and I see where your frustration is coming from. But not all founders are evil people trying to spit in your face.

  > I would immediately
  > correct them and educate
  > them on how stock options
  > work and the inherent risk
  > so they can make an
  > informed decision.

The world needs more heroes like you.

> A simple solution is to not include stock options in how you value your comp package when going to work at a small company.

At face value, that's saying a senior engineer in bay area should be willing to take a ~150 - 200 k$/yr pay cut to work at a start up. And in my experience, people who say that never take me up on my offer to buy their equity from that at valuations significantly higher than 0 $.

Having spent a decent chunk of my career at startups, I think a better mindset is:

1) Never value your options as if they were worth the preferred price, but at a significant discount (exact discount size depends on company and stage)

2) Approach working at a startup like the financial investment it is. Ask for all the data on growth and revenue you can get (Last fundraising round's pitch deck is good, if it was fairly recent).

I get this in theory, but there are also tax implications here, and it requires a lot of extra effort. I am not trying to excuse companies from not doing this, but its not as easy as just saying you will. Options are typically ISOs, but by law, you have a max of 90 days to exercise an ISO after you leave. The only way around this is to instead offer NSOs, which have higher tax implications. Third, you could offer ISO's, then convert them into NSOs when you leave, but its a lot of extra effort and paperwork.

What about all the extra work every departing employee (either voluntarily or not) has to do in the 90 days after they leave to decide whether or not they want to exercise their options, and if so be forced to spend and risk potentially lots of their own money to do it.

Founders spend a lot of time and effort making sure their equity is right and structured they way they want it, they should at least put in the minimal amount of effort to ensure their employees' stock compensation is structured in a way so it isn't going to waste.

"A lot" really is relative. Relative to health care, office space, etc. etc. this is not that big a deal, and you put most of this onto your law firm, which has done it 100 times. There's some cost, but not that bad.

The reality is companies don't do this because they don't want to. It's not actually that different from setting up a (decent provider, with or without match) 401k plan. Companies that don't do it are like that because they didn't care.

This is a bit extreme. I think short exercise windows are fair, it's the tax code that makes it suck. Multiclass stock should be illegal outright, while dilution is a known unknown you factor into your negotiation - depending on how early you join.

One of the biggest gripes I have with the current state of equity for employees is that it's treated like compensation while not being legally protected like compensation.

A concrete example. I was courted by a company a couple of years ago to join their engineering team and I was pretty set on joining the company until I spoke with a former employee who told me that this company had reneged on giving him the option to purchase his ISOs because they didn't like that he was leaving after two years.

That's completely unacceptable behavior for a company, and it completely changed the way I look at equity. A company can't come at for my already-cashed paychecks, but they can absolutely prevent me from purchasing my options for pretty much any reason.

is that legal? if they issued you options... you have the "option" to purchase them?

It's called a clawback (1) and as a policy are pretty common. I wouldn't assume we have the full story from GP, it could be the startup screwed someone over, it could be the person did things that triggered a clawback. Not all are enforceable.

(1) https://www.mystockoptions.com/content/how-does-a-clawback-w...

The problem is that even if a company illegally triggers a clawback, it's a civil matter and requires the employee to pony up for legal action against the company. That might be worth it if you're already certain that your equity has significant value, but most people aren't going to litigate for relatively small amounts of stock in small startups with uncertain futures.

ISOs are bonus compensation and treated a bit differently under the law than non qualified options, but point taken.

Were the options already vested at that point?

I'd say it's the tax code that's at fault, but that doesn't stop folks from leveraging the tax code to their advantage.

As a single datapoint, I was in the final stages of interviews a while back. I had a call with the CEO where we got into some details about company funding, equity compensation, etc. When I pressed him on the 90 day exercise window he acknowledged their VCs liked it that way because it meant options flowed back into the pool when folks couldn't afford to exercise. I adjusted my salary numbers accordingly and we were unable to find common ground.

No, I don't feel like naming and shaming.

In the UK HMRC approved schemes ban the use of different classes for employees and multi class listings are not looked on kindly.

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