Ask HN: Anyone have stock option horror stories? | Hacker News Reader

Ask HN: Anyone have stock option horror stories?

216 pointsleet_thow193 comments

How much money did you lose exercising? How much taxes did you pay in paper gains?

Not a terrible story, but I was an early employee in a startup and was given a small batch of options to start (and some measure every year as bonus) -- nothing exciting. I think the strike price was like a $.05 a share or something with 20 million total shares and I had ended up with something like 20,000 shares.

As I moved up the ladder I replaced a VP and took on his shares instead as an incentive. It was 1.5 million shares. One year I landed a couple huge deals for the company and brought in bonuses worth more than the strike price on all of that and almost bought them.

While I was thinking about it, the executive in charge of marketing and sales left and I ended up meeting him in a local parking lot to pick up his laptop and some other things. He handed me and envelope and told me to give it to the CEO and that it was confidential. Being curious I looked in the envelope anyways and it was around 4 million shares in stock certificates in the company. I have no idea why they were being transferred but I'm sure it was some contractual contingency to return the shares based on some trigger in his contract.

Being honest, I turned in the stock certificates as instructed, but decided that something felt "off" and I chose not to execute on purchase of my options.

Over the next 12 months we tried to exit at a $25m valuation (which would have made me on paper at least a small time millionaire), failed to find a buyer, the CEO left, I became President of the company with the task to shut it down rendering my options worthless anyways.

In exchange for sticking it out and helping shut the company down, I left with a very nice parting bonus and a promise of strong reference from our VCs as a former corporate officer which helped me get my next position with another startup (which ended in disaster but that's a different story). All that was worth well more than my options in the end so I guess it was worth it?

Great story, but now I want to hear the story from the next disaster!

Shares 2: The return of the dividends

"The beginning of the dividEnd", maybe?

> He handed me and envelope and told me to give it to the CEO and that it was confidential. Being curious I looked in the envelope anyways and...

Why would you accept to deliver/look into anything that you have been told is confidential? Thats liability I'd really rather not have, personally.

I would justify it because I have no legal duty to not open it unless it was postmarked, and I would look to ensure I'm not going to be an accessory to a crime. If it was really so confidential then deliver it yourself.

your legal duty as a manager includes respecting company confidentiality, and it does not include suspecting things the company does to be criminal with no basis

For me, it would depend on how much I trust/know the other person. If a friend asked to deliver an unsealed envelope, I would do so without looking. Note, there are very few people I would do this for and I'd be asking pointed questions.

Under any other circumstance, I'd want to vet what I'm handing over because I don't want to become an accomplice to something illegal.

I worked for Real Networks in 2000. It was my first job out of college. I remember the recruiter probably thought she was clever telling me that "Your salary is low but you've got a lot of options." I had no idea what options really meant. I got 30000.

In six months those options were worth $5M. Wired wrote up a great article by this guy who played a great practical joke on everyone. The greed was so bad, people would check the stock every five minutes. This guy setup a proxy, and when people went to the bathroom he would switch their proxy settings to point to his proxy. His proxy did one thing: take any numeric values and half them when the page had our stock symbol. People would return to their desk and freak out that they just lost half their portfolio value.

I quit on my 1.5 year vesting date, and my options were still worth $150k. I waited a month and they went underwater.

Oh well.

hilarious

I took a job as employee #5 of a startup, in 2002. $50k per year and 1% of the company. I thought cool all we need to do is sell for like $100 and something million and I’ll be a millionaire, as we all agree is my birthright as a software developer.

3 years later I’m totally burned out and the company seems to be going nowhere. I agonize over giving up my 1% ticket if I quit. I quit.

They did sell the company. 10 years later. For $28 mil. So I would have made an extra $28k per year on top of the $50k. To be clear, I came out way ahead by leaving.

Assuming a standard vesting schedule of 4 years. Wouldn’t you have left with 0.75% of equity?

I wonder if any money would have been left after dilution and preferred shares.

There was no vesting in this case. The shares were explicitly conditional on current employment when they became eligible to be exercised. Mind you I'm next to clueless about options, but I remember that language being in whatever I signed.

Usually there's a 1-year 25% cliff, then the remaining 75% vests monthly over the remaining 3-years, at least that was commonplace a decade ago. So at 3 years on such a schedule you would have been able to exercise 75% of the initial grant.

Based on what valuation? Sell them to who? It was a privately owned company. I doubt I'd have been able to persuade the founder to buy my stake considering I'd signed a thing that said I get nothing if I quit before they exit.

Nothing remotely resembling a standard 4-year vesting schedule...

But being guaranteed 1% stake on exit in writing is in some ways better. Most folks w/options are getting heavily dilluted with every round of funding, but at least they can exercise and move on for more lotto tickets after 1 year.

Every time I visit the valley I buy lottery tickets.

Seems appropriate to me, and more viable.

I can confirm that the kind of option plans as psyc describes them exist. At least in Germany.

Unless your options grants included some antidillution clause (unlikely) you didn't have anywhere near 1% 10 years later.

It was stated in writing as 1% of shares at exit time, not as a number of shares. Again, I'm clueless about options. But this was way outside of silicon valley and among people who couldn't care less how things are done there. For example, there was no VC involvement.

That's just... very abnormal. I've never heard of "percentage at exit".

I assume it'd work mechanically by setting aside 1% of total shares for you, and keeping that leveled out at 1% after each dilution event or something.

Honestly not that bad, good for them, bad for you I think, for exactly why it ended up not working out.

Oh, also, the guy who did that prank is a billionaire now.

I was there for a while too... that place and their compensation plans were... special. There were a lot of funny games that happened with their stock price too.

When I was hired at AOL in 1995, I missed a granting period by two weeks. Instead of starting on June 1, I started on June 15, so that I could give two solid weeks worth of documentation work to my then-employer. That also mean that I missed a split. I was pretty peeved about that, but ultimately let it slide. I did get something like 3000 options valued at the next granting period, which I believe was like December 31st.

Fast forward a couple of years, and I got some more stock options as bonuses, as well as saw a couple of splits. In 1996, I did convert all the vested options I had to cash (with taxes taken out), which meant that I finally cleared $80k in options over my annual salary of $60k -- for once, the options actually made me more money that year than my salary did. That has never happened again throughout the rest of my career (so far).

And then things got toxic enough that I could no longer remain at AOL, and I left. Of course, I lost all my unvested options.

A while later, I did the calculations. If I had held on, and sold when the stock was at its peak, I would have cleared over $16m from the sale of the options. I could have retired at 30.

But AOL had become a toxic hellhole and no amount of money would have been worth trying to live through that.

Every time I see Gene Kim at a conference, he and I take up the next chapter in our ongoing series of "So, what was it like before the wall went up between devs and ops?" versus "So, what was it like after the wall went up between the devs and the ops?"

In the end, I had good experiences at AOL, and I learned a lot. And I'm glad I got out when I did.

A friend of mine got a bunch of stock options, and exercised them. Then they tanked. He got hit with a tax bill so large it more than wiped him out. His family wound up in a trailer.

Moral 1: When exercising options, sell enough on the same day to pay the tax bill.

Moral 2: When dealing with large sums like that, consult with a CPA.

Oof, this sounds awful. This obviously doesn't matter now, but my understanding is that call/put options are not taxable if you exercise them[1], rather they get included in the cost basis for whatever you end up owning once you exercise. I can see your friend losing lots of money due to the price fluctuations, but hopefully he didn't pay tax he didn't owe.

I'm not a lawyer or accountant so if I'm wrong, happy to learn. :)

[1] https://www.investopedia.com/articles/active-trading/053115/...

They were employee stock options, not call/put ones. And yes, he had no idea he would owe tax on money he never had.

His tax bill was way more than his net worth.

I believe there were Illustra engineers who exercised options shortly after the Informix acquisition at the end of 1995 (at $36/share) but either couldn't immediately sell shares or choose not to thinking the stock value would go up. They owed taxes on their gains (about $30/share) but shortly thereafter the stock crashed leaving the shares worth less then the taxes owed. The stock only continued to decline in value after Informix restated earnings and the extent of their channel stuffing became known.

https://www.edn.com/toxic-accounting

https://en.wikipedia.org/wiki/Informix_Corporation#Phil_Whit...

That really sucks. I hope your friend is doing better now. :(

Folks here are likely talking about employee stock options [NSOs and ISOs]. They've each got their pitfalls, but generally if you exercise them, you immediately owe tax [or AMT, depending--talk to an accountant first!] on the difference between your strike price and the current fair market value. If your employer's public, you know what that value is and can generally sell to cover your taxes. If your employer is private, you need to find out what the FMV is from your employer, and you still owe tax on it [if there's a gain], but you likely have no way of selling to pay the taxes.

Gotcha! That makes sense re: HN... Not sure why I assumed calls/puts, tbh.

Your friend couldn't sell the shares and take a capital loss to offset the options gain?

I think it is employee options, something like chunk of options convert to real shares (say $1m). Tax man asks hey, where's my eg $220k? Employee says it's ok, I have $1m (in shares). Something happens on the market and shares are now worth $0 (or sub-$220k). They still owe the $220k!

Can you not take $1M loss? At one point, you had owned $1M of stock. It went to $0. That's a personal loss of $1M.

Tax years is the issue I assume

[IANACPA] without 83b election the $1M gain on stock options on the moment of exercise goes into regular income while the $1M loss would go into capital loss. The limit on loss offset to the income is $3K/year. So in the first year there would be $997K of regular income to pay taxes from and $997K carry over loss. Without any other capital gains to use the loss against, it would take another 333 years to write that loss down.

Example from [1], emphasis mine.

Suppose the stock market has a bad year. You sell a stock or mutual fund and realize a $20,000 loss with no capital gains that year. First, you'll use $3,000 of the loss to offset your ordinary income. The remaining $17,000 will carry over to the following year.

Next year, if you have $5,000 of capital gains, you can use $5,000 of your remaining $17,000 loss carryover to offset it. You can use another $3,000 to deduct against ordinary income, which would leave you with $9,000.

The remaining $9,000 will then carry forward to the next tax year. Assuming that you had no capital gains in the following three years, you could use up the remaining $9,000 loss, $3,000 at a time, over those three years.

[1] https://www.thebalance.com/can-a-capital-loss-carryover-to-t...

The $3000 stacks as an additional deduction from income. But if you had capital gains of $100k, that can totally be offset with a remaining balance of $900k. You can chew away your capital loss carryover with capital gains faster than 333 years.

At least in Australia, capital losses do not entitle you to a refund on taxes owed or paid. They just just offset subsequent capital gains.

The 220k tax bill is on 'income' because it is employee compensation.

The 1M loss is 'capital gains' and therefore a separate category which cannot offset against the 220k income tax bill.

I think the problem was he didn't get the tax bill until the next tax year. Selling the stock at a loss that year would not offset the gain from the previous tax year.

Well I hope your friend tried to work with the IRS. At the very least they can put tax debtors on a payment plan, but I would think that they could grant an exception to your friend to have the gain and loss cancel each other out even if they took place during different accounting periods. Never hurts to ask.

He did reach a settlement with the IRS, after all, the debt was more than his net worth. But he still lost everything and wound up in a trailer.

Well on the bright side he at least gets to carry the ST loss forward (indefinitely?)

I've heard a variation on this that never quite made sense to me. Its possible that some relevant details were just lost in the retelling, and it goes like this:

The employee exercised his options shortly after an IPO, but before he could sell the shares. By the time he could sell the shares, the stock had fallen to the point that the proceeds from sale didn't cover his taxes due. It wasn't enough to drive them to the poor house, but it was the difference between making money and losing money.

Why would you exercise the options in this time window at all? What's the upside versus just sitting on them until the window opens up?

Why would you even be able to exercise the options in the trading blackout window? Doesn't that count as trading itself?

If both trades happened in the same calendar year, then wouldn't the capital loss from the sale wipe out the capital gain from the exercise, such that he only owed tax on the difference between the strike price and final sale price?

What am I missing from this picture?

If you don't exercise them, you could lose them.

Resignation can be a taxation event. If you’re getting taxed on the FMV of the options, you might as well lock in that price? You lose some cash, so that is a risk, but the big issue is taxation at resignation without liquidity. In Australia taxation at resignation stops being a thing on July 1st, thank god.

> Why would you even be able to exercise the options in the trading blackout window? Doesn't that count as trading itself?

Exercising options isn't prohibited during a trading blackout, because it's not a market transaction. (Especially if you're only exercising with no sell to cover).

If your options are ISO, and you want to get the best tax treatment, it must be at least two years from grant and one year from exercise. If you joined around a year before the IPO, and you wanted the nice tax treatment, but to sell as soon as possible, then exercising near the IPO makes sense.

If you do sell in the same tax year (which isn't always a calendar year, many companies and some people have adjusted their tax year), then it's a capital loss (and a disqualified disposition), etc. But if the IPO is later in the tax year, the blackout may extend beyond, and you'ld owe AMT in one year, and maybe realize a big loss in the next. If you realized a big gain in the next year, you'd also get a big AMT credit, and things would work out; but the AMT credit isn't refundable, so it could take many years to get that back, more if you also lost your job because the company imploded.

The gap between your strike price and the current market value is ordinary income, not capital gains. The gap between the current market value at the time of exercise and time of sale is capital gains (or loss). You can only apply $3,000 per year of capital loss to ordinary income (but the remainder can be carried over to future years). AMT can also fuck you.

Suppose you have 1000 options with a strike price of $1, and your company IPOs at $10. If you exercise immediately you have $9000 of ordinary income. If a year later the stock is worth $0, you have $9000 of capital loss and can deduct up to $3000 of ordinary income for three years. If a year later the stock is worth $100 and you sell it, you have $9000 of ordinary income and $90,000 of long-term capital gains. If instead you wait a year to exercise your options and the stock goes up to $100, you have $99,000 of ordinary income and $0 of capital gains.

If your plan is to sell your stock ASAP, there's no reason to exercise before you can sell (unless your lockout is over a year or your options are going to expire), but if you plan to hold onto the stock then exercising at the lowest price you can is optimal tax-wise if the stock actually does go up.

Stock options are complicated and you should absolutely talk to a tax professional before doing anything with them.

If you’re confident the sale of the stock in one year would net a profit, that one year between exercise and the sale allows for long-term capital gains treatment (usually 15% or whatever it is these days) vs short-term capital gains, which is taxed at your income level.

Worst case, it can be a 37% (federal) + 13% (CA) tax hit. Doesn’t make most people too happy, if you’re lucky enough to hit it that big.

Not a CPA, I’m sure there are different situations, but this is the simplest explanation I know of, from experience.

Why do people pay taxes that put them in real risk? Isn't the point of taxes to contribute financially to the continuance of the place that is doing something for you? I currently owe like 5 years worth of taxes, but paying it would compromise my well-being, so they can wait. Seems perfectly rational. If you have 50000 to pay in taxes, but only 10000 in savings and $3k a month in expenses, or even $50k in savings, only a small amount should be legally required from you. Maybe the U.S is different.

Not to say I'm not working on it though, but if paying taxes would put me on the street, guess what, I'm not paying them until whatever they pay for lets me live a life. Just like any other debt, if I'm put in a vulnerable position, debts don't get paid unless they someone else owns the thing I'm living in or depend on, or they can break my legs, like the bank. One could argue you shouldn't have made that particular risky financial move, or you shouldn't be taxed on reception of illiquid assets, which would also both be valid.

I have no idea where you're writing this from, but in almost any western country that I have any knowledge about what you're describing is wilfully committing a crime.

It's a crime only in US. Most civilized countries allows people to stagger their taxes.

In the US, it's not a crime as long as you file your taxes accurately. The IRS generally allows you to set up a payment plan or even settle for less than is owed if it would cause hardship to pay.

Right, but you DO need to file the tax returns with the IRS, accurately reporting your income, and then actually negotiate the payment plan (and stick to it or renegotiate).

We don't just get to unilaterally declare that 'I'll be uncomfortable paying taxes, so it can wait'... and then not bother to file or negotiate a plan, which seems to sum up OP's position. Wish him/her luck, they'll need it!

Concealing income is a crime, delaying payment is not (though you will pay penalties and interest). It's quite easy to get a payment plan where you do this and don't risk garnishment or other collection efforts as long as you follow it.

Who cares if it's not enforced? Granted, IRS does enforce, but apparently they take their time about it.

As others said, as long as you're being transparent to authorities on how much you owe, it's typically not a crime - but it will likely attract interest and extra fees, possibly at punishing levels (depending on how you go about it).

In the end, it's in the interest of the State, like any other creditor, that you don't actually die of starvation (or worse). Getting a continued stream of money, even if smaller than you expected, is better than getting no money at all.

In the US, if you owe taxes, you can negotiate a payment plan with the government. Not sure of the details of the story we are commenting on so I can't say anything about what may have happened. As far as I know, there is not need to end-up on the street. On the other hand, trying to personally manage a large tax debt is a huge mistake. You have to hire an attorney with experience in the domain or you are not going to have the best possible outcome.

in the US the IRS is pretty known for working with you - if you call theyll set up a payment plan or whatever.

ive known a number of people that got mildly burned by taxes, nothing crazy just unexpected, but with bigger numbers it could have been bad. When you have ISO(incentivized stock options), one of the incentives is you dont pay tax until you sell, which sounds great. There's this other way of calculating taxes, AMT(alternative minimum tax) which does not respect ISO, and you pay whichever is bigger. normally people dont get near AMT amounts, so most people dont know it exists. So when you exercise you think theres no tax, but then you do your taxes and realize actually you owe tax on money you never received.

> When exercising options, sell enough on the same day to pay the tax bill.

That assumes the stock is trading publicly or at least you can legally sell them.

In India most of the companies ask you to exercise your options within 2-3 months of quitting job. And most of them are not public companies. So there's a big dilemma. Exercise and take tax hit and hope that the company goes public and doesn't tank post IPO. Don't exercise and possibility of big regret. So..sort of a bummer.

Ironically (and sadly) two of the most publicised IPOs in India (PayTM and Zomato) have tanked since their IPO.

IPOs are a game of "let the institutional investors exit and leave retail holding the bag"

I'm not investing in any IPOs unless it's at fire sale prices, and I know my line in the sand where I will take a loss rather than hope and pray.

> IPOs are a game of "let the institutional investors exit and leave retail holding the bag"

The Rational Reminder podcast had an episode on them a little while ago:

> We’ve previously compared IPOs to lotteries that are prone to inflated valuations and low returns. Today we welcome “Mr. IPO,” Professor Jay Ritter onto the show for a deeper dive into IPO performance, for his insights into SPACs, and to hear his research into why economic growth doesn’t correlate with stock returns. Early in the episode, Jay unpacks how long-term IPO returns perform against first-day trading. While exploring the role that venture capital plays in tech IPOs, Jay talks about why negative earnings don’t affect tech IPOs in the short-term before sharing how skewness factors tend to impact young companies. Reflecting on how IPOs are usually underpriced, Jay discusses how the interests of companies are not aligned with the interests of IPO underwriters. After looking into IPO allocation, Jay compares the 2020 ‘hot IPO market’ with the internet bubble of the late 90s. Later, we ask Jay about what special-purpose acquisition companies (SPACs) are and why they’ve exploded in recent years. His answers highlight their investing benefits, risks, and why SPACs might be a better option for companies than IPOs. We examine how SPACs have historically performed and then jump into our next topic; why economic growth isn’t a good indicator that a country is worth investing in. He touches on why returns don’t correlate with economic growth, the place of capital gains and dividend yields when investing abroad, and how innovations in an industry can lead to higher stock returns. We wrap up our conversation by asking Jay for his take on whether the stock market is efficient before hearing how he defines success in his life. Tune in to hear our incredible and informative talk with Jay Ritter.

* https://rationalreminder.ca/podcast/139

They're generally not a good idea unless you're on 'the inside' and can get early access.

SPACs may be better for the companies, but the SPAC bear market of 2021 also shows that they can be horrible for retail.

They ask you but are you legally obliged? What’s to stop you from not doing that.

Yes; it is stated in ESOP grant agreement contract. 1-3 months is the norm I've seen.

> companies ask you to exercise your options

PS: when I say “ask you” it’s part of ESOP contract, the options expire if not exercised.

Former boss told me a similar story from the first dotcom. He worked at Sun, things were looking great, a bunch of people vested and were paper millionaires. Two days later the market imploded and they were wiped out. He was one of the few who actually sold their equity straight away. Almost everyone else on his team now had a huge tax bill and nothing to pay it with. They went from thinking they were millionaires to bankrupt in less than a week.

That didn't happen to me but I know multiple people in the same situation after the dot com collapse of 2000.

https://www.latimes.com/archives/la-xpm-2001-apr-13-mn-50476...

I had this situation back in the dot com crash.

I sold 2000 options in June. The following April I had to sell 15,000 to pay the taxes on the 2000. The following April I had to sell another 10,000 to pay the taxes on the 15,000.

If I had sold 20,000 instead of 2,000 and used that to pay taxes, I would have been in a far better financial situation.

Fortunately, I never went into the red, but I know people who did.

Tried to leave a FAANG, was offered huge handcuffs in the form of more RSUs. Left anyway a few months later for a startup at 0.5% equity. Left that startup in 9 months to go _back_ to said FAANG, leaving my startup options unvested.

Returning to FAANG left me with less than half the RSUs I originally had (since then worth about $2m), and that 0.5% options in the startup? Said startup was bought right after I left and my options would _also_ have been worth about $2m.

So I was ultimately right back where I started, having narrowly avoided lots of money two separate times.

Oof, that is just so painful to read. You have my sympathy, friend.

The most famous must be the Skype story right? Have a bunch of language in the employment contract, which gives the employer the right to take back all the vested shares you have been granted if you are "fired for cause"? Then fire everyone for cause right before liquidity event.

https://techcrunch.com/2011/06/26/skypes-worthless-employee-...

That clause is impenetrable.

Was there any follow up to this? I did some quick searches but couldn’t find anything.

I did (sadly) find this video of Ben Horowitz defending the practice:

https://youtu.be/4t1j83qQNoQ

>That clause is impenetrable.

It was very obfuscated, and it was buried deep in thousands of words, but that's a big obvious red flag even if the legalese is impenetrable.

If you ever notice a paragraph like that, which begins with some words like "If, in connection with the termination of a Participant’s Employment..."

Don't sign it. Understand it, or find a lawyer who can.

The very scary part is "termination of employment", because that's something out of your control, so you must assume it could be used to take advantage of you.

This is an "IF .. THEN" statement where you have no control of the "IF" clause. So you'd best figure out the "THEN" part before agreeing to it.

God bless the UK's Unfair Contract Terms Act 1977, which doesn't permit this kind of "well it's in the contract" excuse. In 2000, the High Court confirmed that this Act applies to employment contracts.

There are also laws around termination of employment in general so I think that this would be easily rebutted in Court.

https://en.wikipedia.org/wiki/Unfair_Contract_Terms_Act_1977

nb: Not a lawyer by any stretch of the imagination

Horror story: https://news.ycombinator.com/item?id=11200296

From danluu’s well argued article that options are mostly bad: https://danluu.com/startup-options/

With the opposite argument from yosefk in Israel: https://yosefk.com/blog/stock-options-a-balanced-approach.ht...

I agree with danluu, and strongly disagree with yosefk. My experience in New Zealand is the payoffs for equity are far worse because the rewards versus the risks are so bad (because VC is batshit mental in NZ), and I expect the problems are equally bad in other countries. The USA is an outlier.

Second that comment on NZ. The VC system there is still in its infancy, VC treat startups like they should be grateful to even have a conversation, then offer peanuts for a large stake. No wonder the more successful startups always go offshore for funding. Net result is that the opportunities for meaningful payouts are low. Great place to bootstrap, but you need to go offshore as soon as you launch.

Oh yeah.

Another major problem I have seen is that generally VC/seed investors in NZ have over-inflated egos, coupled with a lack of knowledge/skill.

I have seen multiple boardrooms force extremely poor decisions on their investments, crippling the companies they are trying to “help”.

The same pattern surely happens in the USA, but I am guessing startups have some reasonable chance of receiving better governance. That said, I have seen not-fuck-you-money US investors living in NZ give extremely poor advice, so I don’t have unrealistic expectations of the quality of investors just because they are on the other side of the Pacific.

Even worse, seed investors can miss out on great investment opportunities, because they lack the ability to spot winners.

> because VC is batshit mental in NZ

I don't have any experience with VCs in NZ but was planning to try out start up when I do return home. I'm interested in stories if you have some around VCs in NZ, just so I know what I would be getting into :D

I don’t have much insight sorry. If you are in Auckland, grill the team at https://www.theicehouse.co.nz/ but don’t believe too much.

Consider applying to Y Combinator - you won’t get a better deal. You will need to incorporate in the United States, Canada, Singapore or the Cayman Islands. In my experience Cayman Islands is extremely expensive: it does make sense for worldwide investors because it removes double taxation problems, but I wouldn’t prematurely optimise for that. I suspect the US is the easiest since you would go with YC’s cookie-cutter legal docs.

Paraphrased from YC FAQ: Question: If we are not based in the US, do we need to do anything to apply to YC? (eg. incorporate in the US, get visas or business licenses). Answer: “No need to do any of that. If invited for interviews, we will assist you with navigating visas. If accepted into the program, we can help you with incorporation.”.

Applications for this YC batch close on March 24th. “This batch of Y Combinator will be remote due to COVID-19. It will be the same as every other batch, except that everything - office hours, batch events, Demo Day - is remote.”. https://www.ycombinator.com/apply/ Just do it.

Thank you for a detailed reply! It’s sad that we don’t have a good VC scene. I suspect all the money is being poured into the housing market instead :p I am not actively pursuing start up life atm as I’m trying to adjust to life abroad in Japan. But I might actually apply to this batch as you’ve suggested, just to have a crack at it anyway!

If your startup is business oriented, then for YC you need to aim to capture a big juicy market: credibly aiming for a business that will be worth at least say a billion. To understand why, scroll down to “The realistic case” in https://techcrunch.com/2017/06/01/the-meeting-that-showed-me...

The NZ government has programs to help businesses, but honestly they look pretty unlikely unless you have some “valuable” University IP to build upon (fecking wonks mostly invest in complete shit from what I have seen).

If your idea is B2B, then personally I strongly suspect bootstrapping is the way to go. In NZ if you can bootstrap, then just do it, since your financial struggles are likely to be less than your investor struggles. That was our experience (we never got funding, and it worked out great).

Personally I think most founders are mad: the rewards do not pay enough for the costs/risks. See https://80000hours.org/2014/05/how-much-do-y-combinator-foun... and median return is complete crap (average is insanely skewed by two outliers - the article is very very poorly written but the data is interesting). The key line: “[3 out of 4 founders] probably earned little more than their (low) salaries”. Of the other quarter, many would have also earned nothing for their common shares or options due to liquidation preferences. Also read http://www.paulgraham.com/growth.html where you can see PG has a woody for high growth companies, and in http://www.paulgraham.com/richnow.html he doesn’t really address the median loss that founders get as their reward! The rewards are simply not there for your risks. Although the few lottery winners do seem happy enough!

If you are in Christchurch, then I have a couple of investor contacts. Reply with an email address (maybe temp) to contact you and I will.

Good luck (or good skills, I should say!)

I started at Akamai in July 2002 and I received an option grant as part of my offer. Since I had options before, I thought they were all priced at the closing price on the day they were approved by the board. But Akamai had a provision in their option agreement that priced the options at 4 different prices. The price of the first quarter of my stock was the closing price the day the grant was approved by the board. The 2nd quarter was priced 90 days later, the 3rd 90 days after that, and the final price as 270 days after the initial grant. No one mentioned this odd pricing during the interview process, and I never thought to ask about it in the interview process, I just assumed they priced them all at once like my previous options.

I was told after I complained to HR, that they did this for MY benefit! Because their stock went straight to $300/share at the IPO and then started a slow decline. This was a good policy for people that started after the stock hit $300 and before I started because each quarter of their stock was priced lower than the previous quarter. But for those of us that started close to the bottom $2/share, it sucked!

One guy who started after me quit when he found out about the 4 different prices.

Joined as employee #2 of a startup. Over the years, accumulated about 1.9% of the company shares. At one stage, the company was valued at ~$300M. Several buyers approached over the years, the chairman only wanted to sell at a ridiculous near $1B. So it never got sold. Several in-fightings, layoffs and a few years later, we exited with $18M acquisition.

Oh man, that hurts. As much as when I rejected an early position and at least 1% of a company that is now worth $1 B, because they demanded me to shut down a website I had at the time that was remotely related to their business and doing well ( I was super proud of it, we where getting some news coverage locally and even offers to sell) I would probably have joined if it was not for that demand, I think.

The most expensive thought of my life was "those fuckers will not tell me what to do".

I don't regret it, since it led me to the best part of my life after that site was eventually shut down 3 years later, but man... Sometimes late at night, alone over a drink, it comes back and bites.

I think the software industry might be a lot better to work in if we collectively thought "These fuckers will not tell me what to do" more often.

How much money you ended up with in cash ? Is it as straightforward as $18m×0.019 = $342k ?

Not necessarily, later investors may have liquidation preferences that would reduce it, potentially even to zero.

I have never had a stock option that was worth anything. As a result, I count their value as zero if they’re part of an employment offer, although it’s been a while since I’ve had them as a putative benefit as well.

Sensible. I do likewise.

Second that as well. Options are a 'nice, but show me the cash' deal for me too.

Third, me too.

Counterpoint; I would give serious pause to hiring someone who didn't think the stock options would ever be worth anything.

You have the power to effect that outcome, and giving up that power makes me a decent amount less likely to enjoy working with you.

I worked my butt off for almost a decade under this mentality, built products that make almost 100m a year. I won't see a return probably for another 5-10 years. It's a scam, don't let people like this fool you.

You can have a positive impact, yes, but put what you have control over first. Your happiness and compensation that you get twice a month.

> compensation that you get twice a month.

I dug into this and was surprised to learn that salaries are paid every fortnight in USA.

I wonder why. Does anybody know if this is the case even in FAANG companies?

Where I'm from it's paid monthly. I think I prefer that.

Why do you prefer to wait longer to be paid?

Because other payments are monthly (rent, ISP, mobile phone contract, subscriptions - at least in Europe), so having a constant money in <-> money out equilibrium makes sense. Unless these things are also charged every 2 weeks in the US.

Plenty of US places pay twice a month, so you get the monthly budget consistency and get your money sooner.

I think the idea in the US is that if you're having to wait an extra two weeks to get paid, you're essentially having to "float" half your monthly income all the time. This impacts people who are on the poorer end of the scale, and there's a very high percentage of Americans that don't have more than a few hundred dollars to their name.

I think it's more of a psychological thing for me.

If I were to get my income every day, that would be very boring. On the other hand if I were to get my income once in 6 months, that would be horrifying.

But 1 month seems to be a sweet spot. Double the amount half as often.

Other utility bills come in monthly in my country (which is in Asia by the way), so that's a factor as well.

But yeah, I can now kind of see the appeal of getting paid every 2 weeks.

Can’t speak for all the FAANGs but I believe it is true for several.

From my experiences, twice monthly payments are nearly universal. From what I gathered, the reason is that for a lot of employees, some states require payments to happen twice a month. For example, this is the respective CA state law: https://leginfo.legislature.ca.gov/faces/codes_displaySectio...

Now, this CA law actually does not apply to most tech-employees (which will be consider "exempt employees" - which also means that they do not have to be paid overtime). But in my experiences, employers don't want to run separate payment processes for exempt/non-exempt employees - so everyone gets paid twice a month.

> some states require payments to happen twice a month

I get that employers are following rules. But I wonder why there is such a rule in place.

I don't know that I've ever had monthly. Most of the time my pay has been twice a month or every two weeks (the latter ends up with some weird scenarios at some companies where there's no benefits deduction in a 3-paycheck month). I've had a handful of jobs that paid weekly. The worst was contracting somewhere where I did weekly timesheets but was paid bimonthly. It was just after another contract agency had shortchanged me on my pay so I had to keep a manual log to make sure that all the hours I worked were paid.

I just totally disagree. I also worked my butt off for nearly a decade, and was well compensated by stock for it, which made me substantially wealthier.

I also, in that time, spent a lot of time working with people who had zero incentive to build software that solved the problems facing the company; they clocked in at 9, built their little piece, and clocked out at 5.

These people were awful to work with because they refused to consider beyond their tickets, and didn't care if what they built actually connected back to the company's problem. They'd actively get upset if challenged or pushed in any way, and often cited the desire for a "good work/life balance" as the chief reason.

So now, because of that experience, I look for people who are hungrier, who want asymptotic upside, and who can actually see why they're being asked to do what they're being asked to do.

You're thinking of this the wrong way! :)

It sounds like you just want to work with good, conscientious, developers. This has nothing to do with equity.

I never said you shouldn't try to do a good job. I said you should try to be paid fairly.

Fairness is doing a lot of work here, I think getting paid fairly means you get paid based on how well the organization as a whole does.

I like the equity incentive structure; rather than incentivizing time-based work (work two weeks, get paid two weeks and that's it), you make more based on how well you're able to effect outcomes at an organization level. Make the company more successful, make yourself more successful.

It attracts people who want to be paid fairly for their high skill level. If you clock in/clock out, you'll make nothing. If you actually do the right work and value tangible org-wide results, you'll make way more.

No, you'll make way more if the company, market, and economy does well.

I like to do a good job and work hard because I __enjoy it__. But I'm not going to work for peanuts in exchange for a chance to make more in the future unless it's my own company.

You'll make way more money if you do well, because you have a huge influence on the outcome of how well the company will do.

I very much dislike this learned helplessness you're trying to virtuize. You absolutely have control over your outcomes, and I don't really want to work with people who don't agree with that sentiment.

My problem is you're talking in absolutes, which are just not true.

There is no guarantee you'll make more money if you do well. It helps, yes, but it's not good to mislead people. Yes, I've doubled compensation at companies by doing a good job, but there is a lot more to it than that.

You can build the best software in the world but if you have a crap sales team your performance doesn't matter.

If you're going to make that kind of investment and expect to have a return in the future you have to analyze the companies you work at like an investor would, and that's just the first step.

There is a difference between having a large impact on the company's product and it's overall success versus getting properly compensated for your efforts.

It's always possible to try to do great work and to push the company in a great direction. That's great, and yes people like this are great to work with. However, stock options are nearly always structured to keep money away from employees rather than rewarding them. Some of the structure is due to the tax laws, but plenty of it is due to the terms companies set for their stock options.

You seem to be confusing these two things.

It depends. Future value is a risk, and the reward is usually granted to founders. If the stock options are offered as compensation assuming a value that amounts to a competing salary, that means you are taking on founder risk, but without founder award.

Thus, either stock option compensation must be much larger than salary, or it should, as GP suggests, be counted as a potential bonus and nothing more.

The problem is that the relationship between your outcome as a holder of ISOs and the outcome for the company as a whole is pretty opaque. You have no idea what the companies cap table looks like, what sort of liquidity preference the VCs have and what are the various ways in which you can be diluted. If you want to offer people ISOs as a bonus/inventive (i.e. pay a market salary and throw in options as an extra) then great. But if you are asking people to trade off salary for a financial instrument that can't possibly be valued with the information available to then it is kind of shitty to be upset when someone gives them an implicit value of 0.

What do you mean, "You have no idea what the company's cap table looks like"? Ask!

I mean yeah, if you don't know those things sure, it becomes a lot harder to understand, but I've been given that information when I've asked so far, and I would pass that information along now as well.

Then you honestly don't understand how screwed up common stock with its multiple clauses is. Not only can employees not significantly change the liquidation outcome of a company below certain level (leadership etc), but even if they could/will and the company ends up with a great liquidation event, the rewards to employees won't be proportional. Which makes the OP's worth zero comment a good way to compare between offers (at the least, assume only a percentage of the potential profits).

I tried to negotiate stock options as part of a compensation with an employer. They seriously considered it and almost gave in. After actually doing the research I realized, they would be worth nearly zero (there was some dodgy stuff on the financial records too). Then I decided to quit because it would be a waste of time and effort working there.

Anyway, the moral I took from that was to seriously reconsider working at a place where the stock options are worth nothing. Probably consider consulting for them or something else more cash heavy.

I mean I'd take stock options, but only as a bonus, not as a replacement or fill-in for a wage. I've got bills and a mortgage, after all.

With my own money I purchased approximately $15k in shares over the course of 8 years out of a 13 year tenure. Company was purchased by private equity. The CEO lost his crackers, I left, and it took the company 4 months to send me a first right of refusal with the value at $30k. Within that agreement, I had to sign away holding the company liable for anything and never threaten to sue — this is after the CEO torpedoed a job offer of mine, said some racist things, and sent me a cease and desist for a former customer calling me about a job offer.

In any event, I still own the shares. I wish I didn’t because it would have been a cleaner break without a non-compete. But, I’m stuck… don’t want to sign away rights for what is my own money. Just holding onto them to see what happens as any legal fees outweigh what they are worth.

Sure: famously, a bunch of people that paid to exercise their @stake options (@stake was one of the first large security consulting firms, funded by Battery Ventures) after they left the firm got zero when @stake was eventually acquired by Symantec; the deal carved out retention grants for existing employees, which of course weren't extended to former employees. A bunch of people were out 5 figures, as I recall.

When I left Arbor Networks, I didn't exercise my options, in large part because of that horror story (further rationalized by having started a company of my own --- Matasano --- and deciding that if I was going to put money down on any company, it might as well be mine). I probably would have made some money when Arbor eventually sold! So: bad stories in both directions. :)

First startup job in the dot com era, employee #30 at a pre IPO startup. Started same day as another guy I will call Steve. I got a nice stock grant but didn’t really understand it so I bought a few books and read up on options and AMT. Two years later and we are a public unicorn. I carefully exercised my options and sold my stock, keeping track of my taxes and paying an accountant just to be sure. Steve exercised his, held the stock and rode it down in the crash. Ended up completely bankrupting him, he lost everything due to a massive AMT bill. He’d used H&R Block to help with taxes and back then they had no idea about AMT.

One thing I will add - I did fine but if I’d known about ETFs back then I’d be a lot wealthier. Don’t make the mistake of trading actively and especially don’t make the mistake of investing your tech gains in more tech until you have diversified enough that you don’t care if you lose it.

I negotiated for more stock and less salary on joining (poor choice in retrospect) and exercised on leaving ($3k). Four years later they did a reverse stock split (90k:1) at a low valuation and I was forced to sell my shares back to them for $700.

(Full details: https://www.jefftk.com/p/stock-options)

The fair market value was $3 per share. I calculated my AMT to be $0 and exercised. The company then retroactively quadrupled their fair market value price and I suddenly had a $10k AMT bill. The company was private, so I couldn't even sell the shares to pay for it.

Yup, the retroactive valuation updates for private companies can really screw you over.

I quit my job to start a company, trusting the legal to my business partner. We exchanged a written egalitarian cap table, but he secretly gave himself >100x more shares than listed. Yet, he called me "co-founder" and wrote that I held the most shares of anyone. In actuality, I vested <0.5%/year. Nearly a year in I found out, causing me to leave after having drained my savings in exchange for almost no equity.

This sounds lawsuit worthy

Long time ago, promised 2% of the company with a 5 year cliff, got kicked out a week before cliff ended, company is wildly loved among developers around here too. Lessons learned, perspectives changed.

Name and Shame!

Nope, I decided not to ruin that company/destroy the project I co-created even if it made me super angry at times.

5 year cliff?? That's not just not market, that's literally unheard of. What was your decision process in agreeing to such a term?

Salary was competitive, work was remote long before it was popular allowing me to travel around the world as I wanted, tech was top notch, I worked on main algos of a cool project and invented a bunch of new ones (friends at Google were jealous mentioning they can't get any such cool project), I could run profitable side-businesses without bosses caring about it if it didn't affect my perf, my work was showcased on HackerNews (once landing #1 spot, so good for self-marketing), just the end left a very sour taste in mouth... Afterwards I completely re-skilled to Machine Learning at three top 10 US schools including Stanford. The main drawback is that I no longer trust any tech company and try to be as independent as I can be.

Friend had $10M in options. Never sold any, as it was going to only go up for sure. Company tanked, sold at fire sale, got $100,000 in the end.

If you had the value of your stock option in cash, would you invest it all in a speculative Silicon Valley company? No? then diversify. And do it now.

Not me but my friends: My first job was at Sendmail. A few friends exercised all their options when they left, writing checks to the company for 6 months of salary.

A decade later they company sold for a fraction of what they took from VCs, and no one made any money (and only the VCs got anything back).

Ten years before they could finally write off their loss!

This was fifteen years ago. I realized that something was coming up and decided to sell fonds titles. I opened the online banking system and sent the order. Two days later the crash happened.

Have I been lucky? No.

The bank patiently waited three days before executing the order.

I am afraid they immediately sold the titles and kept the difference. After all no risk here. If the prices would have went up they just would have backdated the sell. I realized why bankers are rich. They have the power and can turn the game to their profit. They just have many possibilities to tweak something such that I lose. </tinfoil>

Ten year later I retried somewhere else, crypto, to realize that the same crowd is also in crypto.

Luckily I didn't go all in. Twice. I can afford the losses.

> to realize that the same crowd is also in crypto.

If you bought btc/eth; so far the crypto believers have been right about one thing at least; when your holdings are down, just hodl. I am aware this can backfire terribly and I have no holdings, but for 12some years, they have been right.

Fresh buy-side momentum and value distortion such as Tether drive up the price. Once that flatlines or even slows down, you get hell.

>for 12some years, they have been right.

This is akin to a child counting on the toothfairy.

https://protos.com/tether-papers-crypto-stablecoin-usdt-inve...

^ Very eye-opening look at the true playbook behind the crypto space. It's very much run by CBOE-derived quant firms running the economy like a casino.

> This is akin to a child counting on the toothfairy.

I am not recommending anyone does this; I would never and, like said, I do not have any crypto (I had in 2017); I was just commenting that they were right so far, which is indeed saying I am immortal because I didn’t die.

This... I can't even understand this. Couldn't you sue the bank/broker for this? Adverse execution?

It's covered by their terms of service.

I feel like just how people say always get a lawyer when you get some legal paperwork like a cease and desist - I say get a CPA when exercising options. Many times you can book them for a one time appointment, it'll probably run you somewhere between $150-$300. Totally worth it when I had to do it. (although no horror story here)

Not really a horror story, but a lesson. In 1998, worked in USA for startup, got stock options. Head a healthily sceptical attitude, only counted on salary which is real money. Nevertheless, I purchased the stock options, at $0.05 each thus spending $100, thinking "Be daft not to. Not convinced these'll be worth spectacular money but don't think I can lose". Then along came the telecomm and dot com busts. So lost whole $100 as the company was wound up. Felt possibly worth it for the schdenfrude of watching somewhat unkind / aggressive senior managers / investors losing big sums ;)

Cost $300K total: $100K to exercise, $200K in paper gains. Looks like it will pay off bc valuation has continued to go up, but the 90-day exercise window is punishing for cashflow.

Didn't know about 83b election, didn't make use of QSBS exemption; learnings here: https://www.productlessons.xyz/article/how-stock-options-for...

Joined a company with a billion dollar evaluation. They IPO'd a year after I joined, just months after exercising options. The stock tanked.

The AMT taxes will likely be tens of thousands of dollars even if I don't sell.

Tens of dollars? I'm assuming this is a typo of some sort

Ha, I wish! Corrected.

Oh this is due to growth crash in the last few months? That sucks :(

Nah this was like 2021. It was an SPAC merger that tanked.

I've had stock worth money in three different companies. Whenever I exercise, I immediately sell. I'm not willing to accept the downside risk, and I view the short term tax liability as the ultimate first world problem.

Yes, selling right away can be the way to go. I couldn't, however, until IPO. After IPO, similar competitors were doing very well, so I thought the company had a chance.

You didn't say if you're still above water. You won't likely owe any AMT if you close your position the same year that you exercise, though if it went down, you'll be carrying that loss for a while.

If you suspected they'd tank, there was really no reason to exercise early. If an IPO looks eminent, you should probably wait a few months to exercise to see how the market reacts. Exercising early is more interesting when you're leaving or if the company is a sure thing, the IPO is a few years out, and you're chasing long-term capital gains.

In this case I was leaving right before the IPO and it looked like a sure thing, which obviously it never is. :)

Yes, won't see returns for a while, if ever. Lottery tickets!

Yep. Fun times. Funny to think the company is worth less now than when you joined. I wonder if it’ll get down to less than when I joined!

Spend all that money on exercising. All that money on AMT. Should’ve sold at 7. All well. Lesson learned - don’t optimize tax strategy just divest.

Oh, hey Bradley! :)

Took an offer for an early stage startup, ~0.25% of the company vesting over 4 years (best I could get at the time). Company proceeded to dilute 40-50% per round (pre-seed, seed, and series A) while bringing on an endless stream of do-nothing managers, and didn't top-up any of the existing employees grants or do any annual refreshers. They got upset with me when I brought this up.

The company is floundering and hasn't launched anything technically new since a good amount of the original team left. I suspect it'll limp along for a few more years before it's acquired at a loss. The last funding round removed all but one of the founders from the board, so... too bad for them...

2001. On my way out the door, the boss asked if I was planning to buy my options. I said I probably would. He shook his head and silently mouthed “Noooo”. Two weeks later our lovely VC punters shat out an 800-for-1 reverse. Thanks boss!

Sorry, whats an 800 for 1 reverse?

https://en.m.wikipedia.org/wiki/Reverse_stock_split

How does the reverse stock split affect options, it would make each share more valuable wouldnt it?

It typically means the stock is tanking. If you know your $10 stock is going down, it looks better to merge it back into $1000 stock; this way, when it tanks, instead of $0.50 shares you get $50 shares - which look more presentable to new investors.

Very roughly speaking, Split -> Stock is so good the company wants to cash in; Buyback -> Stock is still good enough that the company wants it back; Reverse Split -> Stock is tanking and company doesn't want to scare people.

That was a good boss who cared about you.

Just another anecdote. The company I worked for had pretty severe restrictions on when you could sell your stock, it was disallowed for some fixed time period before and after a major announcement. The company seemed to engineer their announcements so there was never an opportune time to cash out.

This is nice evil plan

The best part was they blamed it on government regulations.

Not quite a horror story...

Over the course of about 7 years, I "amassed" options for about 100,000 shares ($0.10 each).

I got laid off in the great recession of 2009 and I was pretty annoyed at being laid off (I won't go into details, but I felt that there were many others who deserved the ax before I did).

After being laid off, I believe I had 6 months (maybe 12) to exercise my options.

Obviously, it would have cost me $10K to exercise everything.

But I was still annoyed and I decided to cut off my nose to spite my face: I exercised TEN DOLLARS WORTH (100 shares) for the petulant reason that it would simultaneously demonstrate that I had no faith in their viability and that it would cost them more than $10 in postage to invite me to yearly shareholder meetings.

Well, I got my 100 shares and two years later, I also got notice that they were GOING PUBLIC!!!

My heart SANK. Acting like a petulant child was going to cost me hundreds of thousands of $$$. Possibly millions, depending on how the IPO went.

Then I read the fine print. The IPO was going to involve a 6000:1 REVERSE split. In reality, I would have had about 17 shares if I had exercised everything.

Then, a few months later, the IPO was canceled.

Eventually, I received a check for $0.01 because the reverse split of my 100 shares amounted to essentially nothing.

Not a horror story but just a disappointment story.

I had options at $10. I joined and the stock dropped all the way to $0.57 before rebounding to $5 when I left 5 years later in 2005.

During my exit interview the HR person says "Oh you have unexercised stock options."

I told them to look at the current price and my option buy price. They withdrew the question.

Not exactly horror, because I did enjoy the ride but was CTO and employee 3 of a startup with a promising idea that didn't pan out. I had a good number of shares, although far fewer than the CEO and COO, would have been worth some good dosh if we had sold for £1M+. Incompetent leadership, no sales, Directors not stepping in soon enough and the company ended up selling for a small enough amount to pay back Directors loans with nothing for the shares.

Annoying but you shouldn't fantasise about it unless you have a major input into the company success. If not, you are more likely to watch others fail and feel powerless and frustrated. We can all look back and wonder why we didn't buy 100 bitcoin when we first heard about it but we can't so work somewhere you enjoy, earn enough to be comfortable and if you do make some cash, great.

Left a FAANG job for a dream job at a small company you've heard of for a large pay cut and .1% equity. Got fired 9 months later. No equity vested. Small company is now a $10 billion company.

I'd be less bitter if I left at 3 months, but at 9, it hurt.

I had 2,500 stock option in AMZN in 2001 at a strike price of something like $7 or thereabouts that I sold all of them at around $40. Plus some RSUs and made around $100k.

Thought retail margins would mean AMZN was never profitable and eventually that side of the business would crash and burn. Meanwhile, I figured that the trick to building out your own infrastructure cheaply (basically "just be really fucking cheap and fire people who do expensive shit like build out SANs") would catch on and the margins would disappear from the AWS/EC2 business as everyone just built out "internal clouds" for 10x cheaper than buying from AWS.

I got stock options from a startup I was working for. 3 months later the company was bought out, and all our options were worthless.

The icing on the cake was the founders holding a party to celebrate how rich they became from selling out.

Happened to a friend of a friend who bought his vested and super-cheap options when leaving the company, while it was still private. This was in Canada, but the IRS wanted capital gain tax to be paid right away. And the cap gain was in millions, because of the current company valuation. I think he lawyered up and somehow found a way to defer the payment until the company went public. So it wasn't devastating per se, but still very unpleasant. From being an almost millionaire to a real chance of being bankrupt in a matter of days.

Is it considered a horror story if you realise the company likely won’t have a significant upside?

If anyone wants to exercise some totally not worthless options… they expire in 2 weeks shrug

No specific horror story. Just the fact that as a young employee in the tech industry I had no idea that ISOs trick you into thinking that they are something even distantly related to a regulated system of financial instruments.

When in fact it's just a cover for "the CEO does whatever he wants" and your stock is pretty much arbitrary and has no guarantees whatsoever. Dilution (the biggest scam of all), valuation, down rounds, lock-up periods, etc. You go in (young) thinking that the appearance of financial instruments means they have some protection, but they don't.

In fact, I sometimes think that this should be more heavily regulated, and why does the IRS/SEC bother to oversee some aspects of this but let the other aspects completely blow in the wind. But maybe that's just how this industry is, and no policymaker will care enough for this concerns of this specialized (and yes, fortunate and high-paid anyway) workforce.

But at least go in with eyes open and informed.

Good points. Employee protection in this space is desperately needed.

At this point, employee stock options should just be called as NFTs probably as they probably carry similar risks /s

Not sure if this is a horror story but it's an interesting recent dilemma. I started as a contractor for a startup about 8 years ago and was awarded some Non Qualified stock options that vested but were not exercised. I never came on board as an employee, but did do contract work from time to time. After a couple of years, I moved on to better opportunities, but the contract was never really terminated. The startup in question recently merged with a larger company and during due diligence my options were discovered.

So.. they let me know I have these options if I wish to exercise them in the next 90 days. It looks like I'll have a taxable event just by exercising them as they are NQ. Not sure if it is really worth the risk as I still haven't been able to get a fair market value of the shares from them and I don't see the opportunity for them going public or being acquired any time soon.

Not a horror story, but: I had some stock options. They were in the money. I sold some and kept some. The stock went up. I sold some more, but not all of it. I was keeping an eye on my yearly income and where I shifted into the next incremental tax bracket. On December 16 (of year X), the stock price was really attractive, but I was going to pay a higher tax rate on the gains if I sold, so I decided to wait until January to sell.

On December 18, the company announced that it was buying another company. The stock market didn't like it, the price tanked, and I lost more than I would have paid in taxes.

Moral: When money is growing on trees, pick it.

But of course it's not that simple. In other circumstances, waiting could have been exactly the right move. But waiting carries risk, and I was not properly recognizing that risk.

I got ~25K stock options from a startup while I was working as a Software Engineer. The company was sold so it was time to cash out the stocks $$$.

My team was working on a separate side product than what the original company was doing. After company's exit, we learned that we will continue in a spin-off company instead of joining to the others. We agreed to leave the company, signed the papers etc.

In the evening, I visited the stock brokers website in order to calculate how much money that I will get. $$$

I felt like having a cold shower when I saw that all of the stocks that I vested so far is gone. It is crossed with red mark and comment says: `Voluntarily given up.`

I had a horrible night, trying to understand how this has happened to me.

Next day, I learned that it is just an issue with the broker and I will get my compensation so I relaxed.

That was my horror story.

it all worked out in the end, but when I left I had a few thousand options that were just barely in the money. Maybe $2k total. Unfortunately, they neglected to report the cost basis and the IRS sent me a $900k tax bill! It was certainly a heart-stopping letter to read.

I got "phantom stock options".

They were as advertised.

Young and naive story ahead so I apologise for any anger it might cause, cos I certainly get angry every time I think about it.

First job after I finished university, and I joined a start up that looked relatively promising. It was my first my second corporate job, though the first was a terrible year in industry as part of my studies.

Leadership gave lots of promises (not just to me) about the company and all, and honestly, I'm pretty sure in the early days much of it was okay to promise.

I started on a relatively low salary. Got no options. Moved up the ladder, and got some options. It wasn't a lot, so I didn't think much of it. Heck, here in London, the stock options game for start ups is nowhere near as strong as the US (mind you, I didn't know about this back then either). I was never told about a strike price. I never read the options contract. Lots of mistakes on my part.

About a year and a half after I joined, I got a sizeable pay increase because I suppose I had shown my worth maybe? I dunno. Right around that time, structure changed a little bit. I made the mistake of not checking my pay cheque to validate I had been given my pay rise. For about 6 months I hadn't been given my new pay. I raise it with the relevant people. Because we had hired someone new, and they couldn't find the new contract I'd signed (???), the new person had to go to the CEO to double check. That took another 2 months (don't ask me why).

So I had about 8 months of the pay increase difference not paid, about ~£12k. They get back to me telling me they've confirmed that I was given the pay rise, but they won't be able to pay it in cash, and instead have to pay it in stock options. Without challenging it, I accepted, because I did believe the company would grow.

Fast forward another 1.5-2 years, and I realise the company is a sinking ship, or if not, it's just drifting aimlessly. So I leave. I hand in my notice. Over the next week or so I have meetings with plenty of people to persuade me to stay with all the promises (not even a promise of a pay rise). I'm not persuaded, so our CEO straight up tells me I will lose my stock options if I leave. Didn't even get possibility get my money back. Nothing.

7/8 years later, the company is still drifting. Many aren't paid in full, or on time. It may have been a bunch of costly naive mistakes on my part, but from what I'm hearing it would have cost me more if I'd stayed.

Moral of the story: you should double and triple check your contract, whether you're young or not.

First job. Joined a large multinational in the late 90s. Every new hire was given about $20k of in the money options right away. Option buy price at $20, share price at around $40.

Within a year the SEC was investigating the top bosses. Stock price collapsed more than half. Options worth nothing. New management decided to restrike the price of the options for of many of my coworkers, erasing most of their loses. But mine were outside the magic period of time ://

Over and over.

Exercise options early to hold shares long enough to avoid capital-gains tax; but company is sold for cash, shares get converted instantly to cash, triggering Alternative Minimum Tax. It sucks.

We ought to be able to sell our shares to our IRA as we exercise them. But we can't.

We IPOd with a valuation of about 2B. By the time engineers could sell it had fallen to about 300M, and many early employees who were convinced to exercise pre-IPO ended up with nothing due to a very high pre-IPO value and AMT taxes.

Exercised about $35K of options soon after I left an IOT company that seemed very promising. A year and a half later they were acquired in a fire sale deal that wiped out all the investors.

Don't play with money you can't afford to lose.

My experiences:

1. Had my own startup, I was CEO. At one point we had a good LOI-valuation, I was a paper-millionaire. In the end we failed to raise, failed and I didn't make any money. But at least I didn't invest/lose any of my own money, and exited without screwing anybody over. Only lost money on oppty-cost, ie. money that I could have made if I had a regular job.

2. Worked at a resonably successful startup for 3 yrs, started in 2012. When I left in I exercised 10,000 pieces of stock for $5,000. It's now 10 yrs after my start date, no liquidity in sight, company is not doing so great. Probably what those 10,000 pieces stock will be worth is 1 month of my current salary, so it's irrelevant now.

3. Worked at Facebook for 18 months (London, E5). Vested arond $100k of stock, payed ~55% taxes, sold stock right on vest date, made around $45k. If I would have kept it and sold at the highest point of the stock, it could have been ~$150k. Today it'd be worth around ~$75k (FB stock was cut in half in the last 6 months).

The upside of stocks: I do know people from Facebook who got early stock, and Facebook is the last job they'll have...

4. Worked at a delivery startup. At this point I was smart enough to ignore the stock and negotiate strong on the cash salary, so I made good risk-free money every month, but still vested a lot of stock. In the end the company failed, technically the stock was re-valued, so all my stock was worth something like $0.01. I did a great job managing my expectations, so I wasn't unhappy (I knew the CxOs are crooks and it's unlikely the company would be successful).

5. Current job at a non-tech BigCo doesn't have a stock component, just a high base salary, and no taxes (Dubai). This is the way.

6. The funniest stock story I have is from a job offer I didn't accept. This company gave me a reasonbly good offer with a stock component, where the stock contract had this specific language:

> ... shares issued under this Plan shall be "hypothetical" stock, which means that the Company gives the Employee the benefits of owning stocks in the Company without actually giving the Employee stocks or shares certificates ...

The contract had 3-5 clauses in there which said that the CEO could essentially decide to void my stock at any time for any reason. I told the CTO that these are red flags, he told me he agrees, he had the same concerns, but blah. In the end the structure of the stock plan was one of the reasons I declined, it was a red flag for company culture.

https://www.chicagotribune.com/sns-tech-taxes-story.html

Horror stories from the dot-com bubble. Mostly about AMT.

The only horror is how rarely they are given in “rest of the world ville”

Worked for crypto startup in 2016. Went through divorce at that time, did not want to make shady investment, that could upset judge. Go figure :)

Bought BTC at 65K because it could only go up.

One more hype cycle and you'll be made even and then some, before the next crypto winter.

"crypto winters" should only be a term if there is no technological progress (similar to ai winter) but because of crypto exchanges they refer to investment $$$..... The value on crypto exchanges in just dumb, pointless, and manipulated.

Personally i always felt stock market and crypto exchanges are just mirror images of each other. Both are just scammy/scummy and its sad the the stock market isn't seen as such because its older and so ingrained into our society + economy. While there are legitimate uses for such a market (food and energy futures) they make up such a tiny tiny percentage of what its used for.

Have you seen recent /r/wallstreetbets? https://old.reddit.com/r/wallstreetbets/top/

I have a friend who, as an early employee, attempted to buy his options and the record of him ever having a vesting schedule was "lost".

He would have to fight a legal battle to get the option to purchase his options.

This is filed with the IRS

Interesting, that makes complete sense and easier to fight. Too bad he didn't know that.

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