1. You left before any of your stock vested. Assuming a standard four year vesting schedule and a one year cliff, this makes complete sense. (Although you are saying that you paid for your options, so this likely isn't the case here).
2. The company got shut down, its assets liquidated, and the founders and a select group of employees went to work for Google. This is perfectly sensible from a legal/operational standpoint, but is really unethical if the founders didn't take care of existing stock holders.
3. The founders had liquidation preferences that employees didn't have. This seems really unethical to me, but it's also something you could have seen when joining the company by doing the legal diligence.
Bottom line here is do the diligence, understand the mechanics so there is no confusion as to what they are later, and, most importantly, make sure company founders are decent people who'll pick the high road if/when presented with a choice. I don't think I could live with myself if I had to look in my fancy, gold-plated mirror every morning knowing that I screwed people that trusted me to lead them out of what's rightfully theirs. Make sure you get a good vibe from the people you work for - nothing can substitute chemistry, character judgement, and basic human decency.
- One really high offer from a social network. Talks fell through.
- One reasonable offer from a relatively unknown company (which they took, good culture fit).
- One completely terrible offer from a major tech company, with incredibly high salaries afterwards.
The first one would have been the best for investors, and good for the employees, except the culture fit wasn't quite there. The second was a great culture fit, but wasn't that great for the investors (especially considering it was a cash-and-stock deal and the stock tanked). The third would have been a fantastic deal for the employees and a slap in the face to investors (which is why they didn't take it).
It's funny how easy it is to take the asshole route when it comes down to it.
Chances are there was some issue with preferred vs common stock.
If the OP left after staying less than a year, they most likely didn't vest anything.
Happens all the time. Usually it means that the acquiring company issued a bonus to those employees it was bringing across. If you're not one of them, have a nice day.
So I just want to point out to others that this is one side of the story and it lacks a lot of details to draw any conclusion and ask for the names of the "guilty".
edit: since I'm getting some downvotes, let me expand a bit: it looks like said-company wasn't going anywhere, that fourk didn't work there for very long, that the founders ended up being hired by Google, and it's not clear that the company itself was really bought. So, and again I don't have the whole story either, it's not as clear-cut as "execs and investors made millions and completely screwed a key employee out of his due".
Also, while IANAL, that paperwork implied that the company was purchased by Google (at least technically), contrary to what Techcrunch said. Part of my reasoning for not wanting to name the company and founders was this exact reason: it's hard to get a full and complete picture of a complex situation from just one person through a couple sentences.
And I salute you for that. Don't get me wrong, I didn't mean to confront you or to expose the situation more than you wanted. (what I read is very easy to find anyway) It was more intended to the commenters who wanted names even though we had only your short account to go by.
Clearly, that kind of situations has happened to many startup employees (and will happen again and again…). I worked myself for a startup that folded, most people took their severance package and two months later the company was apparently sold. I don't think any of the employees really know the details of the sale, but I'd very surprised if it turned out that I had missed out on a big payout by not buying my options… :)
>> investors (who were merely reimbursed) ...
There are plenty of cases of employees getting seriously shafted (investors made lots of money, but employees didn't). This is not one of those cases.
You should be downvoted to hell for this stupid comment. You did "some quick googling" and now feel qualified to talk over people who were actually there? This kind of behavior is the plague of the internet. Someone who was actually present takes a back seat to a nerd reading the internet about it.
As I said in my original comment "I just want to point out to others that this is one side of the story", because some people wanted to have the names of the company and people involved to make sure never to do business with them.
On one hand, you have the (short) account of one person who was there; on the other, you have some information found on the web. Neither is reliable, they just give some hints at what might have happened. My comment was just pointing that out, since some people wanted to go do some public lynching.
So you see, in my opinion, your comment should be "downvoted to hell". I was careful to emphasize that what I found wasn't "the truth, the whole truth and nothing but the truth" either. Here's a sample: "it looks like", "this is one side of the story", "it looks like", "it's not clear", "and again I don't have the whole story either".
So no, I'm not the plague of the Internet. The unnecessary outrage and name-calling is.
So shady people or companies continue to be shady because people don't want to risk loss of potential income or reputation.
Idly allowing bad and potentially evil behavior to go unrecognized and unchallenged is by no means being a good person. Not to Godwin the thread, but your attitude is why evil flourishes, and on much grander scales than stock allocation.
Having said that, all you need is 2 minutes, google and you can easily deduce yourself what company he is referring to.
This is always possible with a company with a significant interest controlled by the preferred (which is another way of saying: a company funded by VCs.)
A minute of Googling turns up TechCrunch speculating YC and other investors got paid back in this deal, in which case I'd say this is pretty sleazy.
That TechCrunch article doesn't really present the event as a great exit, but more that the founders were hired to move on from a startup that wasn't really going anywhere. (the post specifically says that Google didn't technically acquire the company)
Seems both sleezy and a cautionary tale for those thinking of working at a startup from where I'm sitting...
So no. There's nothing sleazy about a preferred shareholder being treated preferentially, necessarily.
When you issue stock to someone, you accept a fiduciary responsibility for increasing the value of those shares to the best of your ability. That fiduciary responsibility includes siding with their interests if and when a conflict of interest arises.
If the founders really did receive a large pay day while taking the value of their non-preferred stock to zero, then it sounds like that fiduciary responsibility was ignored.
So yes. Sleazy is an appropriate word.
But its an area where tax law has changed a bit so its useful to check with your accountant to see if you can write off gains on current stock against previously realized losses. That way you get to keep more of the money from selling the current stock. Exercises are still regular income (grrrrr!) but gains on like investments (stock for stock) are generally offsetable. Check with your accountant.
eg. spent 4 years there, fully vested, decide to leave for another opportunity. In most cases there is a very short (30 days is common, sometimes up to 90 days depending upon the options contract) window for you to exercise your options or you will lose them.
First is that options come in two flavors ISO and NSO (or Non-Qualified). If you are issues ISO options then you could exercise and hold to qualify for long-term capital gains.
http://www.startupcompanylawyer.com/2008/03/05/whats-the-dif...
2. Your options are going to expire and you need to convert them to shares.
3. You are leaving and want to hold on to your shares. Typically you need to convert them within 3 months.
You've likely heard this, but one thing you might want to look at is a hybrid transaction (I think they call this a "cashless transaction"); exercise and sell enough to cover taxes and to purchase anything you've got available to exercise (to hold for another year).
Several were bankrupted because the stock deflated. Oh, and IRS bills are not dischargable in bankruptcy, so those poor bastards had their pay attached.
And this is how most people are screwed. Most folks receive options and never even see the financing docs or stock plan, so they don't have a shred of knowledge about the capital structure.
(Not picking on you, except by way of example. Your situation is all-too-common.)
I'm sure every time you disagree with her about something you get to hear about how she was right about the stock options.
not really. it's pretty expected.
stock options are lottery tickets.
When I started out I had no clue about exits or options or any of it. It was just another number on my offer letter. I took the job because I wanted to learn and do some fun graphics programming. It really is a Christmas miracle that I was able to do that and not even live in San Fran.
Based on my experience, I would say a good number of the votes you see represent pure, dumb, luck. Without question my votes do. Maybe some people were able to steer themselves to those exits, but for many, I'm betting they just got lucky as well.
This data is really only showing you the likelihood of getting lucky. It is better than anywhere else in the economy. But it is not something that you should plan on. I think that is the "take-away" as the business guys would say.
- Employee # <125. Exercised options on a vested block of pre-IPO stock before leaving. After IPO and waiting period, sold a chunk for low-mid 5 figures, wanting to spread the sales and capital gains over multiple years. Later that year, sold the rest for 1/4 my exercise price.
- Employee # <20. Exercised some ISOs. Company acquired, all value went to preferred share holders, I received an education in classes of stock and AMT credit carryovers. Got some incentive bonuses to stay with the acquiring company.
Takeaways:
- Work your job for salary. Don't expect stock options to pay off.
- Sell some periodically, even if it's going up.
If so, price it at $200 dollars, and i'll vote for it.
On one of my final days I was handed a check for my shares, because I wasn't going with the new owners, and all stock was to be given to them. Was never asked if I wanted to sell, and it was valued extremely low for "accounting purposes"...
On the one hand, I was told before that the CEO would be buying out all the outstanding stock of people leaving the company
On the other, I was never presented with any kind of form or bill of sale to sign, which is what I was waiting for so I could contest it and attempt to keep my shares.
At the end of the day, the amount of shares I owned was so incredibly low, that I figured it didn't really matter, and that I was incredibly eager to be done with the whole place after all of the shit I had been through, that it wasn't even worth fighting for.
So on my next to last day, I was simply handed an envelope with a personal check inside, made out to me, for the amount of One Pittance.
If the idea of preferred shares shocks your conscience, you should spend a lot more time studying how startup financing works (at a nuts and bolts level) before taking the plunge and working at one.
I guess this is really something you only learn when you are the one signing the financing docs.
Imagine if you will a publicly traded company that repurchases preferred shares, right before the company agrees to be acquired, for substantially less than the post acquisition valuation. You bet there'd be law suits....
Nonetheless your point stands, if you are considering acquiring preferred stock (whether purchased with cash, other equity, or hard work) you should do so with your eyes wide open.
>> You bet there'd be law suits....
>> if you are considering acquiring preferred stock ...
Generally, a company wants to get the best deal with the most lax terms possible, and will try to accomplish that. The preferences given to investors are part of the market pricing of an investment deal. You can no more declare that investors shouldn't have liquidation preferences than you can declare that they should price the deal 50% higher.
>> You can no more declare that investors shouldn't have liquidation preferences ...
There are a variety of situations in which the investors end up with more than the original agreement would suggest, and employees end up with less. Some of them are discussed here: http://news.ycombinator.com/item?id=2958766
Founders sometimes end up with an outcome similar to the investors, but more often an outcome similar to the employees. Employees expect that their interests are aligned with the founders, and that founders will protect them, but this is not always the case.
Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist
http://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitalis...
Consider: Berkshire-Hathaway bought the entirety of Burlington Northern Santa Fe for a fixed price, negotiated with the BNSF board. They bought it outright and did a merger. They didn't go to each individual shareholder and ask permission. Many shareholders probably weren't even paying attention enough to check in their portfolio.
The alternative is that mergers are impossible and you're stuck with having a 95%-owned subsidiary with its own corporate structure and all the overhead that entails.
(Of course this is prone to abuse. There are laws to protect minority shareholders' rights.)
[1] http://www.feld.com/wp/archives/2005/02/term-sheet-drag-alon...
So it was priced at the "market" value, which he estimated to be quite low (and he was probably right, we weren't all that successful at the time).
There was a 50/50 chance we could have grown the company to be very cashflow positive (ie - we sold too soon) and there was a 50/50 chance we would have folded (ie - we sold at just the right time). We were bought for our novel technology and the engineering team was for the most part kept around and given good incentives to stay on for a bit.
That job and the acquisition kind of launched my career so I don't spend too much time worrying about whether the CEO or the board pulled the trigger too early.
If the employees get screwed over, then it doesn't sound like they are valued. I see many startups where the employees are super valued assets, get a decent salary AND they do what they love.
Most good founders were employees at hot startups, where they learned what to do and joined 'networks of success.'
https://s3.amazonaws.com/rjurney_public_web/images/Atlanta-S... https://s3.amazonaws.com/rjurney_public_web/images/fairchild... http://en.wikipedia.org/wiki/PayPal_Mafia#Membership
Most Y Combinator founders are young, so sample bias is likely present. Then again, Atlanta sucks, so only old fuckers start companies. :)
You take almost as much risk and work just as many hours as when you work for yourself. Except you own very little in equity (as a developer, usually less than 10%) and you have no control over what happens with the company (usually when VC takes over, they will be trying to make an ROI asap at the expense of any long-term plans).
Working at Weebly, you have similar hours to BigCo (although you'll be 10x more productive), paid market rate (or slightly above), and receive your fair share of the outcome.
You also get to work with a fun group of people who are obsessed with being productive, and not much else. Maybe we're the exception, but we don't care if you're a 9-5 type of person, if you're very productive during those hours.
Working at a startup doesn't have to be shit, just because some startups are.
I'm not a startup cheerleader -- "come change the world!" is the most overused pitch line ever -- but there are tons of examples (37signals, some YC teams, some of the larger NY startups) countering this generalization.
It's clearly not all unicorns and cupcakes, but there's a difference between "work for us at 2/3rds market plus 1%" and "we're VC-backed, work for us at market and get health plus other nice perks." Startups are not uniform.
Presumably you mean: stock shares worthless and owe $4000 in taxes.
Without that correction, many people will wonder how you own taxes on unexercised options. (It is possible, but quite uncommon.)
However the 'greater than $11M' is really looking like a totally anomaly.
http://opani.com/dirk/crunch-acquisitions/results/#key=(redu...
Founders would make far better hiring choices if they had to give real stock. Employees, too, would make far better hiring choices if each new employee diluted their stock (especially if all employee stock came from one significant pool,say, 25%): do you dilute to complete or work even harder to keep your share?
This question would motivate staff as much as it would motivate founders not only to create a successful company but to hire the kind of people who would see it through. It would also show a level of trust that, generally, would be repaid.
If people did leave, keeping the stock, you may have made a hiring mistake (or some bad luck) but you will still have a champion who will help bring goodwill, customers and new staff.
It's unfortunate that ESOP has such a bad reputation. I have never been a non-founding employee, but my last venture paid out about $3M net to about 20 non-founding employees and 30 interns (about $4.5M gross before strike price). Roughly 10%/15% net/gross of the exit value. Ranging from high 66 digit all the way to 3 digits (for late-stage 4 months interns).
In my latest venture we simply give common shares to employees (reverse vesting but otherwise the same as the rest of the cap table).
That's not percentage of the company - that's percentage of the equity held by employees. In some cases it might actually turn out a bit better, like 90/5/5 or something like that.
Regardless, the outcome seen by founders is orders of magnitude better than even early employees.
This can be exacerbated by a bunch of games that can be played at an exit to make the disparity larger. For example, you can cancel all unvested options. Founders have likely been around longer than the employees, so they have more stock vested, plus they typically get some acceleration upon change of control.
For example, imagine that a founder has 25%, and employee number 1 (who was hired 6 months after the company started) has 2%. That they sell to Google after the company has been around for 2 years, and that all unvested shares are cancelled. Employee 1 gets .75%, and the founder, who has 1 year acceleration on change of control, has 18.75%. On top of that, the founder probably gets long-term capital gains treatment because he exercised his shares immediately, where the employee didn't exercise any of his shares and treats the gain as income (if he had a 1-year cliff, he probably couldn't exercise for a year, at which point it didn't matter, because he had only held the shares for 6 months when the company was sold). So the employee ends up with 0.5% after taxes, and the founder ends up with 15.63%.
Which means that he ends up doing about 30x as well as the first employee.
Check it out here https://docs.google.com/spreadsheet/ccc?key=0AlQ_IeF38HHndGo...
They never wound up going public and got bought out by a larger company.
More seriously... probably more along the lines of company fails, maybe left before vested, etc. Curious to see a list of ways though... or peoples experiences.
I'm not talking about vesting. I mean not getting even unvested options. Rather common in Japan, unfortunately.
Apologies for the slightly snarky comment, thought you were for some reason complaining that your option was wider than you would have wanted it to be - not that I can think of any reason why anyone would whine about that.