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Comment by thaumasiotes | Hacker News Reader

> Stripe [] has signed agreements for a Series I fundraise of more than $6.5 billion (€6.15 billion) at a $50B (€47B) valuation. Primary investors include ...

> The funds raised will be used to provide liquidity to current and former employees and address employee withholding tax obligations related to equity awards, resulting in the retirement of Stripe shares that will offset the issuance of new shares to Series I investors. Stripe does not need this capital to run its business.

As I read this, the plan is to issue a number of shares, buy exactly that many shares from Stripe employees, and retire the purchased shares.

Why do it that way instead of allowing the employees to sell their shares into the Series I offering?

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> instead of allowing the employees to sell their shares into the Series I offering

Stripe has a large tax liability on its own hands. Investors don’t want employees’ common stock, they want top-of-the-stack pref. And Stripe wants to maintain control. Outside the executive ranks, most employees don’t have open market permission to sell their common stock.

So that the investors end up with preferred stock.

Probably easier to do legally. Usually your option shares have a clause that you are not allowed to sell them on the secondary market (which this would be).

For people with expiring RSUs, is the choice then to take this deal (@ at 50 billion valuation) or get nothing?

No, it's not take it or get nothing.

People have RSUs. Those RSUs vest at some point. When they vest, they have to pay taxes on them, at whatever value they have at that moment. This raise allows Stripe's employees to pay those taxes, and gives them a chance to sell if they want to. If they don't sell, they'll have to wait for future liquidity events, like private raises, buybacks from Stripe, or IPO.

The down round is appealing if you're intending to hold the shares until later, because you pay employee taxes at a low valuation, and then capital gains on the difference between that low valuation and your eventual sale price.

The advantage of vesting during a down round would apply only IF employees were paying cash for their taxes instead of withholding shares. Unfortunately, most employees don't have the cash to do so. For equity compensation that is withheld from, employees pay a constant percentage in withholding and have the over withholding converted into cash in the form of a tax refund. If/When they choose to sell their shares later on they must then pay a capital gains tax on the difference between the vest and sell price, effectively double-taxing them on the difference.

The down round is only appealing if you specifically have <1m in shares, have the cash to take a lower withholding rate, and value Stripe exposure so highly that it overcomes both the double-taxing and the opportunity cost of using cash for taxes. That trifecta is a nearly non-existent minority of former employees.

> Unfortunately, most employees don't have the cash to do so.

I don't think using cash to pay the taxes is even an option.

> If/When they choose to sell their shares later on they must then pay a capital gains tax on the difference between the vest and sell price, effectively double-taxing them on the difference.

Why are they "double-taxed"? After the withholding, you get shares with a cost basis of X (the price of the share at the liquidity event). Any future capital gain/loss is based on that cost basis. Where is the double taxation coming from?

Some jurisdictions have 0% capital gains taxes. Would be great for those people.

I think you're confusing RSUs (Restricted Stock Units) and ISOs (Incentive Stock Options). Stripe employees were given ISOs. ISOs expire worthless if not exercised. And if Stripe employees chose to exercise their options, they were not allowed to sell the shares they received. So they would get a large tax bill on a paper gain, but not receive any cash to pay the IRS.

Stripe started issuing RSUs ~7 years ago and the first of those are set to expire next year without a liquidity event, which is why they're doing this.

You are under-informed.

RSUs also expire worthless if not vested, and furthermore privately held RSUs are very hard to sell to cover taxes.

https://www.goodwinlaw.com/en/insights/publications/2023/02/...

I think it's this, or keep the shares and pay taxes yourself.

I imagine it's as simple as employees own common stock and investors want preferred stock.

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