Hacker News Reader

Comment by JumpCrisscross | Hacker News Reader

Most RSUs have a time and liquidity vesting. The latter triggers on IPO. If your company didn’t follow that convention, they went out of their way to screw you [1]. (RSUs are generally a worse deal than IPOs. They’re a great deal for companies, which is why Andreessen et al push them.)

> current employees have access to a sell-to-cover option, while former employees are required to prepay in cash

This is common. Cashless sales are a benefit. We strictly regulate who can and cannot be provided employee benefits in America. Your former employer would risk extending a securities-based loan to you. It can be done. Your former employer decided not to extend the privilege.

[1] Find the IPO pitch materials and see if the bankers pitch anti-dilution post IPO.

View on HN

The 185 day thing is fine. It's common. The company has likely made a legal commitment to not have any employees (past or present) sell for that time period.

Look in the company's s-1, it will be there.

> 185 day thing is fine. It's common

This is the lock-up agreement. It’s negotiated between the company and its underwriters and is orthogonal to the RSUs.

It's not orthogonal. The agreement usually covers shares owned by employees and former employees.

> It's not orthogonal. The agreement usually covers shares owned by employees and former employees

It covers them as equity holders, or people with the right to equity. I’ve negotiated lock-up agreements. Nobody is thinking about RSU holders. Hence how OP winds up in this mess.

OP’s problem stems from a draconian form of RSU. It doesn’t automatically vest on a liquidity event. It has the company collecting taxes. And it has a forfeiture clause.

Yes, it covers them. Hence it's not orthogonal. The fact that there are two agreements doesn't make them orthogonal. Many situations are covered by more than one contract (or law or regulation).

You’re being intentionally obtuse. The source of the problem isn’t the lock-up agreement, which was negotiated independently of the RSUs. And the lock-up agreement is easily (and commonly) circumvented—the problem is intractable because it’s unrelated to the lock-up.

(And pedantically, a 185-day lock-up is not common.)

Ehhh 180 days is 6 months is fairly standard.

Which is why 185 isn’t. (Lock-ups have also gone into and out of vogue. And again, this is a problem with the company’s treatment of withholding. The lock-up agreement could go away and OP would retain their problem.)

The extra 2.7% isn't material to OP's problem. As you note, OP's real problem is the withholding.

Just curious, how is a lock-up commonly circumvented? Might be relevant information for me, I would appreciate any tips

I commented with a correction. March 15, 2025 is 140 days from the IPO day. This is before the lockup periods ends and they require us to estimate our tax, based on the fair market value of that date, with the following formula, and pay cash, otherwise the vested RSU will be canceled:

Number of vested RSUs * the estimated fair market value of the stock at the settlement date * the appliable highest marginal federal, state, local income tax rate and employment tax rate.

Even if no one pump up the stock price, the amount of cash needed in such a short notice, is unbearable, which will make most ex-employees to give up their shares.

Borrow against the RSUs. If you have more than $500k, this should be trivial to privately arrange. (If less, idk. Also, not legal advice!)

yeah i was going to suggest the same... there are companies that do this, and honestly anyone with a little cash will lend you the money assuming the stock isn't a totally ridiculous thing.

How are the RSUs managed? Are they in a brokerage account? You may well be able to borrow from the broker.

The shares are not in our brokerage account yet. According to the company, they need to confirm the tax payment to the company before the shares are transferred to the personal brokerage account.

> shares are not in our brokerage account yet

You don’t own shares. You own a right to future shares. Borrow against that. (If you want to roll your own loan, sell a deliverable forward. Again, not legal advice!)

And the important thing to note about those companies is that 100% of $0 is $0. X0% of a big number is still a big number, and still bigger than $0.

They'll take your estimation ? Does it have to follow that formula?

If on that day, the market price is higher than my estimation, they would inform me and give me 1 day time to pay the difference. If the market price is lower, then I'll have to go through the tax return process with IRS.

anyway, mail me at username at googles service. Some chance I have an answer

Sent the email. Thank you!

That's not a cashless sale. The company sells enough of your vested shares to cover taxes. The withholding the company sends to the IRS comes from some retail investor on the public stock exchange who buys those shares, not from the company's bank account. There's no loan involved and no risk the company has to take on.

> That's not a cashless sale. The company sells enough of your vested shares to cover taxes.

That’s cashless cover. (Cashless exercise is the company “sells” shares to itself to cover exercise cost, which is typically strike plus withheld taxes.)

These are ex-employees, so they’re not vesting anything any more. Vesting applies to your time at the company.

> These are ex-employees, so they’re not vesting anything any more

Vesting is the gradual accrual of ownership. Time-based vesting is based on time employed. Liquidity-based vesting typically instantly-vests the whole package on IPO. For an employee that means acceleration (whole package vests, irrespective of the time component) and conversion (RSU converts into equity). For an ex employee, it typically means just the latter (already time-vested RSUs turn into equity).

There are a lot of degrees of freedom with the above, which is partly why I believe RSUs are a scam next to options despite being pitched as being more downside resilient. (You aren’t being granted shares. You’re being granted a derivative that conditionally converts into shares.)

> RSUs are generally a worse deal than IPOs

Did you mean they are a worse deal than options?

I assumed it was a typo of “ISO”.

Reply on news.ycombinator.com