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Comment by itake | Hacker News Reader

I'm curious how the employees faired. Seems like they may bet getting nothing out of the deal if the investors get their money back.

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These days, most employees getting nothing out of the deal is par for the course for acquisitions, unfortunately. The acquisition price is almost never exchanged directly for shares in the company as implied, often a chunk of it is kept for key personnel retention, etc. Typically just enough goes towards the share purchase to make investors happy, and the rest is structured as incentives for founders and key execs with milestone payouts. That‘s the set of people with leverage towards making the acquisition happen, so that‘s who gets paid.

If you‘re just a regular employee with some options, and the acquirer doesn‘t want to keep you on, you should expect nothing.

> Typically just enough goes towards the share purchase to make investors happy, and the rest is structured as incentives for founders and key execs with milestone payouts.

So they're getting the employees' shares without compensating the employees?

And there's incentives paid to the people who approved the deal, separate from their shares?

(I've heard of liquidation preferences, but never by the person making a job offer with stock options. Bribery also never came up.)

Because “shares” are not all the same. Preferred vs common, so unless you negotiated some kind of preferred share terms, assume your shares are worthless. For a non publicly listed company. For a publicly listed company, the details are all publicly available, so the different types of shares will have their different prices be easily available to see.

If that's true, when a startup is making you an offer for ISOs of common shares, and explaining it... how likely are they to know that, in event of a successful exit for the startup, your shares would be diluted and preferenced to 0 value?

(The two most recent offer equity components I accepted were "2%" and "a million shares". On the latter, an upper exec did a kind of deal-closer meeting for their offer, showing me a spreadsheet, estimating how much the options would be worth if there were an exit in X years at $Y valuation.)

> If that's true, when a startup is making you an offer for ISOs of common shares, and explaining it... how likely are they to know that, in event of a successful exit for the startup, your shares would be diluted and preferenced to 0 value?

If they have any experience, or even just browse a forum like this, they should be 100% likely to know. The person on the opposite side of the negotiating table has a goal of giving you as little as possible in exchange for your work (and vice versa).

Yes, and yes. The sibling comment here about liquidation preferences is correct, and these separate incentives are usually structured as retention incentives — eg, compensation for future work with the acquiring company.

Shareholders are of course free to sue the board for acting outside of the interests of the shareholders overall, but this happens very rarely because typically the company would otherwise be shutting down and it’s very hard to make the argument that the deal undervalues common shareholders’ shares.

Brex has been around for a long time, so employees will have been issued stock options with vastly different exercise prices.

Early employees' options will have value, but more recent options are likely underwater.

I strongly suspect they shifted to RSUs at those valuations.

It seems unlikely that regular employees would be issued RSUs. Tax is due at vest, and you can't liquidate to fund the tax bill.

The usual move here is "double trigger" RSUs that don't vest until a liquidity event, thus no taxes due until said liquidity event.

Are those common for regular employees?

highly common

Right. Plus often the tax is paid out of RSUs given, you just get less in RSUs, some is subtracted to pay tax.

There's double trigger RSUs and so on that allow you to have reasonable tax treatment, due to the theoretical threat of loss if liquidity isn't available. I worked at a company that had this at least while I was there.

I was a regular SDE at brex for a couple years and my various documents about comp say I have RSUs, and carta says so as well.

I've never bothered to understand the details since none of the private companies I've worked for have had the non-cash portion of their comp be worth anything but $0 before.

Nope, you as a company owner are highly motivated to shift to RSUs once you hit a certain valuation and number of employees. Everyone does it.

Can you expand on why at a certain valuation and size you would shift?

options can only last 7 years, but brex was founded in 2017.

When the options expire do they give new equivalent ones to the employees that hung on? Otherwise what’s the point?

You can exercise the options before that time is up, paying the strike price to convert them to shares

But then you’re potentially stuck with worthless options you can never trade, right? Seems very unfriendly to employees

> Seems very unfriendly to employees

Ding ding ding ding ding!

Most ICs figure this out sooner or later. Unfortunately many only discover it after being screwed hard financially.

You have to exercise the options or let them expire. You normally have 10 years not 7, but if a company comes up on 10 years after they issued their first options, they might try a tender offer to buy some employee shares. If your 10 year old "start up" shares can't be sold anywhere, then they probably aren't worth exercising. A company that can't provide liquidity to employees for 10 years will probably never do it.

Who says options can only last 7 years?

ISO options have to expire within 10 years of when they are granted. Sometimes companies make them expire earlier than that, so OP might be thinking of options they were granted. E.g. I once had options that expired 30 days after ending employment even thought the ISO requirement is up to 90 days.

While I don't think it's the case here, but a lot of time there is more liquidity preference than the deal value so employees can only get what investor want them to pay.

We know how the employees did. Same as ever. They got whatever slop was left in the trough after the big pigs ate their share.

Bitter about VCs? Me? Never.

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