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Just a heads up, the 90 day out clauses are usually put in there by the company lawyers. The only rule the IRS has is that ISO options flip to NSO after 90 days[0].

Take a look at the Pinterest options plan[1], where Pinterest actually gives you 7 years from when you leave to exercise. Your ISO options just flip to NSO after 90 days.

[0] http://www.mystockoptions.com/faq/index.cfm/catID/36274DB1-D... [1] http://fortune.com/2015/03/23/pinterest-employee-taxes/

In this situation it would be great if there were something similar to the 83b letter for non-founder employees. I know too many people who have exercised options when leaving a company (and paid a hefty tax) only to see the value of the resulting equity trickle down to 0.

Yes, but if the 90 day expiration is in the plan, then it is 90 days. It doesn't matter why the lawyers put it in there, though IRS treatment is a reason why it is very common. You aren't going to be able to negotiate changes in the stock option plan with a company you are thinking of joining.

If you are working at a company like Pinterest with a more employee-friendly option plan, then you should value the stock options at a higher value as compared to less employee-friendly plans. I ultra-long expiration periods are awesome, and they are another practical method to deal with the longer period to IPO. These types of options aren't as good as having liquidity for the stock, but with them you can be sure that if you vest the option and the company value goes way up, you'll get the benefit from that.

The ISO -> NSO switch can have severe tax consequences for the employee. Even if your company doesn't expire your options in 90 days, consider exercising within 90 days anyway (and talk to a tax lawyer, etc.).

One not-as-obvious reason why companies are reluctant to set long expiration dates on options is because it means former employees take up space in the cap table even if they have no intention of ever exercising that option. The company essentially has to treat those shares as having been purchased, without having received any cash for said purchase. Cap table cruft can make it harder to negotiate subsequent funding rounds.

Oh noes! Don't disrupt the almighty cap table with a few peons worth of shares!

Please. These are discounted to zero by anyone worth a salt.

I've been hit with this too and it's not pretty at all.

If anyone else is concerned about this, you should talk with your CEO/legal team about early exercise options which can remove a lot of the risk of massive tax liabilities. From my understanding, some companies offer an early exercise option where you pre-purchase the shares and then instead of being able to buy the shares after they've vested, the company instead gradually loses the right to buy them back at the original strike price.

I'm not a tax lawyer, but Google "section 83(b) election" and you'll find more information.

What you're describing is called "restricted stock" (not to be confused with "restricted stock units", which are entirely different). The idea is that you actually buy the shares upfront at the current 409(a) (legal) valuation, but the company has a right to buy them back if you leave. Founders usually get their shares this way, because at the time of founding the valuation is essentially zero. Early employees may take this route too, but usually the company switches over to options after a funding round forces a non-negligible valuation. Some companies (like mine, at least so far) continue to let new employees choose.

The amount you would pay for restricted stock is exactly the same as what would otherwise be your strike price for stock options, assuming the same number of shares.

For an employee, the major down side of choosing restricted stock (assuming non-negligible valuation) is that if the company fails and the stock ends up being worth nothing, you don't get that money back. Whereas with stock options, you have more time to find out if the stock will be worth anything before you buy into it.

The up side is possible tax advantages, but of course I cannot give tax advice.

(All this is information I've learned while being the founder of sandstorm.io; I am not an expert in these things.)

PS. Don't forget to file your 83(b). (Any time you say "restricted stock" to a startup founder, they will instinctively reply with "Don't forget to file your 83(b)".)

You can also sometimes early-exercise an option (if the company authorizes it when they make the grant), which ends up being in practice a lot like buying restricted stock while still technically an option, and I think that's what the parent was referring to.

Weird, what is the reason to do that instead of restricted stock? It sounds functionally identical except more complicated and with possibly worse tax implications.

I'm sure there's some silly accounting reason having to do with option pools and cap tables.

Well since it's an option, the recipient has the choice to either exercise or not exercise, and they can early exercise at any time they'd like, not just on day one, so it's more flexible for the recipient.

On a restricted stock grant, the recipient has to either pay for the shares on day one, or the company gives them to the recipient for free and the recipient incurs a tax liability for the value of the stock on day one.

You can 83b options, too. It's not just restricted stock.

> you have to pay the exercise price + applicable taxes (which can exist even if you only have theoretical gains) yourself...

Is this certain? My understanding is that the spread between the current stock price and exercise price _can_ be taxed at the AMT rate. And if you were to sell the stock, you can get any taxes paid back in the form of an AMT credit. Still liable to pay capital gains or short term gains tax though at the sale. Without the AMT credit, it would essentially be double taxation.

If you don't have a seat in the board room, you are at the mercy of the board as to whether your options retain any value.

It's very easy for the board to completely dilute you to nothingness, and having exercised, well, the attitude is "fuck you" because there is nothing more you can give the company.