Should you buy your stock options when you quit?

73 点作者 nealrs超过 5 年前

25 条评论

gfodor超过 5 年前

Anecdotes don’t really matter much on this question. What matters is a) what information do you have at the time you quit b) how much capital do you have and c) what is your risk tolerance.Basically it boils down to your prediction if the stock is going to be worth more than your strike price when it becomes liquid, and if you can tolerate the loss if you predict so and are wrong. Some scenarios this is a very good bet: you were early, your strike price is low, the company has had several valuations well above the strike price, the financials are healthy, and you can absorb the loss if you are wrong. The magnitude of the upside seems like it shouldn’t be a factor, if these are true, if you think the risk adjusted return can beat the market. In most cases where it is sane to exercise your options you’re expecting a multiple return, not a few points, so it basically should be irrelevant how much upside there is in absolute terms, once you’ve determined a full loss is tolerable.

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jefftk超过 5 年前

> Most startups only give you 90 days to buy your options once you leave. After that, they expire and revert back to the company.This is the real problem here. While this used to be standard, many startups have started offering employees the maximum ten years allowed by the IRS. This is something to consider when joining a company: if they're not willing to give you the full ten years, why not? More: <a href="https://triplebyte.com/blog/extending-stock-option-exercise-window-guide" rel="nofollow">https://triplebyte.com/blog/extending-stock-option-exercise-...</a> <a href="https://zachholman.com/posts/fuck-your-90-day-exercise-window/" rel="nofollow">https://zachholman.com/posts/fuck-your-90-day-exercise-windo...</a>

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imroot超过 5 年前

I worked for CollabNet from 2005-2010.When I left, I bought my stock options.I got a friendly letter in the mail a few years later telling me that the company had been restructured, and that my shares are now worthless.If I'm getting shares as a part of equity, then I'll consider that as part of my comp package...however, if they're stock options, I generally completely disregard them: I haven't yet met a startup to change my mind.

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caseysoftware超过 5 年前

The single best source that I've found - short of a CPA familiar with stock - is David Weekly's book: <a href="https://blog.dweek.ly/introduction-to-stock-options-startup-founder-entrepreneur-employee/" rel="nofollow">https://blog.dweek.ly/introduction-to-stock-options-startup-...</a>I was an early employee at Twilio (#25) and much later at Okta. Following his advice saved me thousands when I early exercised in both cases. My only complaint is that I didn't find and apply his advice sooner.The author is right. Most of the time it doesn't make sense to exercise. If you join early, the strike price will be lower but the risk will be higher aka the odds are lower. If you join later, the strike price will be higher but the risk should be lower aka the odds are better.Regardless, having the liquidity at the right time can be hard, especially if you're caught in a layoff and don't have savings.

zaroth超过 5 年前

One factor for me would be if the company was aggressive enough in its 409a valuations of common stock.If they are valuing the common stock based on the last funding round which sold preferred shares, you are likely significantly overpaying both for your exercise price and in AMT tax, and that makes the investment significantly riskier.If common share FMV is discounted appropriately, IMO a 409a valuation will reflect the extreme risk of common shares dilution in an unprofitable venture with large investor preferences, and you should have a very low exercise price with little to no AMT unless the company is already well into planning an IPO.At past companies I saw common stock valuation that matched the funding round valuation, and you should never be paying that price for common shares. 1/10th that price is a good rule of thumb.The second most important factor is that you can’t ever sell shares in a company that doesn’t have a market for its shares. That vast majority of companies do not have, and never will have, marketable securities.The third factor for me would be if the shares are eligible for QSBS Section 1202 treatment (tax free up to $10 million), which ISO options are not, but NSOs can be but the 5 year holding period starts at the exercise date.

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akavi超过 5 年前

A couple of points1) "Don’t forget though, you’ll have to pay taxes, because the value of your shares is likely greater than the price you paid to buy them."This is not true if, like most stock options, yours are ISOs and you don't hit AMT.2) "I didn’t have enough money"There are now places that'll loan you money secured against the value of the shares themselves. If the alternative is not exercising the shares at all, this is a pure win (these services eat into your profits, but some is better than 0)3) "I didn’t have enough time"It's increasingly common for startups to have much more generous time spans for exercise. The 90 day window is required by law for ISOs, but many companies now autoconvert at the 90 day mark to NQSOs with much longer time spans, up to 10 years in some cases (Stripe, Pinterest, and Flexport are examples). This is something you should ask about before joining a company.4) "I didn’t think the company would survive"/"I have a low risk tolerance"These are the only ones that really matter. Like any investment, you gotta weigh the ROI and risk against your preferences.

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jrdngonen超过 5 年前

As the author mentions, these sort of decisions can be very nuanced (thinking about valuation, dilution, liquidation preference, exit value, etc.).Happy to help anyone thinking through these situations.Put together some helpful resources and tools here: <a href="https://withcompound.com/equity" rel="nofollow">https://withcompound.com/equity</a>Some other useful guides:<a href="https://www.holloway.com/g/equity-compensation" rel="nofollow">https://www.holloway.com/g/equity-compensation</a><a href="https://fortune.com/2016/09/27/the-complete-guide-to-understanding-equity-compensation-at-tech-companies/" rel="nofollow">https://fortune.com/2016/09/27/the-complete-guide-to-underst...</a>

compumike超过 5 年前

Two workarounds:1. Join a startup pre-Series A where the strike price is minimal because there hasn't been a priced equity round yet. Early exercise.2. Join startups that support Extended Exercise Windows. <a href="https://github.com/holman/extended-exercise-windows" rel="nofollow">https://github.com/holman/extended-exercise-windows</a>

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joeblau超过 5 年前

I worked at a company from 2011 - 2013 that gave me the offer to buy out my options. I'm glad I didn't because that company was going out of business. The entire executive leadership team was swapped out 3 times over the course of 6 months by the board and we were getting crushed by competition. It was only a couple thousand dollars but I would have just lost it. The answer to this really depends on your situation and a lot of the points touched on in the post.

denton-scratch超过 5 年前

This is a question of risk-appetite. I'm with the OP (I think); I like safety. Age is a factor (I'm no spring chicken, and anyway I can't wait that long for stuff to mature).But I've also throughout my career aspired to be a skilled tradesman; I've tried to do a productive job well, rather than to try to lever myself up on the skills of others.It hasn't made me rich (surprise!), but I'm happier than at least some of my colleagues who chose the more-enriching path.

thorwasdfasdf超过 5 年前

I worked at a startup for 5 years. the company recently had been valued at 700Million but only had 1 secondary offer, where I sold as much stock as they would let me (15% ~ worth roughly 6k pretaxes).And when I left I had more stock options than anyone else there. But, the fact that they didn't have more liquidity events and the fact that I couldnt sell more of my stock, is kinda of a red flag. If no one else in the market wants the investment (no liquidity events), it's usually a bad sign. It was a pretty easy decision to not buy the rest of it. I think most of my coworkers bought theirs. Of course, it turned out they were all worthless.

rb808超过 5 年前

Also remember in these situations its usually not all or nothing. You can buy half your options, or just a fraction. That makes the choice less stressful.

Blackstone4超过 5 年前

Stock options are often for common stock and if its in a VC backed company, the VC's will invest in the form of preffered equity which is like permanent debt with no interest payments. If the company is sold for 20% less than the last round, the VCs will be paid first and the common equity gets what is left over which could be 20%, 50%, 100% lower than what you thought you might get. So be careful....

pianom4n超过 5 年前

If the 409a price is greater than the strike price, of course you exercise. If you don't want to hold it just sell it back to the company.Also this gets the tax treatment totally wrong. It's not treated as regular income when you exercise, only AMT income. This is a huge difference because the large default AMT credit means that you can exercise a substantial amount without paying taxes.

cik超过 5 年前

As usual, Slate Money had a stellar podcast segment about exactly this two weeks ago. I recommend having a listen.<a href="https://slate.com/podcasts/slate-money/2019/08/slate-money-answers-your-questions" rel="nofollow">https://slate.com/podcasts/slate-money/2019/08/slate-money-a...</a>

yalogin超过 5 年前

If you are at a startup and decide to leave doesn't that also mean that you don't believe in the company anymore? I understand that there are always cases like better position or other personal issues that make people move but for the most part the original statement holds true. So you don't buy out the stock options and move on.

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agrippanux超过 5 年前

Short answer, from experience: unless the company is on a clear track to a liquidation event, no.That said I bought half the options of my last company because the strike price -> FMV was great enough to take the risk. However I consider that a gamble equal to rolling pass line in Vegas, and I didn't make the bet with money I needed to live on.

whymsicalburito超过 5 年前

Are there tax benefits to exercising early? Hypothetically say I have some options with a pretty cheap exercise price, and I think the company will be taking on PE money in the near future, AND I have faith that the company will successfully exit in the future, will exercising early save me some taxes?

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m4gw4s超过 5 年前

Is there a way to set a reminder to read it again when one of those companies exits/wraps up?

MK_Dev超过 5 年前

"What’s 75%, of half a percent, of a million dollars? $37,500"It's a risk, and as such, one should aim at a billion, not a million, that's what investors expect anyway. So by that logic, the return could be much much bigger.

jpm_sd超过 5 年前

TL;DR: No. (Betteridge's Law-compliant!)Which matches my experience. Think about why you're leaving - probably for reasons which might help predict the company's future.

purplezooey超过 5 年前

Well ask the folks at Cloudera and MapR. Doubt that played out well for many.

nraynaud超过 5 年前

funny, I have actual full shares of an old company I used to work for (got the shares at a discount instead of options), but I'm still waiting for the phone call telling me I'm rich.

draw_down超过 5 年前

I wish this would get discussed in the context of options that actually would be worth something, just once. Seems like a much easier decision when you’re talking about a company that hasn’t experienced much interesting growth and is likely not going anywhere.

jiveturkey超过 5 年前

blah blah blah another yawner ... we all know where this is headed and it's cut and dried math.wait wait, no there are some valuable insights here:> You make decisions based on what you know, not by looking at a crystal ball.> I didn’t want to look back. [...] To me, the possibility of missing out on a big payday wasn’t worth the cost to my psyche.