Ask HN: Leave and exercise shares (and get poor), or stay put (and get bored)?
9 comments
> They are currently worth $200,000
According to whom? Is there a secondary market or is this just the FMV from the last valuation? If there is no liquidity, they might be "worth" $200k for tax purposes, but as with most startups there is a chance that everything falls apart and that there is no liquidity event.
> exercising them would cost me $25,000
I would double check what your expected tax bill would be, because it sounds like you might have $175k worth of paper gains. The effective cost to exercise might be much higher depending on where you live and your tax situation.
Lastly, if you are the Head of Product at a startup, I would assume that you could find a high enough paying job so that $25k isn't a significant burden on you, assuming you don't live above your means. Getting some offers may help you decide in the end.
According to whom? Is there a secondary market or is this just the FMV from the last valuation? If there is no liquidity, they might be "worth" $200k for tax purposes, but as with most startups there is a chance that everything falls apart and that there is no liquidity event.
> exercising them would cost me $25,000
I would double check what your expected tax bill would be, because it sounds like you might have $175k worth of paper gains. The effective cost to exercise might be much higher depending on where you live and your tax situation.
Lastly, if you are the Head of Product at a startup, I would assume that you could find a high enough paying job so that $25k isn't a significant burden on you, assuming you don't live above your means. Getting some offers may help you decide in the end.
Good point. The $200,000 are calculated on a "share price" communicated internally but on Carta, the FMV is lower.
I'll check the tax bill, thank you.
30% of your saving at 25k is nothing. Head of product at series A-B company should be north of 200k salary. Just buy your shares and be a big frugal about eating out for a year.
Sounds like you're on the fence about leaving, first step is decide if you want to leave or not. Then plan how to exit and retain some value in the equity (if it's worth it). Be open about your plans to exit the company and if the founders trust you, they'll work it out with you.
You should try to negotiate a conversion of your ISO shares to NSO shares, and extend the exercise window by 7 years. This will change the tax profile a bit for the shares, but allow you to keep your equity and still leave to do something else. It's a common option, but not given as an option to every employee, only those who are well vested. But it's way better than losing your shares with a 90 day exercise window.
If they won't go for that, you should ensure that you know what the current 409a value is for the company. Ask one of the finance folks to help you answer that question. If it is lower than the strike price on your ISOs, you are underwater on the options and you should not exercise and instead let them expire. You'd be better off investing the $25K on something else with better returns.
You should try to negotiate a conversion of your ISO shares to NSO shares, and extend the exercise window by 7 years. This will change the tax profile a bit for the shares, but allow you to keep your equity and still leave to do something else. It's a common option, but not given as an option to every employee, only those who are well vested. But it's way better than losing your shares with a 90 day exercise window.
If they won't go for that, you should ensure that you know what the current 409a value is for the company. Ask one of the finance folks to help you answer that question. If it is lower than the strike price on your ISOs, you are underwater on the options and you should not exercise and instead let them expire. You'd be better off investing the $25K on something else with better returns.
Thank you! I wasn't aware of the conversion from ISO to NSO.
The FMV is above the strike price but as I just said above it is also below the "share price" the company communicates internally. It is just 3 times the strike price.
If the series B valuation is higher, then AMT will apply on the increase, which can make your tax bill very high (higher than the amount of cash you have in some situations). So waiting doesn't work very well either.
In my opinion, joining startups after Series A and before they switch to RSUs just doesn't work. It is not possible to make it work financially. (Without a 7-10 year exercise window).
I'm not certain what you should do, but consider that if you feel trapped now, you will continue feeling trapped in the future. Also, you may be able use your current equity as leverage in a negotiation for a new role, and get a bigger offer in a company that offers you the equity on fair terms.
Finally, I've heard of secondary markets working for people, but I don't know anyone directly who's used them.
In my opinion, joining startups after Series A and before they switch to RSUs just doesn't work. It is not possible to make it work financially. (Without a 7-10 year exercise window).
I'm not certain what you should do, but consider that if you feel trapped now, you will continue feeling trapped in the future. Also, you may be able use your current equity as leverage in a negotiation for a new role, and get a bigger offer in a company that offers you the equity on fair terms.
Finally, I've heard of secondary markets working for people, but I don't know anyone directly who's used them.
Jeff Bezos — regret minimization framework: https://www.youtube.com/watch?v=jwG_qR6XmDQ
Séries A is a very early stage and I think you’d get better odds than 7/1 elsewhere. I’m not sure what you’re hoping to gain from Series B as even if you get more equity there’ll likely be a year’s cliff so that’s 3 more years of boredom. It’s not all about money either, go and do something that excites you.
How well do you know your Series A investors?
A long runway, without growth, is a ticking time bomb if VCs are in the picture. Unless you really know and trust your investors... cash out now.
A long runway, without growth, is a ticking time bomb if VCs are in the picture. Unless you really know and trust your investors... cash out now.
Why?
Because VCs are not out to gain a small profit. They are out for large returns, so letting their investment funds stagnate for multiple years in a low-growth, slow-burn environment lacks that potential for a massive return... that is a failure against their investment goals.
Yes that’s the case. But so what? What does that have to do with the company being successful down the line? They also can’t stop a small exit unless they got enough ownership
But they've already invested in series A. Is the concern that those same investors won't be interested in series B?
How many years of experience do you have? And what % equity do you own of the company?
cant u stay and build something on the side while staying? or u really want an out?
I'm currently the Head of Product at a startup in the Series A stage. Like many others, we feel the recession, but we're not complaining. We have a few years of runway. We're mainly experiencing a significant slowdown in our growth. Our ARR hasn't changed much this year. This essentially means that our Series B funding round is pushed back to 2025 (if it happens at all)
I'm in a pretty good position, enjoy a good working environment, and have earned the trust of my founders. However, I'm increasingly feeling bored and eager to take on new challenges. After four years here, it feels like I've explored all aspects of my role.
Yet, I find myself feeling somewhat trapped by my company shares. They are currently worth $200,000, and exercising them would cost me $25,000. While I do have the funds, it's a substantial chunk of my savings, about 30%. On the flip side, I'm confident in the company's potential and believe these shares could increase in value. The company isn't overvalued at the moment. In case of an exit, there's a good chance for a significant profit, which is crucial considering I live in a high-cost real estate area where a decent salary alone doesn't cut it for home ownership. These shares might be one of my few, possibly only, shots at building substantial wealth. Of course, I know I could also lose everything.
I'm reaching out for advice because I'm at a crossroads. This situation is new to me, and I'm not even sure what information I should be considering to help make this decision. My initial plan was to wait until the Series B round, as it seemed to significantly lower the risk of loss. But with the Series B now pushed back by two years, I don't know. I'm not sure I can wait that long, yet I'm also not ready to make a snap decision about acquiring these shares.
Should I wait? Should I go ahead and acquire all the shares? Should I leave and acquire none? Or should I leave and only acquire a portion of the shares? I know there's no definitive answer, but I would appreciate some insights to help lean towards a decision. I feel unable to make this decision alone right now.
Has anyone been in a similar situation?
Thanks a lot for your insights.