> But you only get the pay-out if you actually manage to last until the exit. If you leave before then, because of politics or some failed product push or what-have-you, then you will have to exercise your options, which puts you in a bind in terms of financial risk.
Employee #1 of a startup that sold for 9 figures chiming in. I loved the people I worked with (until we got to around 70+ and bureaucracy/meetings grew), the company had an amazing life/work balance (it was one of their core principles and it was real), I learned a bunch of things (a lot of dead knowledge now though), and it seemed like my best shot for $$ because I knew the product was good. It took a decade to sell. Around year 7 the company started changing and I grew to like working there less, but the possibility of the payout was still my best bet for a pile of cash. It was then that I really felt the golden handcuffs and grew anxious. I couldn't leave and keep my options because of the exercise tax. We finally sold and the amount I got was so embarrassing that they offered me a second pot of cash that was more reasonable, but still a far cry from what the founders got.
I probably could have made the amount over 10 years working for one of the bigs. I will never put on golden handcuffs again.
Not sure how to reconcile the fact that a) you had golden handcuffs because of the exercise tax and b) the amount u got was embarrassingly low. Was your strike price too large or something? Obviously you made a lot of money if you couldn't afford the taxes up front.
Typically exercising options gets taxed as regular income on the difference between option strike price & fair market value.
If OP had something like $300k of options, that'd be about a $100k tax bill assuming the strike price was appropriately low. Not a very big payout on a 9-figure exit, but also not pocket change for the taxes.
Well, if the "9 figure" was 100M, then 300k seems fair, since after 10 years of fundraisings and even minor dilutions, it's very easy and expected to go from 1% to 0.3%.
On the other hand, if the amount was 500M, 300k seems very low, hinting to a final ownership of ~0.06%. If that was true, even after considering all dilutions, that makes me think that OP didn't negotiate a fair equity package to begin with, since as employee #1 you should definitely have at least 1%.
I would love to understand how employee #1 got an "embarrassingly" low amount from a 9 figure sale, especially when you say that the exercise tax would have been high. What was the issue? I can think of:
1) Massive dilution or liquidation preferences?
2) Failure to negotiate significant equity at the beginning of the company?
Employee #1 of a startup that sold for 9 figures chiming in. I loved the people I worked with (until we got to around 70+ and bureaucracy/meetings grew), the company had an amazing life/work balance (it was one of their core principles and it was real), I learned a bunch of things (a lot of dead knowledge now though), and it seemed like my best shot for $$ because I knew the product was good. It took a decade to sell. Around year 7 the company started changing and I grew to like working there less, but the possibility of the payout was still my best bet for a pile of cash. It was then that I really felt the golden handcuffs and grew anxious. I couldn't leave and keep my options because of the exercise tax. We finally sold and the amount I got was so embarrassing that they offered me a second pot of cash that was more reasonable, but still a far cry from what the founders got.
I probably could have made the amount over 10 years working for one of the bigs. I will never put on golden handcuffs again.