7 ms·

Importantly they said within a year they will go public OR do a private market transaction to make employees liquid

by bbq 4y ago

Aqua_Geek 4y ago
That’s a LONG time (in total) for employees to wait for liquidity. Yes, they likely provided some opportunities for early employees to liquidate some of their holdings, but it’s got to suck to sit on that much funny money for so long.
- preinheimer 4y ago
  They've had several options for employees to liquidate some of their holdings before now. They've generally only been open to current employees, but one a few years ago was also open to past employees.
  - clintonb 4y ago
    Those offerings are only for options holders. RSUs cannot be traded; otherwise, every RSU holder has to pay taxes.
    - a_t48 4y ago
      This happened to me this year with another company. They opened up the ability to sell back RSUs, and a chunk of them got sold to pay for taxes.
    - lbotos 4y ago
      I assume Stripe is giving out "Double Trigger RSUs" then? https://blog.pragmaticengineer.com/equity-for-software-engineers/#5-double-trigger-rsus https://blog.pragmaticengineer.com/equity-for-software-engin... Otherwise people are getting taxed now anyway if they are getting RSUs at a private Stripe, right?
      - ywain 4y ago
        Correct. Stripe gave out stock options until around 2016 or 2017, then switched to double-trigger RSUs.
      - calr 4y ago
        Noob question that I am sure is answered many times. What are the catalysts for a private company switching from options to RSUs (double trigger). In my previous role I got RSUs (double trigger), but now at a much smaller startup I have an option package. As an employee RSUs are a bit easier to make sense of, but both are equity instruments at the end of the day. When, and why does that transition happen? Edit this is answered fairly well here: https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-double-trigger-rsu-vesting https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-do.... The TLDR is SEC rules and limited perceived upside of options (although I imagine that could be solved via a lower strike price).
        chimeracoder 4y ago
        > What are the catalysts for a private company switching from options to RSUs (double trigger). For employees at very early companies that are going the venture route, ISOs are a no-brainer. The company is small enough that the strike price isn't too onerous, the company is too small to hit up against the IRS limits, and they provide pretty good tax treatment under the assumption that the company will grow massively in value - like, 100,000x - which is the the optimistic case that everyone wants to optimize for. For employees at late stage companies (e.g. last funding round before IPO), ISOs are a rough deal. The strike price is large, so the only people who can afford to exercise them before a liquidity event are people who are already independently wealthy. The tax benefits are also still present, but smaller, because the expectation is that the company might grow 10x in valuation, but not 100x or 100,000x (most $100M companies are not going to grow to $10 trillion in valuation). RSUs avoid that problem, by requiring zero cash up-front, in exchange for less favorable tax treatment in the "company grows 100x-100,000x" case - which is fine, because that's less relevant. Of course, the billion dollar question is where the inflection point happens - when do RSUs become a better deal than ISOs? There's no universal answer to that, and some of that depends on specifics of the company, and some of that also depends on who you ask (certain people will benefit more than others from the switch at different points, so it depends on how much the company is weighing each of those [metaphorical] stakeholders). ISOs also have one other advantage for companies: because they have to be exercised within 90 days of departure, a large portion of ISOs that are granted will never actually be exercised (the employee will choose to leave them unexercised, either because they don't have the money to pay for the exercise price + taxes or because they don't want to). So every option granted is <1 share actually given up (in expectation), allowing the company to grant bigger compensation packages (because some portion of those will not actually be used, and can therefore be reallocated to someone else). With RSUs, every RSU granted is 1 share actually given up (except in the case where the RSUs expire, which makes the company look bad).
    - jcdavis 4y ago
      it can be done (via eg waiving the 2nd exit trigger and converting to common) but is pretty complicated
    - scarface74 4y ago
      As someone who only has dealt with public companies, how is that different from my having to pay taxes when my RSUs vest?
      - alasdair_ 4y ago
        At Stripe, when your RSU vest, you still don't have the ability to buy the shares. Instead you have to wait for a liquidity event, or for 7 years to pass (making the shares worthless).
        scarface74 4y ago
        With RSUs, stock is deposited in my brokerage account that I can sell anytime I want. I get to choose whether I want them to sell enough to cover taxes or whether I want to cover taxes some other way, So you get absolutely nothing liquid when you get your RSUs at Stripe? What’s the point and how is that different from getting stock options?
        zrail 4y ago
        Publicly traded stock gets deposited in your brokerage account because your employer is publicly traded. Private companies offering double trigger RSUs that don't turn into shares or cash until a liquidity event (I.e. an IPO). At that point (plus a lockup period, maybe, depending on how the company goes public) the shares, minus withholding, will get deposited into a brokerage account and be available to sell. (Disclaimer: I am a holder of Stripe RSUs)
- msoad 4y ago
  An IPO will be longer. With the locked out period it will be more than a year
  - makestuff 4y ago
    Not necessarily if they do a direct listing.
    - khazhoux 4y ago
      A direct listing would be very unfair to the banks that have patiently waited years to take a multi-billion-dollar chunk of Stripe’s upside in exchange for setting the IPO price (integer between 20 and 50).
      - mercedsownboy 4y ago
        Thank you for a great chuckle
        nerpderp82 4y ago
        > unfair to the banks
        WXLCKNO 4y ago
        I chuckled once more.
      - htrp 4y ago
        The level of shade is about as high as the expected ipo pop
      - yieldcrv 4y ago
        but at least in an IPO the company would get a financing round, and the banks get to manipulate the market with a stabilizing bid indefinitely direct listings completely rely on retail buyers for liquidity, and even in the frothiest markets that's not enough money in the face of all employees and the company dumping shares immediately

Importantly they said within a year they will go public OR do a private market transaction to make employees liquid

by bbq 4y ago

Importantly they said within a year they will go public OR do a private market transaction to make employees liquid

That’s a LONG time (in total) for employees to wait for liquidity. Yes, they likely provided some opportunities for early employees to liquidate some of their holdings, but it’s got to suck to sit on that much funny money for so long.

preinheimer 4y ago
They've had several options for employees to liquidate some of their holdings before now. They've generally only been open to current employees, but one a few years ago was also open to past employees.
- clintonb 4y ago
  Those offerings are only for options holders. RSUs cannot be traded; otherwise, every RSU holder has to pay taxes.
  - a_t48 4y ago
    This happened to me this year with another company. They opened up the ability to sell back RSUs, and a chunk of them got sold to pay for taxes.
  - lbotos 4y ago
    I assume Stripe is giving out "Double Trigger RSUs" then? https://blog.pragmaticengineer.com/equity-for-software-engineers/#5-double-trigger-rsus https://blog.pragmaticengineer.com/equity-for-software-engin... Otherwise people are getting taxed now anyway if they are getting RSUs at a private Stripe, right?
    - ywain 4y ago
      Correct. Stripe gave out stock options until around 2016 or 2017, then switched to double-trigger RSUs.
    - calr 4y ago
      Noob question that I am sure is answered many times. What are the catalysts for a private company switching from options to RSUs (double trigger). In my previous role I got RSUs (double trigger), but now at a much smaller startup I have an option package. As an employee RSUs are a bit easier to make sense of, but both are equity instruments at the end of the day. When, and why does that transition happen? Edit this is answered fairly well here: https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-double-trigger-rsu-vesting https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-do.... The TLDR is SEC rules and limited perceived upside of options (although I imagine that could be solved via a lower strike price).
      - chimeracoder 4y ago
        > What are the catalysts for a private company switching from options to RSUs (double trigger). For employees at very early companies that are going the venture route, ISOs are a no-brainer. The company is small enough that the strike price isn't too onerous, the company is too small to hit up against the IRS limits, and they provide pretty good tax treatment under the assumption that the company will grow massively in value - like, 100,000x - which is the the optimistic case that everyone wants to optimize for. For employees at late stage companies (e.g. last funding round before IPO), ISOs are a rough deal. The strike price is large, so the only people who can afford to exercise them before a liquidity event are people who are already independently wealthy. The tax benefits are also still present, but smaller, because the expectation is that the company might grow 10x in valuation, but not 100x or 100,000x (most $100M companies are not going to grow to $10 trillion in valuation). RSUs avoid that problem, by requiring zero cash up-front, in exchange for less favorable tax treatment in the "company grows 100x-100,000x" case - which is fine, because that's less relevant. Of course, the billion dollar question is where the inflection point happens - when do RSUs become a better deal than ISOs? There's no universal answer to that, and some of that depends on specifics of the company, and some of that also depends on who you ask (certain people will benefit more than others from the switch at different points, so it depends on how much the company is weighing each of those [metaphorical] stakeholders). ISOs also have one other advantage for companies: because they have to be exercised within 90 days of departure, a large portion of ISOs that are granted will never actually be exercised (the employee will choose to leave them unexercised, either because they don't have the money to pay for the exercise price + taxes or because they don't want to). So every option granted is <1 share actually given up (in expectation), allowing the company to grant bigger compensation packages (because some portion of those will not actually be used, and can therefore be reallocated to someone else). With RSUs, every RSU granted is 1 share actually given up (except in the case where the RSUs expire, which makes the company look bad).
  - jcdavis 4y ago
    it can be done (via eg waiving the 2nd exit trigger and converting to common) but is pretty complicated
  - scarface74 4y ago
    As someone who only has dealt with public companies, how is that different from my having to pay taxes when my RSUs vest?
    - alasdair_ 4y ago
      At Stripe, when your RSU vest, you still don't have the ability to buy the shares. Instead you have to wait for a liquidity event, or for 7 years to pass (making the shares worthless).
      - scarface74 4y ago
        With RSUs, stock is deposited in my brokerage account that I can sell anytime I want. I get to choose whether I want them to sell enough to cover taxes or whether I want to cover taxes some other way, So you get absolutely nothing liquid when you get your RSUs at Stripe? What’s the point and how is that different from getting stock options?
        zrail 4y ago
        Publicly traded stock gets deposited in your brokerage account because your employer is publicly traded. Private companies offering double trigger RSUs that don't turn into shares or cash until a liquidity event (I.e. an IPO). At that point (plus a lockup period, maybe, depending on how the company goes public) the shares, minus withholding, will get deposited into a brokerage account and be available to sell. (Disclaimer: I am a holder of Stripe RSUs)
msoad 4y ago
An IPO will be longer. With the locked out period it will be more than a year
- makestuff 4y ago
  Not necessarily if they do a direct listing.
  - khazhoux 4y ago
    A direct listing would be very unfair to the banks that have patiently waited years to take a multi-billion-dollar chunk of Stripe’s upside in exchange for setting the IPO price (integer between 20 and 50).
    - mercedsownboy 4y ago
      Thank you for a great chuckle
      - nerpderp82 4y ago
        > unfair to the banks
        WXLCKNO 4y ago
        I chuckled once more.
    - htrp 4y ago
      The level of shade is about as high as the expected ipo pop
    - yieldcrv 4y ago
      but at least in an IPO the company would get a financing round, and the banks get to manipulate the market with a stabilizing bid indefinitely direct listings completely rely on retail buyers for liquidity, and even in the frothiest markets that's not enough money in the face of all employees and the company dumping shares immediately