I will not exercise my Gitlab stock options (2017)(web.archive.org)
web.archive.org
I will not exercise my Gitlab stock options (2017)
https://web.archive.org/web/20170405000833/https://medium.com/@patocano/why-i-will-not-exercise-my-gitlab-stock-options-bf6f3dda62e
80 comments
When a startup has $500M in runway and the devs are taking in more than a median salary why must equity stakes be a requirement?
"Salary" is not "total compensation".
IMO, part of working for a startup is accepting the risk/instability. Another part is taking on responsibility at a much faster rate than you otherwise would.
That's typically compensated via equity.
IMO, part of working for a startup is accepting the risk/instability. Another part is taking on responsibility at a much faster rate than you otherwise would.
That's typically compensated via equity.
How is a startup with 5 years of runway riskier than a non-startup with $100M revenue? The only difference is that the money comes from sugar daddies rather than paying customers. In the olden days working for a startup entailed below market pay and equity was the reward for slogging it out.
They recommend you split 10% across the first 10 employees. it's not 10%/10 = 1% each. The earliest engineers get more, the later engineers get less.
The 90 day stock options exercise window should be made illegal. It should be 10 years or indefinite. Employees, like the author here, earned their stock options. It's wrong that they get stolen back just because its an "industry norm" established by greedy assholes in the 1980s.
The author of this post played an important role in GitLab's early development. They deserve to have their $1 million payday now that it is public, regardless of how they felt in the months after being fired.
They were robbed by GitLab's unethical stock options terms.
Employees also get screwed when they, under time pressure, exercise stock options which then go on to be worthless. And when they simply can't afford to exercise options. It's a huge flaw in the current startup system.
It would be great if YC used its muscle to actually fix this problem. Startup employees are getting screwed by this every day, in many cases by YC companies.
The author of this post played an important role in GitLab's early development. They deserve to have their $1 million payday now that it is public, regardless of how they felt in the months after being fired.
They were robbed by GitLab's unethical stock options terms.
Employees also get screwed when they, under time pressure, exercise stock options which then go on to be worthless. And when they simply can't afford to exercise options. It's a huge flaw in the current startup system.
It would be great if YC used its muscle to actually fix this problem. Startup employees are getting screwed by this every day, in many cases by YC companies.
> And when they simply can't afford to exercise options.
fwiw if anyone is ever in this spot personally... there are almost always VCs/banks/investors/coworkers willing to front the cash to exercise options in exchange for some upside on the potential gain (I think there are entire startups based on this premise?). It's def worth asking around.
fwiw if anyone is ever in this spot personally... there are almost always VCs/banks/investors/coworkers willing to front the cash to exercise options in exchange for some upside on the potential gain (I think there are entire startups based on this premise?). It's def worth asking around.
Could anyone clarify if the 90 day window is driven by tax regulations or driven by private company conventions?
Sorry, this is totally insane. The author said the strike price on his options is $0.27. Gitlab is preparing to IPO at about $66, which would make his 15,000 shares worth nearly $1 million. He's going to throw that away because he's disgruntled with the company?
https://www.sec.gov/Archives/edgar/data/0001653482/000162828...
Edit: I thought this was a recent post, didn't realize this was from 2017.
https://www.sec.gov/Archives/edgar/data/0001653482/000162828...
Edit: I thought this was a recent post, didn't realize this was from 2017.
Let this be a reminder that the market could not care less about things such as ethics or keeping your employees happy and productive. Or the environment, or following laws, or anything else. It only cares about current and future numbers. You, as an employee, are a number - and a not very important one.
If anything, the stock price tends to go up when a company announces layoffs(sometimes even if what prompted that was financial distress).
The Borg Collective could go IPO on "Assimilation Enterprises Inc" and it would likely have an outstanding valuation.
When making financial decisions, it's one thing to vote with your wallet. It's another thing to not want to 'invest' in a company because they wronged you in some way. It was a business transaction to them, it should be a business transaction to you.
I get that the author had all reasons to think the company would go under (high churn for one, competition, etc), which would make his options worthless if that were the case.
Ultimately though, he got offered a bunch of options for a small price. There are drawbacks to exercising them, as he pointed out. But the way he was personally treated should not have factored in his decision.
I hope he bought bitcoins in 2017, at least.
If anything, the stock price tends to go up when a company announces layoffs(sometimes even if what prompted that was financial distress).
The Borg Collective could go IPO on "Assimilation Enterprises Inc" and it would likely have an outstanding valuation.
When making financial decisions, it's one thing to vote with your wallet. It's another thing to not want to 'invest' in a company because they wronged you in some way. It was a business transaction to them, it should be a business transaction to you.
I get that the author had all reasons to think the company would go under (high churn for one, competition, etc), which would make his options worthless if that were the case.
Ultimately though, he got offered a bunch of options for a small price. There are drawbacks to exercising them, as he pointed out. But the way he was personally treated should not have factored in his decision.
I hope he bought bitcoins in 2017, at least.
It’s from 2017. If he had a crystal ball he probably would have exercised the options, the post indicates he didn’t believe in the company back then.
Not sure the point of posting it now, feels a little bit like dancing on his grave.
Not sure the point of posting it now, feels a little bit like dancing on his grave.
Got it, didn't see that.
ouch
The article is 4 years old. I'm not saying it was a smart move, but at the time he would have had to pay taxes that he might not have been able to afford. I know people that left SpaceX options on the table because they couldn't afford the taxes.
I'm 99% positive there are entire companies dedicated to financing the tax bill for these types of taxes, just to get a cut of the equity.
EDIT: See https://www.esofund.com/ There are other newer places also like https://join.equitybee.com/
Also, brokers who create a secondary market for this equity will also arrange financing, but it depends on the "hotness" of the equity.
SIDE NOTE: If you have SpaceX stock, and you're going to leave it on the table due to taxes, reach out to me and I can arrange for something also. But go to ESOFund, etc first of course - those are professional outfits.
EDIT: See https://www.esofund.com/ There are other newer places also like https://join.equitybee.com/
Also, brokers who create a secondary market for this equity will also arrange financing, but it depends on the "hotness" of the equity.
SIDE NOTE: If you have SpaceX stock, and you're going to leave it on the table due to taxes, reach out to me and I can arrange for something also. But go to ESOFund, etc first of course - those are professional outfits.
Can you point to some example(s) of companies that finance exercising private company options?
I edited my original post. See https://www.esofund.com/
There are other newer places also like https://join.equitybee.com/
Thanks!
how much was the 409a valuation in 2017? $2-$3 a share? 15000 at $3 is $45K. assume all profit, lets say between federal and state he had to pay 40% on that (assuming its not long term capital gains, might very well be, and he's in a high tax state and has a high yearly income). so he would have to pay another 18k at most on top of the few thousand to excercise his options). though possibly less, as I said about long term gains.
18k isn't a small chunk of change, but it should be managable by most engineers. going from 4000 (.27*15k) to 20+K is a big jump, but it shoudn't be what scares you away.
18k isn't a small chunk of change, but it should be managable by most engineers. going from 4000 (.27*15k) to 20+K is a big jump, but it shoudn't be what scares you away.
He should have at least exercised exercised a single NSO for 27¢. At least then he'd be kept in the loop to a certain extent.
wouldn't his shares have likely been a little diluted in further rounds of funding?
They would get diluted if the company did something like a three for one trade (which happened to me and I know Gitlab did not), but in the case of an IPO there isn't dilution. Dilution matters when a company is getting bought by another company.
Actually, it is normal for there to be dilution in each funding round, including an IPO.
The post is from April.
...in (2017) before leaving GitLab.
Tomorrow on the 14th of October 2021, GitLab is going to the public markets and will be priced around $60 - $66 a share. So this person threw away his $1m worth of stock options because of GitLab's culture.
Oh dear.
Tomorrow on the 14th of October 2021, GitLab is going to the public markets and will be priced around $60 - $66 a share. So this person threw away his $1m worth of stock options because of GitLab's culture.
Oh dear.
That's easy to say in hindsight, but most startups fail.
Most startups aren't valued at $1.5 billion, which GitLab was at the time this article was written. Once a startup reaches that valuation, it's already been mostly de-risked.
Ehhh but... $4,000 to exercise the shares? You have to be REALLY REALLY confident a startup is going to 100% no-soft-exit fail to not take that bet, given the vastly positive payout even an acquihire exit would give, given how cheap that strike price is.
$4,000 to exercise and $250,000 in taxes on shares that they wouldn't be able to sell for another four years. The AMT heavily punishes exercising options in pre-IPO companies.
In 2017 when making this choice, presumably the FMV would not have been anything close to what it is now, and there's little to no issue with AMT.
$4000 to exercise, but a lot more in taxes. Given that his shares were worth about 1/6 of what they are now, and assuming the FMV for tax purposes was about 1/3 that, he would have to pay income tax on $60k worth of paper gains. That's an additional 20-30k depending on the state.
Not hard to make that at a FAANG org with RSUs in 4 years. If they had vested the entire amount that would be have been a decent exit.
Any way you slice it it's a million dollars.
4 times your annual salary in one lump payment is a life-changing sum of money for most people.
4 times your annual salary in one lump payment is a life-changing sum of money for most people.
[deleted]
_sigh_
[deleted]
[deleted]
It's really, really hard to know what your options will be worth years into the future. You make the best decision with the information you have available at the time.
A cold-hearted, unemotional, calculation might have led him to a different conclusion four years ago--cheap options are very cheap, so the risk is low. But it is very hard to know that. And if a company has done you wrong, not giving it any more money, time, and emotional investment can be worth a lot of money to you.
A cold-hearted, unemotional, calculation might have led him to a different conclusion four years ago--cheap options are very cheap, so the risk is low. But it is very hard to know that. And if a company has done you wrong, not giving it any more money, time, and emotional investment can be worth a lot of money to you.
Dirt cheap options can be very expensive. The AMT tax can kill you.
If you have cheap options you can try to exercise them early (before the delta is big) and/or in small chunks over time so you don’t get hit with the AMT.
True, but you also have to wait for your options to vest. I did make the mistake of waiting too long. With a 5-year vesting schedule it's possible to still get a stiff tax for the last few years.
This is one area where I think the company didn't make the consequences clear. But I also understand that they were trying very hard to not appear to be giving tax advice. Also, my company specifically asked us NOT to do small purchases. I guess there were people doing monthly exercises with each paycheck and the company didn't like that (it wasn't forbidden, just frowned upon).
This is one area where I think the company didn't make the consequences clear. But I also understand that they were trying very hard to not appear to be giving tax advice. Also, my company specifically asked us NOT to do small purchases. I guess there were people doing monthly exercises with each paycheck and the company didn't like that (it wasn't forbidden, just frowned upon).
That's why, if you can, exercise options before they vest. I bought 3 years of my 4 year initial allocation at my current startup a month after the grant was issued (four months after I joined). I bought at $0.00 gain per share, meaning no tax hit. (Just file that 83(b) form.)
The tax if exercising at this point two years down the road might have hurt.
The tax if exercising at this point two years down the road might have hurt.
You can't "exercise options before they vest" because you don't have the option until vesting.
What you describe -- and as someone that was bit by the AMT wrt ISOs, I recommend -- is exercising as soon as they vest to minimize the gain between the strike price and the fair market value at time of exercise. If the FMV goes up, you're going to be stuck paying the AMT on the spread, and not even be able to sell your shares to cover the tax, because pre-IPO stock is effective illiquid. If you wait until after the post-IPO lockout date to exercise, you'll pay even more in taxes, but at least you can sell some stock to cover it. Ironically, this is actually less painful, because you actually have liquidity.
What you describe -- and as someone that was bit by the AMT wrt ISOs, I recommend -- is exercising as soon as they vest to minimize the gain between the strike price and the fair market value at time of exercise. If the FMV goes up, you're going to be stuck paying the AMT on the spread, and not even be able to sell your shares to cover the tax, because pre-IPO stock is effective illiquid. If you wait until after the post-IPO lockout date to exercise, you'll pay even more in taxes, but at least you can sell some stock to cover it. Ironically, this is actually less painful, because you actually have liquidity.
I did some googling and it does look like some companies will let you exercise early but not let you take possession until vested. https://carta.com/blog/exercising-stock-options/#what-is-ear...
Wrong, I've exercised pre-vesting at several companies. https://www.cooleygo.com/early-exercisable-stock-options-wha...
TBF, it takes special arrangements by the company granting the options to allow this, and not all do.
I'm not sure if we were able to purchase before vesting. I'm assuming if you left the company the money for any unvested shares would be refunded?
When you leave the company can choose to buy back (essentially refund you for) unvested shares, in which case they take back the unvested shares. I imagine any company doing well will buy back the unvested shares.
If the company needs the cash more then maybe they'll let you keep the unvested shares, but since your usually-Common-Stock strike price is typically a lot less than what investors will pay for their Series-X shares it's likely they'd rather take back the Common Stock (?) even in cases of one or more transpired or likely down rounds (?).
If the company needs the cash more then maybe they'll let you keep the unvested shares, but since your usually-Common-Stock strike price is typically a lot less than what investors will pay for their Series-X shares it's likely they'd rather take back the Common Stock (?) even in cases of one or more transpired or likely down rounds (?).
This further reinforces my dislike for Gitlab the company. This is not the first insight into the company culture and they seem shady overall. Kinda like an evil little brother who'll never be as good as their big brother.
Now Gitlab the open source tool was pretty nice back when I used it half a decade ago. Was much better than using that monstrosity called Gerrit. But nowadays I just use Github and don't even think about it anymore. They've won, kinda like Kubernetes vs Docker Swarm.
Now Gitlab the open source tool was pretty nice back when I used it half a decade ago. Was much better than using that monstrosity called Gerrit. But nowadays I just use Github and don't even think about it anymore. They've won, kinda like Kubernetes vs Docker Swarm.
Keep in mind that this article was posted 4 years ago, and if the butthurt author had actually exercised his $4K worth of options, he would be a millionaire now.
So was he an employee or a contractor? At the end of the post he claims to have been a contractor.
Exercising options isn't "investing in the company" if you immediately sell the shares acquired by exercising, assuming that is possible. In fact, it is worse for the company if you do that, so OP should do it(and make a bunch of money for themselves).
If Gitlab IPOs at $66/share, that means the author will get almost $1M from selling their shares they acquired for $0.27.
If Gitlab IPOs at $66/share, that means the author will get almost $1M from selling their shares they acquired for $0.27.
It wasn't possible for him four years ago.
The article is from 2017, so the author didn't have the option to immediately liquidate the shares. Gitlab didn't appear to be close to a buyout or IPO at that point from what the author knew.
> It’s been a couple of months since I was fired from my job as a Backend Developer at GitLab
As far as I understand it, you don't usually get to keep your options when you're fired.
Rest of the post? Disgruntled employee trying to spin "I was fired!" into "I quit!"
As far as I understand it, you don't usually get to keep your options when you're fired.
Rest of the post? Disgruntled employee trying to spin "I was fired!" into "I quit!"
Almost all companies give you the choice to purchase vested options even if you have been fired, usually with some 90-day deadline or whatever. It's very normal.
That's only the case if you're fired "for cause" which is a legally-meaningful term that's pretty rarely used unless you beat up the CEO on camera while snorting cocaine off a pile of embezzled $20s. If you're just let go normally (even if it's for being bad at your job), it's not usually "for cause" and you have 90 days to exercise your options (or longer if they're NSOs instead of ISOs).
Sure you do. They were part of your comp before you were fired, not after. Generally they're yours.
Depends on the nature of the dismissal. In the UK, if you are fired for gross misconduct then you forfeit everything. I think in the US that being fired 'for cause' is similar to this, but perhaps not as strong as the allegation of gross misconduct.
Is gross misconduct present in this article? I can't say. But the author does not paint a positive image for themselves.
I don't really sympathise with the author, either. He's just boasting about money on the table that he could afford to say no to. He's an asshole, I don't care for him. Perhaps Gitlab fired him because he was a jerk. Who knows, who cares.
Is gross misconduct present in this article? I can't say. But the author does not paint a positive image for themselves.
I don't really sympathise with the author, either. He's just boasting about money on the table that he could afford to say no to. He's an asshole, I don't care for him. Perhaps Gitlab fired him because he was a jerk. Who knows, who cares.
Given how terrible labor laws are for employees in the US, I would never assume anything negative about an American based on the mere fact that they were fired from some job.
Being a Fired American isn’t some stigma that one needs to “spin”.
Being a Fired American isn’t some stigma that one needs to “spin”.
Most employment in the US is 'at will'. You do not need a cause.
"Even if I only had to pay the $4,050 to buy the stock options, I would not do it. I would rather invest this money on myself, and my family. I would even prefer to buy Bitcoins for that amount, than to invest it in GitLab."
Which would have been the better investment?
Which would have been the better investment?
Naively: the price of Bitcoin on April 3 2017 when this blog post was published was around $1100, so the author could have bought 3.68 BTC with his $4050. Even if he sold BTC at the all-time peak of $64863 he'd only make a third of what GitLab options would make.
Looks like opened at $1,318 on the day this was written. If you invested $4,050 on that day into 3.07 bitcoins, you'd have $174,819 today, which seems well less than Gitlab stock, which others are saying would be worth near a million.
That said, if you'd invested $4k on a couple winning horses at Golden Gate Downs in 2017, you could also be a millionaire, so this sort of backwards-looking estimate is of limited value. :)
That said, if you'd invested $4k on a couple winning horses at Golden Gate Downs in 2017, you could also be a millionaire, so this sort of backwards-looking estimate is of limited value. :)
Which would have been the better *risk adjusted* investment. It's easy to say in hindsight that it would have been a good choice, but far harder to know in the moment. Startups fail all the time, including YC ones.
In 2017 Gitlab was already gaining traction, it the very least it would be bought by some private equity firm.
[deleted]
Gitlab hasn't actually gone public yet and he could still hold his shares indefinitely (if he had them) but they are looking to open at $66-69 a share and his price was $0.27. So roughly 250X.
This logic didn't make much sense to me. If banana-mobile company treated me badly and didn't replace my water-damaged mobile, I wouldn't throw away its shares because I am disgruntled. How a company treats me as a customer, or an employee, has nothing to do with how I see it as an investment.
[deleted]
The stock has been split 1 to 4 during 2018, so his 15k share is 60k shares actually. If he keep the option and sell it today, he will make 6 millions now.
[deleted]
https://techcrunch.com/2021/10/13/gitlab-raises-ipo-range-ta...
Whoops! That was… foreseeable.
Whoops! That was… foreseeable.
In hindsight maybe. Can you foresee what the next 150 person company that will IPO in 4 years is?
Hopin. [0]
[0] https://hopin.com
[0] https://hopin.com
Why did it disappear from the frontpage?
TL/DR: It's really hard to evaluate if a startup is succeeding or not :) He got a generous equity grant for one of the hottest companies and chose not to exercise them. This happens all the time.
Hilarious!
> It’s just starting to grow in its market
Then you should not work at one. Genuinely. The only way comp makes sense at a startup is if you think the equity will end up valuable. Most people who believe this will be wrong, so you have to really believe that you're the exception. If you don't, it makes a lot more sense to work somewhere that's already found product-market fit. Your labor is an investment that's very difficult to diversify.
> Treats its employees the way GitLab treated me
This is tough, but I know people who exercised shares after being fired, and then saw those shares become valuable. How do you decide that you being fired doesn't signify the company having lost its way? How do you hold the idea that you were fired and it's bullshit at some level, but the company will still do well and you can make money? I don't know, it's hard. You should think very hard about this, if you're in this position.