Recently I made the oldest startup mistake in the book:
Exercising too many ISOs and incurring the AMT to the tune of $350,000.
I have talked to probably a dozen various professionals - accountants, lawyers, wealth managers, liquidity providers, etc - and they all give the exact same advice:
1. Borrow from family or friends.
2. Leverage existing assets (mortgage, stocks) to pay it.
Every one of them has mentioned those 2 ways are how "most people" in my situation deal with it. Neither are an option for me.
To put it another way: already be rich. Whether personally or by proxy.
Paul Graham also neglected the necessity of the wealthy in creating new wealth because he is one of those gatekeepers. Whether they're the VCs benevolently funding your startup, or the "rich uncle" floating you a 1% loan for a year to pay AMT: it's much easier to become wealthy if you're already wealthy or have access to wealth. You need the wealth to fund your startup. You need the wealth to exercise your ISOs. You need the wealth to cover your AMT obligations. All of this is after you've managed to get the capital for a good education and everything else that goes into joining startups.
Oh and the wealthy get a cut every step of the way. The AMT may be flawed, but the wealthy also tax the rest of us. Not only that, but if we do get rich, since they've done you so many favors, now they have a new wealthy friend in their network to fall back on or raise capital from or obtain liquidity from. So many people who get rich from startups give their money right back to VCs to join funds. It's almost seen as an obligation to help out others. It's not. There's plenty of capital out there. Let the VCs risk their own, not yours. Build affordable housing or bootstrap your next thing; don't effectively give VCs their money back.
And let me be clear: if I do become wealthy from these lottery tickets I'm jumping through hoops to attain: it will be luck. I'm just one of hundreds of people who have built this startup, and if we do exit: the value will be as much more a factor of external market dynamics than intrinsic value created by the company and its labor. It's luck. It's lottery tickets. Don't let anyone fool you otherwise. A good product is one tiny piece of it.
Exercising too many ISOs and incurring the AMT to the tune of $350,000.
I have talked to probably a dozen various professionals - accountants, lawyers, wealth managers, liquidity providers, etc - and they all give the exact same advice:
1. Borrow from family or friends.
2. Leverage existing assets (mortgage, stocks) to pay it.
Every one of them has mentioned those 2 ways are how "most people" in my situation deal with it. Neither are an option for me.
To put it another way: already be rich. Whether personally or by proxy.
Paul Graham also neglected the necessity of the wealthy in creating new wealth because he is one of those gatekeepers. Whether they're the VCs benevolently funding your startup, or the "rich uncle" floating you a 1% loan for a year to pay AMT: it's much easier to become wealthy if you're already wealthy or have access to wealth. You need the wealth to fund your startup. You need the wealth to exercise your ISOs. You need the wealth to cover your AMT obligations. All of this is after you've managed to get the capital for a good education and everything else that goes into joining startups.
Oh and the wealthy get a cut every step of the way. The AMT may be flawed, but the wealthy also tax the rest of us. Not only that, but if we do get rich, since they've done you so many favors, now they have a new wealthy friend in their network to fall back on or raise capital from or obtain liquidity from. So many people who get rich from startups give their money right back to VCs to join funds. It's almost seen as an obligation to help out others. It's not. There's plenty of capital out there. Let the VCs risk their own, not yours. Build affordable housing or bootstrap your next thing; don't effectively give VCs their money back.
And let me be clear: if I do become wealthy from these lottery tickets I'm jumping through hoops to attain: it will be luck. I'm just one of hundreds of people who have built this startup, and if we do exit: the value will be as much more a factor of external market dynamics than intrinsic value created by the company and its labor. It's luck. It's lottery tickets. Don't let anyone fool you otherwise. A good product is one tiny piece of it.