<story><title>Stripe faces $3.5B tax bill as employees&apos; shares expire</title><url>https://www.bloomberg.com/news/articles/2023-03-06/stripe-details-3-5-billion-tax-bill-in-latest-fundraising-round</url></story><parent_chain><item><author>noahmbarr</author><text>(Uninvolved growth-stage CFO perspective)&lt;p&gt;The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants&amp;#x27; 10 year mark, and face an exercise or &amp;quot;lose it&amp;quot; situation.&lt;p&gt;If you exercise, you have to pay the gain. For early employees, this could&amp;#x2F;would be a massive bill -- probably well into the 7-8 digit range for some early hires.&lt;p&gt;Stripe seems to be teeing up a secondary sale of these stocks themselves -- where Stripe is offering to buy some of their shares back from those early employees, allowing the employees to exercise (&amp;#x27;buy&amp;quot;) all of those early options and (at least) pay their tax bill.&lt;p&gt;Usually, a company will limit the # of shares eligible for a secondary purchase so current&amp;#x2F;former employees can buy all the stock, sell enough to the company to cover that person&amp;#x27;s resulting tax bill, and keep the remaining stock until IPO. By limiting the # of shares they will allow to be purchased via the secondary, Stripe will almost certainly make sure the secondary does not create post-tax cash gains to make people wealthy!&lt;p&gt;It doesn&amp;#x27;t have to be that way:&lt;p&gt;Stripe could allow ANY investor to buy the shares directly from those employees -- but guessing Stripe has a blocking right on stock transfers-- so they have, and will continue to block early employee sales to new investors. Stripe and many companies have these transfer &amp;quot;veto right&amp;quot; to make sure they can control their ownership (&amp;quot;cap table&amp;quot;) and also to make sure early employees don&amp;#x27;t get rich before the IPO.&lt;p&gt;This is my best guess-- I am not familiar with the Stripe&amp;#x27;s situation.</text></item></parent_chain><comment><author>sillysaurusx</author><text>Could anyone translate this into “The early employees will get wealthy from this” or “they’ll get slightly more than they would’ve gotten from getting a job at BigCo over 4 years”?&lt;p&gt;My problem with equity grants is that everyone treats them like they’re so valuable, when in fact the EV is usually close to zero. That wouldn’t be so bad if the upside was really good, but dealing with nonsense like this makes them even less attractive.&lt;p&gt;The whole point of working at a startup — of working very hard, instead of coasting — is to increase your standing in life. Some people care about skill set (you learn a lot more in a startup) but you end up a lot more stressed.&lt;p&gt;Stripe’s early employees are in the best possible scenario, short of winning the lottery: they joined a unicorn early. If they don’t come out of it with lots of after-tax cash, then that calls into question why to even work at one. Unless you really love hard work without proportional reward, logically you wouldn’t choose that path — pg said as much in many of his essays.</text></comment>
<story><title>Stripe faces $3.5B tax bill as employees&apos; shares expire</title><url>https://www.bloomberg.com/news/articles/2023-03-06/stripe-details-3-5-billion-tax-bill-in-latest-fundraising-round</url></story><parent_chain><item><author>noahmbarr</author><text>(Uninvolved growth-stage CFO perspective)&lt;p&gt;The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants&amp;#x27; 10 year mark, and face an exercise or &amp;quot;lose it&amp;quot; situation.&lt;p&gt;If you exercise, you have to pay the gain. For early employees, this could&amp;#x2F;would be a massive bill -- probably well into the 7-8 digit range for some early hires.&lt;p&gt;Stripe seems to be teeing up a secondary sale of these stocks themselves -- where Stripe is offering to buy some of their shares back from those early employees, allowing the employees to exercise (&amp;#x27;buy&amp;quot;) all of those early options and (at least) pay their tax bill.&lt;p&gt;Usually, a company will limit the # of shares eligible for a secondary purchase so current&amp;#x2F;former employees can buy all the stock, sell enough to the company to cover that person&amp;#x27;s resulting tax bill, and keep the remaining stock until IPO. By limiting the # of shares they will allow to be purchased via the secondary, Stripe will almost certainly make sure the secondary does not create post-tax cash gains to make people wealthy!&lt;p&gt;It doesn&amp;#x27;t have to be that way:&lt;p&gt;Stripe could allow ANY investor to buy the shares directly from those employees -- but guessing Stripe has a blocking right on stock transfers-- so they have, and will continue to block early employee sales to new investors. Stripe and many companies have these transfer &amp;quot;veto right&amp;quot; to make sure they can control their ownership (&amp;quot;cap table&amp;quot;) and also to make sure early employees don&amp;#x27;t get rich before the IPO.&lt;p&gt;This is my best guess-- I am not familiar with the Stripe&amp;#x27;s situation.</text></item></parent_chain><comment><author>throw3823423</author><text>It&amp;#x27;s pretty accurate: Employees don&amp;#x27;t have a few million in change, each, to turn the RSUs into plain stock.&lt;p&gt;I don&amp;#x27;t think the issue is making employees wealthy or not: It&amp;#x27;s 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6 shares in the secondary market? Might as well be an actual IPO.&lt;p&gt;Without 2022 going the way it did, I&amp;#x27;d have expected that there would have been yet another regular round, where the investors ate enough common stock for current and former employees to vest the RSUs. That, or maybe the company really IPOs, which clears out all the comp problems. But Stripe finds it very valuable to keep the company closed, so instead of IPOing when everyone else does, they delayed too  much.&lt;p&gt;So there&amp;#x27;s no real need for not wanting people to get rich here: It&amp;#x27;s just a very uncomfortable amount of stock to have to turn into liquidity either way.</text></comment>