VIDEO Startup Stock Options: Negotiate the Right Startup Stock Option Offer

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

 

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

VIDEO Startup Stock Options: Startup Valuation

Stock Option Counsel for individual employees and founders in all matters relating to startup stock options or other employee stock. This video describes startup valuation for employees in a thoughtful, accessible way. 

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Stock Option Counsel Tip #1

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Use @angellist to research "market" equity for your company size. https://angel.co/jobs   #equity #negotiation #startup

Exercising an Incentive Stock Option (ISO)? Should You Hold the Stock?

This is a guest post from Michael Gray CPA. He counsels individuals on their employee stock option tax questions. For more employee stock option tax resources, see Michael Gray, CPA's Option Alert at StockOptionAdvisors.com.  

When you have decided to exercise an incentive stock option (ISO) and consider the federal alternative minimum tax (AMT) and the net investment income tax, the benefits of holding stock after exercising an incentive stock option are reduced. The "brass ring" of having the gain from the sale of the stock eligible for long-term capital gains rates (15% or 20%) seems attractive, but the 28% alternative minimum tax rate applies
for the excess of the fair market value of the stock at exercise over the option price ("spread") when the option is exercised.  (California also has a 7% alternative minimum tax. Find out the rules for your state.)  The minimum tax credit for this tax "prepayment" is hard for many taxpayers to recover, because they are already subject to the AMT, due to deductions disallowed for the AMT computation, including state income taxes, real estate taxes and miscellaneous itemized deductions.  That means the "spread" at exercise is probably
going to be taxed at a 28% federal tax rate when the dust settles.

In addition, long-term capital gains are subject to the 3.8% net investment income tax when the taxpayer has high adjusted gross income.  That means the total federal tax rate for the initial spread would be 31.8%, versus a maximum federal tax rate of 39.6%.  Is an 8% tax benefit worth the risk of exposure to market volatility of the stock?  It could fall much more than that.

The main time it makes sense to hold the stock is when the "spread" is low and the option price is low.  Then you can probably afford to pay for the stock and AMT (if any) and to take the risk that the value of the stock could fall.  When you do this, you forgo the "time value premium" for the option.  If you have the alternative of just buying the stock for about the same price without exercising the option, you will probably be in a better position by doing that, because you will still have the options to exercise if the value of the stock increases with no downside risk for the options.

An alternative is to exercise the option and immediately sell the stock, provided the stock is publicly traded or there is a "liquidity event" such as a sale of the employer company.  In that case, the gain will be taxed as additional wages, subject to federal tax rates up to 39.6%, but exempt from employment
taxes such as social security and medicare taxes.

These are general comments.  You really should meet with a tax professional familiar with incentive stock options (that's our business!) to discuss your individual situation and have tax planning computations done.  To make an appointment with Michael Gray, call Dawn Siemer at (408)918-3162 on Mondays,
Wednesdays, Thursdays or Fridays.

This article was published in the September 24, 2014 Option Advisor Alert. Republished with permission. 

Source: http://www.stockoptionadvisors.com/optiona...

Founders: Kurt Vonnegut's Caution on Corporate Attorneys

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Kurt Vonnegut, Author

Kurt Vonnegut, Author

If you are a founder with some suspicions about the motivations and allegiances of your company's law firm, you may appreciate the wisdom of Kurt Vonnegut.

Vonnegut has a great bit in God Bless You, Mr. Rosewater about the worst motivations of corporate lawyers. 

The book is about money, sort of. Here's the opening line:

 

 

 

 

 

A sum of money is a leading character in this tale about people, just as a sum of honey might properly be a leading character in a tale about bees.
— Kurt Vonnegut, God Bless You, Mr. Rosewater

The Rosewater family had a great fortune. It was held by The Rosewater Foundation, for the benefit of the family's heirs, and managed by a law firm called McAllister, Robjent, Reed and McGee. An associate of the firm, Norman Mushari, was Vonnegut's embodiment of the worst motivations of corporate lawyers.

No one ever went out to lunch with Mushari. He took nourishment alone in cheap cafeterias, and plotted the violent overthrow of the Rosewater Foundation. He knew no Rosewaters. What engaged his emotions was the fact that the Rosewater fortune was the largest single money package represented by McAllister, Robjent, Reed and McGee. He recalled what his favorite professor, Leonard Leech, once told him about getting ahead in law. Leech said that, just as a good airplane pilot should always be looking for places to land, so should a lawyer be looking for situations where large amounts of money were about to change hands.

”In every big transaction,” said Leech, “there is a magic moment during which a man has surrendered a treasure, and during which the man who is due to receive it has not yet done so. An alert lawyer will make that moment his own, possessing the treasure for a magic microsecond, taking a little of it, passing it on. If the man who is to receive the treasure is unused to wealth, has an inferiority complex and shapeless feelings of guilt, as most people do, the lawyer can often take as much as half the bundle, and still receive the recipient’s blubbering thanks.
— Kurt Vonnegut, God Bless You, Mr. Rosewater

Vonnegut's wisdom is a good reminder to founders that their company's attorneys may be representing the company's money rather than its founders.

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

 

From The Daily Muse

Attorney Mary Russell, Founder of Stock Option Counsel based in San Francisco, advises that anyone receiving equity compensation should evaluate the company and offer based on his or her own independent analysis. This means thoughtfully looking at the company’scapitalization and valuation.

Read More

Skype Repurchase Rights = Vampire Capitalism

I agree that it is unethical as it goes against the expectation of employees as to how their contributions are valued. If they don't know about it before they choose the company, they are making a choice without an essential term of the deal.

And it goes against the most idealistic ethic of Silicon Valley – that capitalism should be used by groups to organize and cultivate their own creative efforts rather than as a tool of vampires.

But it is not illegal. And I've seen worse in my Stock Option Counsel practice (twice this month alone). Congratulations on paying attention.

Read More

Best of Blogs: How to Value and Negotiate Startup Stock Options

NOTE: Updated February 23, 2016.

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

We have suggested the following free resources to Stock Option Counsel clients to help them master this area and gain confidence in negotiating their stock options and other employee stock. We hope you find this list helpful and invite you to contact us to find out how Stock Option Counsel can help you evaluate and maximize your startup stock compensation. Contact>

1.  Leo Polovet's' Analyzing AngelList Job Postings, Part 1: Basic StatsPart 2: Salary and Equity Benchmarks

2. Venture Hacks' I have a job offer at a startup, am I getting a good deal?

3. Andy Payne's Startup Equity for Employees 

4. Mary Russell's Startup Equity Standards: A Guide for Employees

5. Wealthfront's Startup Salary and Equity Compensation Calculator (This is very general but people find it helpful.) And Wealthfront's The Right Way to Grant Equity to Your Employees.

6. Patrick McKenzie of Kalzumeus Software's Salary Negotiation: Make More Money, Be More Valued

7. Piaw Na's Negotiating Compensation, from An Engineer's Guide to Silicon Valley Startups

8. mystockoptions.com's How does a private company decide on the size of a stock grant? (You may have to create a login)  

9. Michelle Wetzler's How I Negotiated My Startup Compensation

10. Mary Russell's Video Negotiate the Right Startup Stock Option Offer, based on Mary Russell and Boris Epstein's Bull's Eye: Negotiate the Right Job Offer

11. Mary Russell's Joining An Early Stage Startup? Negotiate Your Salary and Equity with Stock Option Counsel Tips

12. Robby Grossman's Negotiating Your Startup Job Offer

13. John Greathouse's What The Heck Are My Startup Stock Options Worth?! Seven Questions You Should Ask Before Joining A Startup

14. David Weekly's  An Introduction to Stock & Options for the Tech Entrepreneur or Startup Employee

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

The One Percent: How 1% of Ruckus Wireless at Series A Became $1.7 million at IPO

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Ruckus Wireless Chronology.pdf.jpg


Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Panel Tonight! 500 Startups, Jimeo, Inc., Shea & Company, Gunderson Dettmer, 137 Ventures & Stock Option Counsel

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Thanks for a great event!

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Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Negotiation Rhythms #3: Sales & Threats

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

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Mary Russell counsels individual employees and founders to negotiate, maximize and monetize their stock options and other startup stock. She is an attorney and the founder of Stock Option Counsel. You are welcome to contact Stock Option Counsel at info@stockoptioncounsel or (650) 326-3412.

There are two ways to increase or decrease another party’s limit in a negotiation – sales and threats.[1] The picture above takes some of the mystery out of the salesman and the thug -- they're both just working as negotiators to change the perception of the current offer in comparison to the other party's BATNA – Best Alternative to Negotiated Agreement.

Selling improves the perception of the quality of the present offer so that the outside alternatives are unattractive by comparison. Threats decrease the attractiveness of outside offers or the possibility of making no deal and sticking with the status quo.

Threats

An ongoing employment lawsuit over no-hire agreements among Silicon Valley companies featuring Steve Jobs provides a strangely relevant example of the power of threats. 

Edward Colligan, former CEO of Palm, has said in a statement that Jobs was concerned about Palm’s hiring of Apple employees and that Jobs “proposed an arrangement between Palm and Apple“ [2] to prohibit either party from recruiting the others' employees.

That would have been a simple offer of an agreement (however illegal that arrangement might have been) if Colligan had access to the undisturbed alternative of not participating and keeping the status quo.

But Colligan has said that Jobs’ next negotiation move was to make the alternative of nonparticipation very unappealing with the threat of patent lawsuits that would cost Palm and Apple a great deal of money. Jobs followed this threat with a reminder of just how unpleasant such litigation would be for Palm, considering the fact that Apple had vast resources to endlessly pursue the lawsuits: "I’m sure you realize the asymmetry in the financial resources of our respective companies …."[2]

Even though most of us don’t use threats in a negotiation, it’s part of the logic of negotiation rhythms. 

Selling

Selling is the more common (and generally legal) way to address the fact that the other party has choices outside the present negotiation. As we discussed in the prior posts, a party's price or terms limits are defined by his or her best alternative outside of making an agreement in the present negotiation. Selling moves the limit when it can make the present offer more appealing than what had been perceived as an outside alternative.

Many people resist “selling themselves” in a salary negotiation because they are embarrassed to discuss their “value.” The logic of BATNA and negotiations provides some relief from this embarrassment, for it reframes “selling” from bluffing and puffing to describing and distinguishing one’s past experience and intended role in the organization.

Since the employer’s limit is not defined by an individual’s value, but by the employee’s differentiation from the field of candidates, the task of negotiating becomes more fact-based and less fear-driven. This logic encourages progress from the attitude of “Oh, they see who I am and hate me,” toward the sales approach of “Oh, it seems they need more information about what I offer in terms of my past experience and my role going forward.”

As an employee’s offer of services becomes distinguishable from the employer’s alternatives, the employer’s perception of the BATNA will change.

Consider an employer who believes there’s an equal candidate available for $120,000 and is entertaining another’s proposal to perform the role for $140,000. Without “selling” the offer of one’s services, the employer has no information with which to make a distinction between the two alternatives. The process of selling oneself to the employer is not to prove one’s inner worthiness at $140,000, but to show and tell that the employer is choosing between two distinguishable candidates. 

Sales.jpg

(For those still interested in threats, distinguishing one’s skills is a form of a threat when it comes to negotiating with a current employer. Every element of the description one’s current performance and ongoing role is a threat of what the employer would have to work without or try to replace.)

What an employer would have once considered a better alternative – such as another equal offer for $120,000 – loses its appeal in light of the truth (sales pitch) of the $140,000 offer. If they are no longer equal in the mind of the employer, he or she must consciously decide if the other candidate at the lower price is still a better alternative. While there is no guarantee that the employer will prefer to pay more, the process of selling pushes the employer to the choice based on the true distinctions in the qualities of the candidates.

 

[1] Roger Fisher, William Ury and Bruce Patton, Getting to Yes: Negotiating Agreement Without Giving In. Gerald B. Wetlaufer, The Rhetorics of Negotiation (posted to SSRI).

[2] http://vrge.co/USNorq

 

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.