[Music]
foreign
[Music]
nice to meet you all my name is Jordan
I'm one of the founders of compound
today I'm very excited to chat with you
about my hatred of personal finance so I
hate Finance more or as much as most
people perhaps
um you know many years ago when I
started the company
um you know I just wanted to build
something fun and impactful and kind of
work with my friends meanwhile I was
being thrown all these acronyms these
like fancy words that I didn't
understand and my friends convinced me
to write this blog post all about Equity
compensation so I wrote this essay that
kind of like mapped out what these
different acronyms meant I went from
like reading engineering code to reading
the tax code I publish it on Hacker News
on the internet lots of people came to
me with all these like complicated
boring adult tasks they were like help
me I was like well certainly there's
someone else out there in the world who
you could go get help with that's like a
real adult professional I went and tried
to meet those people they were trying to
sell me golfing they were sending me
LinkedIn messages I was like certainly
there's a better way to do this
that's why we built compound we're a
wealth manager specifically designed for
tech people we work with clients across
many of the best companies in the world
and we're super excited to help them
manage their money file their taxes
borrow money track their assets today
we're talking about perhaps my favorite
Topic in the world which is equity
compensation and I was super lucky to be
able to bring on someone that I really
admire who has gone through you know
both the ups and downs of different
startups and you know Equity has become
a big part of their life which is
um really really powerful
um so I'm very excited to to be working
with Christina here today Christina
would be helpful maybe a quick
introduction of yourself and then we'll
dive into the kind of agenda for today
sure so um I joined first round Capital
earlier this year but uh the 12 years
prior to that I've basically been
working in the startup after startup so
most recently I was at notion leading
our platform and Partnerships teams
um and then before that I was at stripe
uh leading a new business unit and I
joined stripe in in 2012 when it was
quite small
um and then two small startups before
that so uh broadly uh yeah have just
spent a lot of time in startups and uh
yeah have been have been very pleased
personally with the outcome of my
startup equity and I think
um if people learn a lot more about it I
think they can be far more educated in
terms of the decisions that they make
totally
um and thank you again for spending the
time here um Christina like I said is
someone I've learned a lot from um and
uh I think all of you would would be
able to as well I'm also you know you
can hear me say this stuff's important
and that will only go so far but
Christina is perhaps leaving proof that
you know thinking about this stuff uh
can make a really big difference towards
your long-term future so my goals for
today to kind of make them as explicit
as possible um you know Christina spent
a long time at Stripes so I like to say
that we are trying to increase the GDP
of everyone on this call right so we
want to make sure that you know everyone
on this call walks away a bit smarter
first and foremost I want to make sure
you care about your Equity
um and uh by being on this call you're
already most of the way there so thank
you for for doing that and you should
thank yourself because you're doing an
adult grown-up thing today by taking
control of your finances the second
thing is I want to make sure that you
walk away with kind of an understanding
of some of the key terms you know some
of those acronyms that you know May
Scare You um that alphabet soup of
different words that that you may not
understand regarding joining a company
or leaving a company really everything
you have to know kind of in between and
then the third part is you know I want
to apply this in the real world and you
know spend some time with Christina and
Max is also on our team just walking
through like okay if you're in this
position what are the types of things to
think about
um and how do I actually apply it to my
life um and if you have questions
um feel free to leave them in the chat I
have a note written over here to talk
slower so I'm going to be trying to do
that but I'm I just love equity and
taxes so much that I sometimes talk too
fast so feel free to bother me um it's
not bothering it's helpful feedback um
so we move fairly quickly here no long
intros I promise uh number one get you
to care so we luckily at compound have
helped people save millions of dollars
the way we've done this is by helping
people really navigate the world of
acronyms here and for what it's worth to
make sure you fully care you know you
can save 20 to 40 percent of the value
of your Equity
um just by paying attention for the next
15 to 20 minutes right so it's it's a
very high Roi activity
um there's lots of tick tocks that you
could be watching right now there's lots
of other things that you're doing but if
you just focus on next 15-20 minutes I
really think we can increase your odds
of success in the future it's almost
like y combinator for people perhaps you
know we can make your you more likely to
succeed in the future so broadly
speaking when you get an offer letter
right um or you're sitting at your
company today there's kind of three
components from a compensation
perspective there's cash there's
benefits and then there's this thing
called Equity I mean Equity is one of
those things when you're reviewing the
contract that you ask yourself like is
this a lottery ticket and like what
could it be in the future
um and
if you're anything like me and when you
see this offer letter and you're like I
own a thousand options in this company
if you're anything you're like me you're
like well what does a thousand options
mean right a thousand options of what
like what are they worth how do I get
them what are the tax implications
Etc so what we're going to do over the
next about five ten minutes is cover all
the finance tax stuff you have to know
and Max will drop in a link to a blog
post we have about this as well so if
you like reading better if you really
like this stuff you can send me an email
Jordan withcompound.com we can talk
about it all the time
um but we'll cover all of these key
ingredients so that you can feel a fully
informed when you're kind of looking at
an offer letter or you're looking at
your kind of current company but I have
to give one really quick disclaimer
which is that tax lawyers don't rule the
world so there are things you can do and
you can become an expert at all of this
stuff and you will in the next five to
ten minutes but the end of the day
choosing your personal return on
investment for your life is far more
impactful than being a tax wizard often
um and what I mean by that is choosing
where to work and we'll dive into this
with Christina a little bit later you
know is not just a function of like what
type of stock option you have right you
can think a lot about who you're working
with what you're working on you know do
you enjoy that sort of thing you know
where you live like the work the culture
all of these things are really key
ingredients and of course there's this
power law dynamic in startups we're
choosing the right company is also
financially very very valuable beyond
all that so we'll dive into some of um
like the other factors beyond the
financial minutia in a second
um but I want to make sure that you
leave with at least a key understanding
of kind of how startup Equity works so
ramble aside
here's what you need to know
high level when you join a private
company
right and you're offered compensation in
that company the cash is fairly easy to
grow and easy to understand but when you
get Equity you have to realize that
private companies don't have public
valuations so for private companies
instead we often use two other types of
valuations when a when a investor
invests in a company they get the
preferred price right that private that
preferred valuation it's called 100
million dollars
um that's what investors pay for they
invest in your stock when investors
invest in your company they get also
preferred stock so it has preferential
treatment so for instance if the company
were to be acquired they get paid back
before the second type of stock which is
called common stock right so investors
get preferred stock that's the first
thing you have to know the second thing
you have to know is there's a second
type of valuation and that's called the
409a valuation or the fair market value
I'm in the 409a valuation is a lot less
than the preferred valuation like when
you're a private company it can
sometimes be like 20 to 30 percent of
the preferred valuation I mean the
reason that matters is twofold one
hopefully over time your preferred
valuation Rises and and sorry your
foreign a valuation Rises to to mirror
your preferred valuation so when the
company goes public there's just one
valuation right that's the public stock
price but while you're private you have
two valuations you have the preferred
valuation and you have the 409a
evaluation why this matters is because
the way stock options work and the way
Equity Works
um is that you care about the 409a for
tax purposes so that four and an a
number matters a lot
um but that 409a value is how you value
shares and when you join a company
you're often issued stock options stock
options give you the right to purchase
shares so they're not shares right
you're not a shareholder when you own
stock options you own the right to
purchase shares and you unlock the right
to purchase shares over time right you
unlock the right to exercise your
options it's called when you buy them um
over time through a process called
vesting so you often will get a vesting
schedule call it four years with a
one-year Cliff meaning you wait one year
before you start unlocking the right to
purchase and then they vest you know
over times you continue the right to uh
to purchase them in the price you can
pay is called the strike price right so
you exercise your you know you um you
get the right to purchase them at the
strike price which is a fixed price that
remains static you know you're for your
for as long as you're at the company um
as long as you're on the options and
you're able to kind of purchase them for
the strike price now the way this all
connects is that the strike price when
you join a company is equal to the 409a
at the time of the issuance right so
that foreign evaluation is important
because that's how you set your strike
price and the hope the optimistic view
is when you're looking at your company
is that the 409a will continue to rise
right that share price will continue to
rise and the strike price will remain
constant right well it will remain
constant because it is a fixed price so
the Delta between those things is called
The Bargain element right that Delta the
spread between the strike price and the
latest valuation is known as the bargain
element and that is a good thing right
that is the whole mechanic here you can
buy low in theory you can sell high in
the future the problem is that it's only
in theory because it's in a liquid
private thing so if you work at a tech
company that's private
you can't just sell it right um it's not
liquids you have to think about the
timing of this investment opportunity
that's that's kind of one one variable
the second is that you may owe taxes at
the time of exercising before you have
any liquidity right so you may buy low
but you can't sell High and the way the
way the world works today the government
is that you actually owe taxes on the
bargain element before you actually sell
so if you have something called a
non-qualified stock option or an NSO if
you have if you have one of those
um you will owe taxes on the difference
between the strike price so the strike
price which is the foreign a at the time
you were issued the option um in the
latest foreign evaluation on that spread
you owe immediate ordinary income taxes
at the time of exercising if you have
something called an ISO another type of
option incentive stock option you don't
owe ordinary income tax but you owe
another acronym you owe something called
the Alternative Minimum Tax or AMT which
is a totally separate calculation and at
compound we built calculators to kind of
automatically calculate all this stuff
for you but the high level you need to
understand is that when you exercise you
may be taxed on the Delta between the
strike price and the latest foreign
evaluation that bargain element may be
taxable you're also going to be taxed
though on the time between you you
acquiring this share in the time you
sell it and the idea here is that if you
can make that holding period it's called
greater than one year
you'll most likely qualify for long-term
capital gain
but if you make that holding period less
than one year for instance if you
exercise your options and then you
immediately sell them for instance at an
IPO or into a tender offer one of those
events
um you'll owe ordinary income tax on the
game right so that Delta that's that
difference
um you know make uh you know is why you
may be incentivized to exercise some of
your options earlier there's a lot of
other considerations so I suggest
reading a lot about this working
professional but very high level that's
where the mechanic works so you're at a
company of a fixed strike price the
foreign a is kind of growing
um and uh you have a bargain element of
spread the option is valuable so
congratulations but you may owe taxes at
the time of exercising so you have to
you have to think about that the other
thing you have to think about as things
kind of scale is this word called
dilution a lot of you know employees are
really upset you know as a founder of a
company sometimes you know we raise we
raise money and people come to me and
they're like oh my goodness I'm deluded
all this and I'm and I thought I was
doing my job I thought I was like doing
my job going to fundraise to effectively
sell Equity to our to investors so that
we could kind of get Capital to increase
our odds of success but as an employee
it may feel sad when you have this kind
of percentage ownership of the company
right you have you know options or
shares and you know percentage ownership
of the company and that number might go
down over time as the company continues
to fundraise but we have to often
realize is that looking at percentage
ownership is only one variable the other
thing you can look at is value or
potential value and kind of being value
aligned with the company is a way to
kind of think about your overall return
on investment calculation and that is
really the kind of goal of all of this
sort of math which I'm happy to dive
into if people want to leave questions
we can kind of answer a lot of specifics
on how that's calculated soon but what
you're really calculating is is
effectively a return on investment you
know an Roi and you know beyond money
you also could have an Roi on fun and
learning and impact and Prestige and
network and skills and all these other
things but money you know when you're
when you're calculating the ROI there
it's just an investment opportunity I
mean when you're thinking about
accepting a startup offer
you know you want to do this sort of
analysis and your job is actually quite
similar to a venture capitalist job
right a professional Investor's job
although you have one life they get to
diversify you have you maybe your
friends they have a team of analysts
that are underwriting the opportunity
and also they're not going to be waking
up all day every day thinking about how
to make the stock valuable they're just
giving their money and often kind of
walking away slightly so that is the
kind of job to be done and Christina
maybe it could be helpful in hindsight
to think through this but I'm curious if
we were to go back not too far but you
were quite early at Strife I'm curious
like when you were going through the
offer of thinking about am I going to
invest my life in working in this
company how how did you process it then
and like what do you wish you could tell
yourself in hindsight so how did I go
through the process ultimately of like
deciding
whether I should take this offer so
broadly I would say that with stripe the
offer had like a lower salary component
compared to my last startup so the vast
majority of people at stripe made the
same salary and there wasn't like much
negotiating allowed as a result of that
um so I wanted to better understand the
equity component knowing that that was
the vast majority of how I was going to
be compensated and I knew the basic
terminology from my last startup which I
was at prior to stripe
um and basically what I did was put
together a spreadsheet to kind of better
understand uh the stripe opportunity
so specifically when I thought about it
um I wanted to say hey let's put
together all of the numbers so I can
understand here is the compensation from
my prior opportunity and here's the
stripe offer right so first you start
with a really basic things it's like
salary salary plus bonus and then the
equity gross value so like what is the
uh number of shares that are in my offer
um multiplied by the preferred price of
um those shares and so the preferred
price is effectively whoever the last
investor was what price did they pay per
share for that company
um and that is the equity gross value so
uh then I'm trying to better understand
what is the exercise cost so how much
will I be paying for these shares uh for
these options and um in that case
um you would get the exercise cost so
you know that's obviously value that
you're putting in um to the company
um and then I basically calculate the
the net Equity value at the most recent
preferred price so basically subtract
the exercise cost from the gross value
and that is the like real value of what
I would be getting today at the value of
the company uh valued today
um in this particular offer
um and then I have a line that's
basically like what would my comp be
over the next four years
um at my kind of most recent preferred
price for stripe and then how would I
compare that to the other company right
um and I would say at pretty much every
company I've ever joined
um the new new company I'm joining the
offer is pretty much always lower than
the previous company
and often that is just because
um I've often left you know slightly
larger companies and then gone smaller
and smaller and smaller and so often
those companies you know don't look as
good from an equity perspective but I do
think the thing that
that is basically like what percentage
of the of the company I have and that I
hope with every company I joined
continues to go up so um you know in my
spreadsheet I uh also include for
example
uh the 409a price of the of the share
the
um fully diluted Share account so like
how many shares out there exist in the
world for this particular company and
then like you know divide the shares by
um ultimately how many shares the
company has in total and that's like the
percentage so if I were joining as a
first 10 employee and someone was giving
me like 0.01 of the company I'd say Well
it feels a little strange that's like
not what I would expect for how much
risk
um I'm ultimately taking
um for this particular opportunity so um
yeah broadly like those are the things
that I looked at from an equity
component to understand the offer
um I also think there's plenty of things
that you can ask to kind of understand
the company
um and like what state the company is in
um but I I would just say like you know
I think I did all the basic things which
are like Google like you know how how
does Equity at startups work
um but obviously compound has really
great materials now that didn't exist
then
um which I think basically have all of
this information
um and I think that I better want it I
basically wanted to understand a number
of other questions
um
that where the answers didn't
necessarily affect my decision to join
the company so for example
um was the uh were the was the equity I
was receiving like qsbs eligible which
is like nice to have from a tax
treatment perspective but like if the
company isn't eligible for that it's not
necessarily going to change my decision
on whether or not to join so there are
plenty of those questions as well it
makes a ton of sense so maybe to play it
back you know I think
now you you know you invest in companies
professionally but perhaps back then you
know when you were choosing where to
work back then perhaps it sounds like
you know you wanted to make sure you
understood the offer first and foremost
and what's sometimes awkward for an
employee and Christina I imagine
you know knowing you you had the
confidence to ask a lot of these
questions but I think you know sometimes
for a listener it can feel like very
daunting right like am I burdening the
the company you know they're the Hot
Shot company they're they're all over
the news but like it's actually your
right as an employee to ask these
questions because it's your money and
like you are about to give your Prime
Time like kind of you know ask a lot of
these questions Maxine sent over like a
list we also have like a template you
can literally copy and paste it you can
read it in whatever accent you think is
most effective for negotiation
um but that's kind of one index here you
know one vector another vector
and I just want to I'm curious like
because I think you've been right a lot
and now your job is professionally being
right like
for people who are not professional
investors how do you think about
underwriting companies just in general
about where to work on because when you
exercise your options you're investing
in a company when you're joining a
company or you're you're investing in a
company are there any things you do
maybe just one or two things that you
look for in a company that in particular
like LED you to actually join at the
time because straight back then you know
wasn't striped Liz now it wasn't so
obvious that it would be such a bad and
a lot of people are probably in this
position today yeah yeah so I would say
with the investor lens
um and also with the you know startup
employee thinking about you know is this
opportunity to be valuable uh for me
financially in the long term I think I'm
looking at it from the perspective of
probably three different factors uh
people uh market and
um lastly product and I I would say like
product often if you're joining very
early stage companies doesn't matter as
much just because like it's very early
the product is you know not necessarily
fully formed so often I would say the
most data that you have is really on the
former two which is like people and
market and so people is absolutely the
most important for me and I have always
been extremely people driven whenever
I've ever decided to join a company and
it's generally worked out well for me
and I think there are a few factors here
like one is this like a high integrity
group of people right do I feel like
this set of people who are running this
company primarily the founders first and
foremost are going to have high
integrity when they make decisions about
the company
um whether to take funding how to spend
money Etc et cetera because I want to
make sure that we are running
um a very much above board company
especially these days when a lot of what
you see in the news people not running
companies super well
um so firstly that second do I think
that these people have
um the potential to make an outsized
um have an outsize impact on a
particular base or product area and so
you know for example when I was looking
at the opportunity to join stripe
um they were thinking about building a
uh product that was a developer focused
payments product which hadn't
necessarily been built before there were
a lot of companies that built payment
products certainly but not necessarily A
company that said hey we're going to
look at the developer and build an
experience that is critical to them
because we think they're the decision
maker in a lot of companies and will
continue to be and I felt like these
were a set of people who actually could
build really fantastic developer
products and that they were particularly
skilled at that
um and that their lens on this world of
payments which they actually knew
nothing about prior to the starting
stripe
um would be something that you know a
they could learn
um and B come out uh like come at it
with an outsider's perspective so
um I think in terms of people it was
like incredibly smart incredibly kind
high integrity
um and attacking a space that I felt
that that they could be
able to attack in a way that would be
quite differentiated and so that kind of
gets me a little bit more into Market
um as well which is a second factor and
I think generally you want to join
companies that are not building like you
know small little things that like are
kind of nice to haves or what we call
investing vitamins
um you want to build products they're
addressing a real pain point for a
particular Market that is large and
generally you're either looking for a
market that is already big payments was
already big um so should I you know tick
that box but payments was also growing
really fast because more and more
payments were coming online
um rather than offline with cash and so
I think the great thing about stripe is
that it picked a really fantastic Market
that was big and growing well and then
picked a particular constituent in that
market being developers
um who were having an outsized say in
what kind of products they could pick
for their businesses
um and so those were the factors I think
for me that really stood out about
stripe
um and stood out about notion and a
bunch of a lot of a lot of other
companies that I've joined and invested
in and so I think the most important
decision that you can make is like what
company to join and then a lot of the
other things like what is your offer and
everything else those are the details
um and you can make a lot of really
fantastic optimizations for yourself
um and you know the time to make them is
is certainly when you have an offer
um and so it's a very short window to
make that decision but you know picking
the right company is is first and
foremost
makes a ton of sense you know I think
play it back a few things that stick out
to me one is I think most people aren't
particularly good at underwriting
companies as I said before it's a hard
thing to predict the future but you've
met you know you've only worked at so
many companies but you've met hundreds
thousands of people in your life so if
you can underwrite the people right you
can say hey I'm going to bet on this
person to be successful like that
perhaps is like a much more linear path
the second part of it is you know just
in listening to Christina and others is
you know notice how she's using words
like incredibly smart or incredibly hard
working it's not just enough often to
kind of join a company where you feel
like oh we're like a little good most
startups fail that was a good startups
fail like most great startups actually
fail right um in order to be an outlier
you you really have to believe in being
incredible right or insert adjective you
know that's great so I think you know
when you think about so many things it's
not enough to you know for joining a
startup right now there are plenty of
other businesses where that's not needed
but in this context um I think that can
often shine through and then and finally
I think what Christina said is super
true is and this is one of the reasons
about Christina and if you look at her
LinkedIn she's been right often most
people aren't right often right so
picking the right company or in a lot of
cases just picking the right people to
join like that has an outsized impact
right now after you do that though it is
your right obligation responsibility
duty to get the most out of it right and
that means getting the most out of it on
all aspects including the financial side
and some of the things that sometimes
people don't quite grock or before it's
too late are just some of the key terms
that we've covered very quickly but
there's some more that I want to make
sure that people are kind of aware of
you know when they're first accepting an
offer one of those that I think is
really really power powerful is this
phrase called early exercising early
exercising
um effectively means and Max is going to
walk you through a demo so you get an
idea of like the impact of it but early
exercising basically is a cause that
allows you as a shareholder or an option
holder to purchase all of your options
before they vest all right well just
Jordan's talking about early exercising
I can just bring it to life with a
couple uh simulations that basically
show if you're an example uh you know
early stage employee maybe you join like
a series B company you were granted 200
000 shares and in this example it's like
one ISO Grant
um and your strike price is about a
dollar and so what I'll just quickly do
is talk through like some of the high
level strategies between exercising
later at an exit versus exercising as
you vest versus maybe early exercising
now
um so if we just click in real quick and
each one be about 30 seconds in this
example we're waiting to basically
exercise until the liquidity event the
IPO and then we're selling everything
um and we're modeling out just basic
taxes based on you know this this
profile
um and in this case there's you know all
of the all of the shares are being sold
that short-term capital gains because
it's not held for a year
um in the next example though we're
starting to show how the uh in this demo
accounts basically exercising a little
bit each year so a third each year so in
2022 we're exercising a third but you
can see the exercise costs then in 2023
as the 409a starts the jump right the
value internally for for the employees
to exercise their stock options starts
to increase as the company raises
additional rounds of financing
now we're triggering AMT which is that
thing that Jordan talked about earlier
in the presentation so the cost exercise
is the same but there's additional tax
costs and then lastly in this example
right we're exercising the rest and then
we're selling all of it at the IPL in
this case you can see that some of the
equity is qualifying for long-term
capital gains some of it's still
short-term capital gains and therefore
the net outcome in this example is a
little bit better right instead of 2.7
million you know it's 3.4 million in
this example but the ultimate example of
what Jordan's describing is early
exercising and you're basically saying
hey I actually before My Equity vest so
when I issue when I'm issued my stock I
can buy My Equity before it invests Over
a four-year schedule and in this example
you don't have to pay any additional
taxes because the 409a equals the strike
price
the one dollar strike price equals the
49a and then you hold on to it it all
qualifies for long-term capital gains
and as you can see here this leads the
largest in that outcome
um because everything's qualifying for
long-term capital gains as well as uh
being able to exercise in and minimize
their tax burden so these are like real
you know life demo examples of various
strategies and
um of someone who's potentially joining
like an early stage startup evaluating
this opportunity and we'll dive into
some more but I'll pass it back to
Jordan uh Max I I appreciate you walking
through that Max and hopefully my
sharing my screen doesn't break our
Wi-Fi but
um I I think it's really clear that like
some of these key Clauses can make a
really really big difference both when
you're joining a company but also when
you're potentially leaving your startup
um and
Christina I mentioned that you've joined
lots of startups
um you've also left them uh you know at
some point I'm not saying you were an
expert at leaving companies but I'm
curious you know as you think about your
career and taking charge of your career
and thinking about you know you're at
strike for many many years and and I
think nowadays people don't stay at
startups for very long often they kind
of bounce around and expect to you know
get a higher salary every time they
bounce around I'm curious like how do
you take a long-term view towards
building companies but also think about
like when it may be time to see
something new and like how how should
someone kind of potentially process that
yeah I think when I was at stripe I very
much looked at the opportunity and said
like is there another like amazing group
of people who are building in such a you
know game-changing space
um as the team that I'm with right now
and for seven and a half years the
answer to that question was no
um so I stayed
um and I also personally had uh you know
a lot of really great roles that enabled
me to continue learning and growing
personally in addition to obviously like
growing my wealth and continue to invest
My Equity so um all of those things I
think were were very helpful and reasons
why I stayed
um of course like there are always
reasons why people leave companies and
um at a certain point I said huh I'd
actually uh invested in this company
notion as an angel investor and
um said you know I really like spending
time with these people maybe I should
spend all of my time with these people
um and join the company full-time
and I think that when you leave a
company I think it's really important
that you think about you know kind of
putting a uh that last chapter to your
experience and and how important that is
whether it's like transitioning your
work
um you know transitioning people your
team right I think you still want this
company to succeed assuming that you
like exercised your your options like
you are like a part owner of this
company and you leaving should not be a
reason why that company fails so you
should want that company to continue to
be successful after you leave and um
Additionally you may want that company
to potentially do something for you at
some point in the future and you being
very nice on the way out and on an
ongoing basis like I still refer people
to stripe to like higher to this day
right
um and and in in that it's you know it's
always a kind of mutual exchange and so
I think that in leaving a company you
may want them to do something such as uh
providing an extension for uh exercising
uh your options and a lot of companies
you have maybe 30 days maybe 90 days to
exercise your options
um but if you don't necessarily have the
money to do that
um asking a company hey could I get an
extension or pay like any chance we can
move to like 10-year option exercise
windows I think that would be helpful to
me but also to other people right and um
being able to have a good relationship
with the founders and the rest of the
team
um I think ensure that some of these
things on the way out that might seem
like details but are very important to
you financially
um can actually get accomplished and so
um yeah those are the things that I I
tend to to think about
um you know but I think it's always a
question of like do I think the the
opportunity that I am leaving for is an
opportunity I'm running to and it's
always a phrase that we kind of talked
about when we were at stripe it's like
oh are you like running from something
um are you running to something and like
when you decide to take a new
opportunity and leave a company even if
they're doing well you should be running
to the next company
um and uh I've definitely you know that
way with with notion and thought about
it as like I'm I'm making another bet
here
um and the potential payoff of that
opportunity should be just as big if not
bigger than the opportunity I just had
super super helpful and I think you know
something I really admire in people we
work with that compound and broadly is
this kind of long-term perspective on
things that I think stripe is known for
for curating but kind of also just in
general thinking about you know not just
the short-term payout for something
right we're not you know you're not
necessarily hearing Christina oh I'm
jumping out of company because they
offered me a ten thousand dollar signing
bonus well you know that could be
helpful in your life you realize like
where you work is going to impact a lot
of your life and your habits and what
you read and what you think about so
um that that stuff's really important
now
I think that
companies you know it turns out most
Founders are not as weird as me and that
they don't read about finance and taxes
all the time so sometimes I'm not saying
they're all evil but sometimes they they
put their employees in positions
inadvertently or advertently that are
just really tricky and really tough and
Christina hinted at one of them one of
them is this thing called the
post-termination exercise window which
says that if you were to leave your
company either you know you were fired
or you were to leave on your own terms
you may only have 30 or 90 days before
your Equity expires at the end of your
post termination exercise window right
and I'm not to say that all founders who
have this are malicious people who use a
lot of nuance and there's tax
implications and administrative burden
but it sucks at the end of the day uh if
you're an employee to be put in a
position where you have 30 days where we
have to spend potentially millions of
dollars on the thing you worked for for
many many years and now it will go to
zero unless you do something about it
right so there are tough situations that
you may or may not find yourself in
um and you know can really make a big
big difference
um on your long-term financial future so
we have a bunch of
um tools uh that like help you model
this out
um we'll follow up with like free access
to it and whatnot but at the end of the
day like the broad stages the broad
steps you should look at are
um effectively first of all what
information do I need to know right
oftentimes people will jump to making a
decision before having the data so what
are my tax implications what are the
financial implications what percentage
of my net worth am I investing in this
thing why you know sometimes people feel
like they have to exercise their options
you don't right it's it you could invest
in Apple you could you could invest in
the S P 500 right so it you know you
don't have to invest in your single
source of income it's not like a
mandated law as part of getting options
in fact the purpose of options is they
give you the option right to purchase
um uh equity in your startup so those
sort of tough situations are really hard
and what I'd encourage is just
optimizing for learning at first whether
you're going into kind of a job offer
and you're trying to kind of learn the
key terms or while you're at the company
being an advocate for transparency not
just for yourself but for every other
shareholder at the company who may be
confused
um about kind of where things lie
overall I want to make sure that we're
answering any questions people have as
well um max please do surface any of
that makes sense to dive into
um but beyond that
um you know I think it'd be very useful
um maybe maybe as a last a last step in
this before diving into any okay there's
a few questions that I can do but before
dive into that I you know I think
I I certainly don't believe anyone knows
the future so I won't ask you for that
Christina but I'm curious you know as
you think about investing your time and
money it feels like people are like a
big big part of of that I'm curious like
are there any other heuristics do you
use kind of while at stripe or even now
more broadly that you know when you
think about deciding to exercise an
option or deciding to invest in a
company and think about that in your
broader kind of future like what what
things do you think about when making
those sorts of decisions as to where you
want to allocate your time and also your
money yeah I mean I definitely look at
like growth rate and potential
um as as factors and so you know when I
joined stripe I like I guess I would say
the company had a much higher evaluation
the valuation is about around 500
million dollars when I joined I knew
that like the number of customers was
pretty small the the amount of volume is
like pretty small but you you come in
and I feel like there were a lot of
things that we did in that time that
like drastically expanded those numbers
quite quickly and so when you're there
like you get so much more information
than even like I currently as an
investor in companies get right you like
I I think about this all the time the
employees know far more information than
any outside investor knows about a given
company and so you know like what
customers you're closing how those
customers are doing
um if they're deciding to spend more
money
um with that particular business right
and so often like you see the signs
um before a lot of other people do and
um understanding that growth rate and
your metrics and hopefully like you join
a company where that data is transparent
um and it's not something that is kept
hidden because I think the best
companies want to know uh and want to
share with their employees like how
they're doing
um so understanding that growth rate and
if you you see that being like quite
significant and what I mean by that is
like you know in normal times that might
be like a 3X or something like that year
over year for sufficiently larger
business uh in a year like this maybe 2x
um because uh people aren't buying as
much as they used to buy
um and so I think those are factors that
I think about and then
um you know second
um it's it's really about where you see
the long-term potential and I think
that's like to your point earlier like
should I be buying Apple stock and I'm
like well I think Apple has potentially
reached you know or much closer to
reaching its potential than I think
stripe is right
um and I think that there's far more
opportunity there that still exists and
so if I'm leaving a company right I'm
saying do I think this company has
potential to continue growing at its
previous growth rate without me and
continuing to see
um uh that be achieved and so so for me
I'm thinking about it as you know more
of a current growth rate of the numbers
I can see and the factors I could do on
there and then also what is the
potential when all that information goes
away
super helpful I think
almost to summarize like one of the key
insights here is
um you know when you're investing in the
public markets or an investor even
broadly you can kind of Take A
probabilistic View to things in other
words you could think about it like what
is the probability that this company
grows over X period of time but what's
interesting about working at a startup
is that rather than looking at the
probability you can actually look at the
conditional probability which is that
it's U plus the startup right that are
that are kind of driving returns over
the long term and if you can look at it
through a conditional probability
um then you can actually make an impact
on your long-term future wealth right
and and that's like a really cool
feeling right if you're doing a startup
where you're able to bring your full
self and you're able to bring your
skills and your interests and your
talents all these different things and
you understand all the taxes you never
have to worry about that
um then you know things can things can
be great um um and yeah I guess
Christina I know you have to hop in a
minute we will answer any um any q a
people have about super fun Finance or
tax law in a second but because you know
anything else you want to share with
folks I know that you have a job Board
of sorts that that people can find
Opportunities where where can people
find you or you know if you had any if
you had a billboard to tell everyone
with like what would
uh sure uh I guess I'm most active
probably on Twitter uh so twitter.com
CJC and that's my handle
um but
um yeah I guess I guess I would say like
one last tip would be if you are
thinking about joining a company
um one like piece of material that I
would ask for is their most recent board
deck
um and I think that's useful on a few
fronts like do they actually have board
meetings and run board meetings um and
what is the information associated with
that
um and then two
um you'll get to know all of the same
types of data that an investor would get
into that business and and try to
determine if if that feels like a good
opportunity for you
um so that that would be a tip where I I
feel like you can better understand how
a company runs and operates
um and what its challenges are
um and I think the more that you know
going in whether it's good or bad
um and I've joined I've joined companies
without boards right
um so like again but it's like it's it's
data that I know going in and I think I
I think the number one rule whether it's
Equity choosing companies Etc is like
ideally no surprises
totally and I think that's a really good
way to end this is and again as a
hopefully a reminder because it's easier
said than done but like
all of this is just data collection
people are often so quick to negotiate
they're so quick to say I have to expose
my options but if you take a deep breath
which I'm often reminded to do and you
ask yourself like okay well what other
information is out there right could I
ask the CEO what competitors are they
could I ask the CEO did any investors
you know offer you and you said no to
like all of this is just data right and
and there's a lot of acronyms out there
in the Finance Tax world where you're
like you get the data and you're like
okay this confuses me even more
um but you can spend that energy up
front again hopefully 10 15 minutes it's
not we're not asking you know you're not
doing Decades of diligence um you can
make a really really big difference
towards your long-term outcome so I want
to make sure I answer
um any um any questions here one is uh
About This Acronym called qsbs or the
qualified small business stock tax
exemption qsbs so now you can feel smart
if you know it
um basically it's a big deal it's a
really big deal if you're an investor or
if you are an employee or a founder of
com of of small businesses including
start
um basically how it works is you can get
up to 10 million dollars in tax-free
capital gains
um if your stock qualifies for qsbs for
it to qualify it needs to fit under
several stipulations one of which is you
need to acquire the stock directly when
the company has less than 50 million
dollars in assets so earlier stage
startups the second is that the call the
company has to be a qualifying category
so for in for instance
banking or like real estate or not
qualifying categories you can take
either a list of which categories
qualify there can sometimes be some gray
area but um something to kind of look
into and then the third is that you need
to hold on to the stock for at least
five years and if you do all of those
things before you sell it
um you get up to 10 million dollars in
tax-free capital gains but
the problem is that
um you have to actually own the shares
for five years so owning an option is
not enough you have to actually own the
shares so one question to think about
when you're joining an early stage
startup is our you know will the company
likely be qsps eligible because if it is
that can make a really big difference on
your net returns especially if you're an
investor but not as big of a difference
as working at the best company in the
history of the world but still a very
big difference on your bottom line
something like you know 20 additional
returns who's not paying any taxes on
the on the income
um beyond that sometimes you may be in a
position where you're not able to
exercise
um you know you're not able to exercise
your options your yourselves you're
looking at an opportunity and you're
looking at a big number the number could
be hundreds of thousands or millions of
dollars
um depending on the situation you're in
you know in your your piggy bank you may
not be able to afford
spending spending your own money or
investing your own money so you can look
at financing options and depending on
the situation you're in certain
financing options may be more or less
attractive there's a whole spectrum of
financing options from kind of recourse
options meaning if the company goes to
zero you have to pay back the full price
out of your own kind of personal balance
sheet um to non-recourse options like
um kind of more secured against the
collateralized Private Stock where if
the company were to go zero you wouldn't
owe any kind of out-of-pocket money
um there's a lot of different providers
in the space kind of across at the
Spectrum
um firms like ESO fund for instance kind
of live on the non-recourse side on the
recourse side there's several different
banks that may kind of lend you we help
you kind of with all the sort of stuff
there's even more acronyms in terms to
kind of sift your way through but if
you're in a position where you're at a
company you have a post termination
exercise window that's really short so
you're like hey I don't want to work at
this developer Tool Company anymore I've
been here for six years but I don't want
all of my Equity to go to zero because
I've worked so hard on it but I haven't
been able to afford to exercise and now
the foreign so much because I was so
valuable
um and you have 30 days
definitely you know is a stressful
position to be in your friends won't
really you know feel that bad for you
because you could make millions of
dollars and the taxes are a hard thing
to complain about but I feel bad for you
because it is a hard position to be in
and would love to be helpful to you in
those sort of circumstances
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