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Businesses Japan Technology

Former Uber Employees Have Gone Into Debt To Hang Onto Shares They Can't Sell (qz.com) 72

An anonymous reader quotes a report from Quartz: Uber employees are lining up to sell their stock to Japanese technology giant SoftBank, which will buy up to 17% of outstanding shares for $33 each. The price represents a 30% discount to Uber's last valuation, of nearly $70 billion, but for current and former employees, the SoftBank tender offer is a rare chance to convert paper wealth into actual cash. To qualify for the tender offer, participants must have at least 10,000 Uber shares and be "accredited investors," an SEC designation (pdf) for wealthy individuals. Current Uber employees can't sell more than half of their stake; there are no restrictions on former employees. The deal is on the table until Dec. 28, and could fall through if there aren't enough shares on offer for SoftBank and a small consortium of other investors to purchase at least a 14% stake in the company.

Working at a successful startup is often viewed as a quick path to prosperity, but the reality is more complicated. Startups tend to offer equity packages, typically in the form of stock options, to compensate for below-market salaries. But as companies like Uber have stayed private longer, most employees haven't been able to get rich from those shares. Quite the opposite, some former Uber employees have gone into debt to hang onto shares they still can't sell.

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Former Uber Employees Have Gone Into Debt To Hang Onto Shares They Can't Sell

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  • by Anonymous Coward

    The devil pays in unredeemable stock options for a company in a perpetual state between collapse and a liquidity event.

    • Sometimes the decision to leave a company has consequences. Sometimes the decision to exercise options has consequences. One should think things through before making either decision.
      • Re: (Score:2, Insightful)

        by Anonymous Coward
        Well that's some completely fucking worthless advice. Here's my advice - don't ever assume that any stock options offered to you are ever going to be worth anything. Don't ever make financial decisions assuming that stock options will ever translate into actual stock.
        • Right for private, 'pants on head' wrong for publicly traded.

          Also devil is in the details. How long to vest? How long to exercise after separation? 'No sell' windows? Right to sell option to 3rd party, unexercised etc etc.

          For startup, just ask for equity (less shares than options offered, no doubt) delivered on their proposed option vesting schedule. If they balk, they were planning on fucking you, not even kissing you when done. At least they expected their VCs to do a lot of employee option fucking o

          • by tippen ( 704534 )

            For startup, just ask for equity (less shares than options offered, no doubt) delivered on their proposed option vesting schedule.

            An equity grant like that results in the employee getting taxed when they receive the stock, which they may not be able to afford since they can't actually sell any of the stock to cover the taxes. It's exactly that tax problem that stock options are intended to help with. It let's you decide when to take the tax hit.

            The real problem is a combination of expiration dates on stock options (10 years typically) and late stage companies that don't want to face the discipline/regulations that come with being pu

  • If Uber was going to be killed off it'd happened by now. The amount of money that is on the table when you're talking about a company that has managed to legally side step minimum wage and other worker protection laws can't be understated. Uber has redefined the work dynamic anywhere it's been allowed. They got away with it because the law was turning a blind eye to Taxi cab driver's abuse. Assuming there isn't a massive sea change in pro worker regulations then in 10, 20 years everybody but Doctors and Law
    • A strict money-for-work exchange for most employees would lead to a clamor for gov't to pick up things like health care. Which might be a good thing.
    • and doctotrs maybe forced to take the low Medicaid payouts and some may be willing to help push people on to SSDI so they can go to higher medicare payouts.

      • If corporate sponsored health care disappeared, we would most likely move to a Canadian style single payer system, and Medicaid and Medicare would be absorbed into it.

        In Maoist China each factory ran a school for the children of their employees, so if you changed jobs, your kids had to switch to a different school. That is obviously an idiotic system, but getting your health care from you employer is just as idiotic, and you only think it makes sense because you are used to it.

    • Doctors and lawyers have unions? What country are you from? I've never heard of this.
  • by Puls4r ( 724907 ) on Tuesday December 12, 2017 @06:54PM (#55728397)
    To get your money. Nice trick huh?
    • Yep, "accredited investor" translates as "little guys can't play" at least if they're under US law.
    • or you can simply wait until the IPO and then sell

      • by Anonymous Coward

        You don't think the day before the IPO, those options won't be cancelled, or shares split to the point of being worthless, or a new 100x voting class created just for the C-suite?

  • by HangingChad ( 677530 ) on Tuesday December 12, 2017 @06:55PM (#55728407) Homepage

    The way options are taxed can make them kind of a bum deal. Depending on whether you're getting NSOs or ISOs, the price, and when you exercise your options can cost or save thousands.

    Personally, I'd rather have a higher salary. Options are a nice bonus but, as in Uber's situation, they can also be a financial burden.

    • by Anonymous Coward

      Us Joe averages get stars in our eyes when we hear "stock options" because we've all heard the stories about the janitor at Microsoft that took some stock options and ended up becoming a millionaire later on.

    • by Afty0r ( 263037 )
      Why not just tax them when someone sells them? We have something called Capital Gains Tax in the UK - when you sell something you made a profit on, if that profit is above a small threshold, you have to pay a percentage of all the gains you made... if you didn't make a profit, no tax. This makes investment more attractive by removing some of the risk. In the USA do you have to pay tax on the estimated value of the shares every year or something?
  • "employees have gone into debt to hang onto shares they still can't sell"

    didn't read TFA so maybe it's in there.... but does this mean that they will lose their shares if the don't go into debt?
    • by AvitarX ( 172628 )

      They had to go into debt to turn their options into shares I assume.

    • Re:please explain... (Score:5, Informative)

      by Baton Rogue ( 1353707 ) on Tuesday December 12, 2017 @07:52PM (#55728735)
      When you get stock options, you get X shares at Y strike price, with Z vesting period.

      Lets say you get 10,000 shares, at a strike price of $10 a share, with a 4 year vesting period.

      Let's assume you worked there 4 years, so all of the shares are vested. If you want to "exercise" the shares, you have 2 options:
      1) Buy the options with cash ($10 per share x 10,000 shares = $100,000).
      2) If the company is publicly traded, you can also do a "same-day-sale". If the public price is higher than your strike price (lets say $20), you "buy" the shares at $10, then sell them on the open market at $20, and you pocket the difference, so you would make $100,000 (minus taxes).

      Once you leave a company, all un-exercised options are forfeited after a time (90 days for example). For a private stock, you cannot sell them on the open market, so you only have the first option to buy them with cash. You now own all of those shares, but you cannot sell them publicly, so you have to hold onto them hoping that the company goes IPO, or an investor wants to buy them, like SoftBank.
      • Worse you may owe taxes if the option price is less than the current "market value" which is probably the price the last round paid.

      • Lets say you get 10,000 shares, at a strike price of $10 a share, with a 4 year vesting period.

        Not likely. I've worked at six start-ups including one that went public and two that are moving in that direction. I was employee #80 at the one that went public, #666 at the next and #200ish at my current employer, so I speak from experience.

        A strike price of $10 is not a realistic example. My strike prices have all ranged from 1/10 of a penny to $1.25. My most recent pre-IPO stock grants have been in the neighborhood of one dollar. So let's change your example to:

        "Let's say you get 10,000 shares, at a str

  • That uber kool-aid tastes so good, just can't stop drinking it.

    reminds me of some of the wall street boondoogles, and the F-35 one.

    $2 trillion for a plane that doesn't work right, and is outperformed by older models.

  • FTS:

    Quite the opposite, some former Uber employees have gone into debt to hang onto shares they still can't sell.

    FTA:

    Under current tax law, the income from exercising ISOs, a special type of option typically reserved for executives and senior employees, falls under an alternative tax calculation designed to prevent high-earners from using deductions to avoid paying tax. Non-qualified stock options, more commonly awarded to regular employees, are taxed the year they’re exercised on the gain in the stock.

    It seems likely the people holding at least 10,000 shares are former executives who chose to exercise their stock options within the 30 days allowed by Uber upon deciding to terminate (or being terminated from) their employment.

    Stock options are a way to reward executives financially outside of their normal pay structure. Exercising the afforded option(s) is typically only done when there's been a rise in the stock price during the option period.

    TLDR: Nobody forces you to exercise the option on so

    • by Anonymous Coward

      Nobody forces you to exercise the option on some stock you cannot sell.

      in your made-up fantasy world where there are no external forces and no other factors

      keep going, you've almost achieved your goal of complete lunacy

    • It seems likely the people holding at least 10,000 shares are former executives who chose to exercise their stock options within the 30 days allowed by Uber

      Probably not. In the very early days of a startup, it is quite common for the first developers to get thousands of shares, at a very low strike price. I have heard of regular developers at my company that have hundreds of thousands of shares, at a sub-dollar strike price. Those people are given a very attractive stock offering because they are taking a large risk that they might lose their job if the company folds, so the company rewards them with more options. After a company has been in business, and

  • Where the stock options for the startup are printed on toilet paper rolls.

  • if an employer offered my stock in the complany instead of a full cashable paycheck i would refuse even walk off the job, i cant pay bills or buy gas or groceries with stock investments, i will remember this bit of bad press and take it to heart in case any skinflint corporate pirate offered me stock instead of a full cashable pay check
  • by Ed Tice ( 3732157 ) on Wednesday December 13, 2017 @09:51AM (#55731189)
    The issue is not with strike prices and taxes. It's that options have an expiration date. As an example, I was granted some options in 2007 at a (now publicly traded) company. They had a four year vesting period that ended in 2011 and a ten year expiration. So in October of 2020 (I don't know why it's not 2021), I can either (a) buy the options for cash and incur a tax event of (b) let them expire and lose all the value. Since our company is publicly traded, when I buy the options and pay cash + incur taxes, I can sell some of them to soften the blow. In fact, for publicly traded companies, any broker will arrange an "exercise and sell to cover" which basically mean you exercise the shares and then sell just enough to cover the strike price. At tax time, if needed, I could sell more. But if your company is still private when the expiration date comes up, you have to buy the shares and incur the taxes but you have no way to generate cash from the shares to cover those costs. That forces people to either lose value or take on debt to hold shares in a private company.
  • It's sad no one can buy employees shares yet, since Uber doesn't report to the SEC. The thing this tender offer does is allow smaller, poorer holders a price base to negotiate a loan from the bank. The loan is backed by the asset - the shares. It is a weird way to think about debt if you aren't an accounting or finance professional.

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