[klochner]

In the US, one benefit of two-tier structure is that employees can early exercise options at a very low stock price to get preferential tax treatment (taxed at long-term rate rather that ordinary income).

With all common it's likely too much money to exercise before a liquidity event, so early employees end up losing an extra 15% of their payout in taxes.

[nycthrowaway]

Apologies if I misunderstood your comment, but are you implying the price per share can be different for common and preferred stock, and therefore the spread used to calculate AMT for employees can be negligible even post investment?

I assume you're referring to the "AMT" alternative minimum tax, which is calculated based on the spread between exercise price and current valuation according to most recent 409(a) filing. My impression was that this valuation, calculated post-series A/B/C, reflects the most recent per-share price paid by investors. Since investors typically receive preferred stock, the per-share price in the 409(a) filing will reflect the price investors paid for preferred stock.

In most cases, common stock will not have a real "per share" price until a liquidity event. So how is the price-per-share valuation calculated for common stock?

I was under the impression that the spread used to calculate AMT is the difference between the most recent preferred stock price per share, and the exercise price of the options, regardless of whether they bought common or preferred stock.

[klochner]

I was talking about income tax at time of exit. If you pre-exercise and file an 83b, you realize profit as long-term capital gains rather than ordinary income. It's hard to pre-exercise if doing so costs you $100k+ in exercise costs (you have to pay the option price). Options on common stock will be set at the price of common, which can be 10x if there are no preferred shares.

Read here regarding common/preferred valuations:

https://www.quora.com/What-were-typical-ratios-between-409a-...