[dave_sullivan]

Very much napkin math, take with salt:

$3b purchase price + $300m in Walmart options

The company raised $500-800m at at least a $1b valuation, no idea on later round(s), seem less reported, maybe a downish round?

Investor liquidation preference guarantees investors get their money back 1x or 2x or 3x or whatever (assuming they don't lose all of it).

So if they raised at a $1b valuation, sell for $3b, a 2x preference means there's $1b in profit left after paying investors. Again, assuming you know how the rounds were structured, which I don't. And not counting taxes. Or other contract terms that kick in on certain conditions.

So best case scenario, there's $1b for employees + $300m in options. Unless liquidation pref is 2.5x which means $500m cash left + $300m in Walmart options. If it's not vested, they can make a problem out of it (or they can accelerate vesting, but it's up to Walmart mostly). Most employees will probably need to do their time at Walmart, so to speak, and not get fired there.

Early employee maybe got 1%? That would have been diluted of course. But $10m is probably best case scenario (after taxes, you can afford a pretty nice place in the Bay Area and have some left over) If you got more like .1% of the company (still kind of a lot, really, and the founder sold their last co for $500m so better odds?), you just made a million bucks, which will be about 700k after taxes. And you've got a job at Walmart.

I would be surprised if the actual outcomes for employees were higher; unsurprised if lower.

[djrogers]

> $10m is probably best case scenario (after taxes, you can afford a pretty nice place in the Bay Area and have some left over)

That's an extreme overstatement - a 'pretty nice place' in the bay area would cost in the $1M range, maybe $2M if you have a pretty jaded view of 'pretty nice'.

> you just made a million bucks, which will be about 700k after taxes.

More like 500K - 39.6% federal and up to 12% CA state tax.

[cddotdotslash]

Jet isn't even located in the Bay Area, so comparing to Bay Area housing is sort of irrelevant (the exception being housing in NYC is close in cost to that in the Bay). Their headquarters are in New Jersey, so a good number of them could probably find fancy houses in NYC or nearby.

[djrogers]

I was responding to the parent's assertion that with $10M you could buy a 'pretty nice home in the bay area' - has nothing to do with where Jet is based.

[nugget]

CA state income tax goes up to 13.3% (for >$1 million), it's 12.3% on taxable income of $526,444 up to the $1m threshold. There's also the ACA medicare tax of 3.8% on investment income (which applies to employee options) which kicks in if AGI is >$250k for Married Filing Jointly, >$125k for a single person. You can itemize and deduct state taxes paid (for now - some proposals to weaken or eliminate this), which cuts the effective CA state rate by your top marginal Federal rate (.396+.038=.434). Net net an employee making $1m from employee options (above and beyond a healthy base salary) resident in CA will pay about 50% in taxes between Fed and State. The #s in NY and NJ are a couple % less. I would support the ability for an employee to ''smooth out'' the tax liability of option value accrued over working many years, say for example by recognizing the income over 3-5 years (thus taking advantage of lower tax brackets), but I've never heard this seriously discussed by legislators.

[encoderer]

Great summary, one caveat: You often won't see full deductibility of your state income tax because between state income tax, property tax, mortgage interest and/or childcare, you find yourself subject to the AMT.

I would also like the ability to do something similar to the way a business can depreciate an asset over time. How about the opposite: IRS tells us how many years you can spread an _appreciation_ out over. Currently the tax code penalizes the guy who works below market for years and then sees a lump sum payday. Why should it?

That said, I'd be happy if we just did away with dual-basis of ISOs and eliminate the rube goldberg AMT credits.

[nugget]

Good point. AMT has caused no end of heartburn around Silicon Valley and everybody should be familiar with it.

One of the two major Presidential candidates (who shall remain nameless) has proposed capping itemized deductions at 28%. I think this idea is more or less a bipartisan compromise acknowledging the political impossibility of eliminating specific deduction categories (e.g. mortgage interest, health care expenses, property taxes, state income taxes), each of which has a very loud and vocal special interest lobby. If passed this would be an effective tax hike felt very acutely by option holders of acquired companies resident in high state income tax States (in other words, entrepreneurs in Silicon Valley and New York).

[dave_sullivan]

Median home price in SF is $1m, in antioch it's $365k. But yes, I'm jaded and sarcastic, so I mean "pretty nice" in a "no shit it's pretty nice!" kind of way. Yes, it's literally an extreme overstatement, with humorous intent if not impact.

Re: taxes, capital gains.

[imcqueen]

For what it's worth, Jet is based in Hoboken, NJ.

[agentgt]

> Investor liquidation preference guarantees investors get their money back 1x or 2x or 3x or whatever (assuming they don't lose all of it).

I haven't looked into the walmart/jet deal but one hangup on this assumption is very often the entity purchasing was the entity that invested initially in the first place (directly or indirectly).

That is they are just moving money around and buying something they already own (either directly or indirectly and in some cases very very indirectly).

[dave_sullivan]

Hmmm, I don't think they'd forgive liquidation preference in that scenario. I can think of a few specifically that I won't name where that's exactly what happened. The big co co-invests with other VCs, who put together the terms. The big co (or rich celebrity entrepreneur) wants the capital gain; it's not just moving money around.

[TwoFactor]

If the employees/common share holders are splitting say $1B, an employee's 1% is actually much more. It wouldn't be surprising to think the investor's preferred shares were ~50% of the equity or more, leaving the common shares with the remaining 50%. That employee's 1% is actually 2% of the remaining, so ~$20M using the numbers above.