Ask HN: Exercising stock options with imminent new round of funding (AMT panic)

[tootall]

Hi,

I am likely looking to leave (within the next few weeks) the startup I am currently working for, and go to one of the top 4 for several reasons.

(Un)fortunately, the startup appreciated considerably since I joined 3 years ago, and now the cost of exercising my option + AMT tax would be around ~110k (I calculated the value manually and also used TurboTax to simulate the transaction, it turns out ~40k for exercising + ~70k for AMT).

Now, on top of this insane amount of money that I have to pay out of pocket, there is even a bigger problem: The math I've done for the taxes is based on the 409A valuation of the company done at the last round of funding (Series B) a year ago (it's still the official number HR provided me). I have reasons to believe a Series C will be imminent (i.e. a month or two away).

The question I have is: if I leave, say, two weeks from now, and write a check for $40k to the HR department for exercising my vested options, can I use the check date as "exercise" date, meaning that I'll be sure the valuation for AMT purposes will still be the one of the Series B? Or will I have to wait until the board & lawyers approve the whole thing, which could mean the FMV will likely have increased by then because of the Series C (and I will be effectively screwed, because the AMT tax portion would be much larger?).

In other words, would this timeline work?

- (April 2017) I leave the company and pay $40k for exercising

- (May 2017) The company raises the Series C, increasing its value

- (June/July 2017) Lawyers/board process my exercise and send me the certificate saying I am a stock owner

- (at some point between August 2017 and April 2018) I pay $70k to IRS, even if the FMV is increased

Thank you

[calcsam]

You should call a tax lawyer ASAP. This is above HN readers' pay grades.

FWIW, we had a similar situation at Zenefits, but were advised it would probably be all right if we exercised before the company officially started raising $.

George Grellas comments on Hacker News frequently, he may be a good option.

I'd also look into secondary markets for selling some of your shares to offset the tax burden.

[tootall]

Thanks for the precious information!

I thought about asking here because it's not the first time HN saves my "life" by providing proper perspective on important decisions.

[prostoalex]

Talk to the stock admin at your company. They will provide you with an exercise form.

> can I use the check date as "exercise" date, meaning that I'll be sure the valuation for AMT purposes will still be the one of the Series B

Correct, it's whatever date you'll have on the exercise form, but still, talk to the stock admin for the most recent common stock valuation.

You don't have to disclose your departure, your ISO exercise is an independent event and can happen at the advice of your tax advisor.

[tootall]

Thank you!

I'm absolutely also going to get in touch with HR and also get a proper tax accountant.