[Aqua_Geek]

That’s a LONG time (in total) for employees to wait for liquidity. Yes, they likely provided some opportunities for early employees to liquidate some of their holdings, but it’s got to suck to sit on that much funny money for so long.

[msoad]

An IPO will be longer. With the locked out period it will be more than a year

[makestuff]

Not necessarily if they do a direct listing.

[khazhoux]

A direct listing would be very unfair to the banks that have patiently waited years to take a multi-billion-dollar chunk of Stripe’s upside in exchange for setting the IPO price (integer between 20 and 50).

[htrp]

The level of shade is about as high as the expected ipo pop

[mercedsownboy]

Thank you for a great chuckle

[nerpderp82]

> unfair to the banks

[WXLCKNO]

I chuckled once more.

[yieldcrv]

but at least in an IPO the company would get a financing round, and the banks get to manipulate the market with a stabilizing bid indefinitely

direct listings completely rely on retail buyers for liquidity, and even in the frothiest markets that's not enough money in the face of all employees and the company dumping shares immediately

[chimeracoder]

> direct listings completely rely on retail buyers for liquidity, and even in the frothiest markets that's not enough money in the face of all employees and the company dumping shares immediately

IPOs typically have a lockup period, which means that employees will always be selling to retail buyers, whether on Day 1 with a direct listing or Day 90/180/etc. when the IPO lockup expires.

[yieldcrv]

for confidence games, an IPO is much better.

[makestuff]

Those 3rd homes in Miami aren’t going to buy themselves.

[alasdair_]

> Those 3rd homes in Miami aren’t going to buy themselves.

They will if they come with a chatGPT4 assistant as standard.

[preinheimer]

They've had several options for employees to liquidate some of their holdings before now. They've generally only been open to current employees, but one a few years ago was also open to past employees.

[clintonb]

Those offerings are only for options holders. RSUs cannot be traded; otherwise, every RSU holder has to pay taxes.

[lbotos]

I assume Stripe is giving out "Double Trigger RSUs" then? https://blog.pragmaticengineer.com/equity-for-software-engin...

Otherwise people are getting taxed now anyway if they are getting RSUs at a private Stripe, right?

[calr]

Noob question that I am sure is answered many times. What are the catalysts for a private company switching from options to RSUs (double trigger). In my previous role I got RSUs (double trigger), but now at a much smaller startup I have an option package. As an employee RSUs are a bit easier to make sense of, but both are equity instruments at the end of the day. When, and why does that transition happen?

Edit this is answered fairly well here: https://www.parkworth.com/blogs/pre-ipo-tech-giants-using-do.... The TLDR is SEC rules and limited perceived upside of options (although I imagine that could be solved via a lower strike price).

[chimeracoder]

> What are the catalysts for a private company switching from options to RSUs (double trigger).

For employees at very early companies that are going the venture route, ISOs are a no-brainer. The company is small enough that the strike price isn't too onerous, the company is too small to hit up against the IRS limits, and they provide pretty good tax treatment under the assumption that the company will grow massively in value - like, 100,000x - which is the the optimistic case that everyone wants to optimize for.

For employees at late stage companies (e.g. last funding round before IPO), ISOs are a rough deal. The strike price is large, so the only people who can afford to exercise them before a liquidity event are people who are already independently wealthy. The tax benefits are also still present, but smaller, because the expectation is that the company might grow 10x in valuation, but not 100x or 100,000x (most $100M companies are not going to grow to $10 trillion in valuation).

RSUs avoid that problem, by requiring zero cash up-front, in exchange for less favorable tax treatment in the "company grows 100x-100,000x" case - which is fine, because that's less relevant.

Of course, the billion dollar question is where the inflection point happens - when do RSUs become a better deal than ISOs? There's no universal answer to that, and some of that depends on specifics of the company, and some of that also depends on who you ask (certain people will benefit more than others from the switch at different points, so it depends on how much the company is weighing each of those [metaphorical] stakeholders).

ISOs also have one other advantage for companies: because they have to be exercised within 90 days of departure, a large portion of ISOs that are granted will never actually be exercised (the employee will choose to leave them unexercised, either because they don't have the money to pay for the exercise price + taxes or because they don't want to). So every option granted is <1 share actually given up (in expectation), allowing the company to grant bigger compensation packages (because some portion of those will not actually be used, and can therefore be reallocated to someone else).

With RSUs, every RSU granted is 1 share actually given up (except in the case where the RSUs expire, which makes the company look bad).

[arcticbull]

There's also usually a switch from ISO to NSO somewhere down the line, often fairly early. NSOs aren't capped at a 90 day post-termination exercise window. Some companies have extended the window to as much as 7 years - Pinterest comes to mind. There is a cap, but it's closer to the RSU cap than the ISO cap.

The progression is usually:

- Founders get shares with a re-purchase option for vesting. The company exercises the option if you leave before vesting ends to take back your un-vested shares.

- Next ~100 people get ISOs.

- Next ~2000 get NSOs.

- Then, double-trigger RSUs until the company goes public.

- Then, single-trigger RSUs.

I agree with your general assessment. The difference between options and RSUs usually comes down to upside potential. An option is worthless at grant time (by law, it usually has to be issued at the 409(a)) and it's just the right to buy company shares. If you're buying the shares at the current price, there's no value in that. Options only gain intrinsic value of future appreciation in the underlying equity past your grant date.

On the other hand RSUs are shares of the company, so they are worth at grant whatever a share of the company is worth.

An option with a $10 strike price to buy shares of a company whose 409(a) is $11 has an intrinsic value of $1. An RSU of a company whose 409(a) is $11 has an intrinsic value of $11.

Companies generally, in my experience, give you about 3X as many options as they would shares for the same role. Give or take. Companies usually switch from options to RSUs when they think that growth in the stock price is going to slow down - [edit] (and when they're hiring people with a higher aversion to risk!)

[jonas21]

> except in the case where the RSUs expire, which makes the company look bad

The benefit of double-trigger RSUs over single-trigger RSUs is that they're not taxed until after a liquidity event (IPO, acquisition, etc). That's nice for the employee as they don't have to come up with extra cash to pay taxes on the RSUs as they vest but before they can sell them.

However, double-trigger RSUs have to expire within 7 years -- otherwise there's not a "substantial risk of forfeiture" and they'll be taxed immediately upon satisfying the time condition, just like single-trigger RSUs [1]. It makes sense -- there's no practical difference between a double-trigger RSU that never expires and an illiquid single-trigger RSU, so it would be a tax loophole to treat them differently.

[1] https://drsfp.com/insights/pre-ipo-rsus-single-trigger-vs-do...

[calr]

Thanks for the in depth write up. Makes a lot of sense!

[ywain]

Correct. Stripe gave out stock options until around 2016 or 2017, then switched to double-trigger RSUs.

[a_t48]

This happened to me this year with another company. They opened up the ability to sell back RSUs, and a chunk of them got sold to pay for taxes.

[scarface74]

As someone who only has dealt with public companies, how is that different from my having to pay taxes when my RSUs vest?

[alasdair_]

At Stripe, when your RSU vest, you still don't have the ability to buy the shares. Instead you have to wait for a liquidity event, or for 7 years to pass (making the shares worthless).

[scarface74]

With RSUs, stock is deposited in my brokerage account that I can sell anytime I want.

I get to choose whether I want them to sell enough to cover taxes or whether I want to cover taxes some other way,

So you get absolutely nothing liquid when you get your RSUs at Stripe? What’s the point and how is that different from getting stock options?

[zrail]

Publicly traded stock gets deposited in your brokerage account because your employer is publicly traded. Private companies offering double trigger RSUs that don't turn into shares or cash until a liquidity event (I.e. an IPO). At that point (plus a lockup period, maybe, depending on how the company goes public) the shares, minus withholding, will get deposited into a brokerage account and be available to sell.

(Disclaimer: I am a holder of Stripe RSUs)

[jcdavis]

it can be done (via eg waiving the 2nd exit trigger and converting to common) but is pretty complicated