Tech startups that give employees a large window to exercise options
Update: Thursday August 6th 2015, added Coinbase.
Why is this important?
Most employees only have 90 days after they leave a job to exercise their options. Unfortunately, this requires money to cover the strike price and the tax bill due for the year of exercise (which is calculated on the difference between the strike and the current FMV). This is often more cash than an employee has, and so the employee often has to choose between walking away from vested options he or she can’t afford to exercise, or being locked into staying at the company. It’s a particularly bad situation when an employee gets terminated.
This doesn’t seem fair. The best solution I have heard is from Adam D’Angelo at Quora. The idea is to grant options that are exercisable for 10 years from the grant date, which should cover nearly all cases (i.e. the company will probably either go public, get acquired, or die in that time frame, and so either the employee will have the liquidity to exercise or it won’t matter.) There are some tricky issues around this — for example, the options will automatically convert from ISOs to NSOs 3 months after employment terminates (if applicable) but it’s still far better than just losing the assets. I think this is a policy all startups should adopt.
As an aside, some companies now write in a repurchase right on vested shares at the current common price when an employee leaves. It’s fine if the company wants to offer to repurchase the shares, but it’s horrible for the company to be able to demand this.
Sam Altman, http://blog.samaltman.com/employee-equity
Startups with large exercise windows
Quora (10 years)
Pinterest (7 years)
Asana (10 years)
Kickstarter (10 years)
Segment (10 years)
Coinbase (7 years)
If you know of others, feel free to let us know: email@example.com