Calling all Founders! Give 5 Minutes to Help Save the US Startup Ecosystem.

The Senate Tax Cuts And Jobs Act, being debated now, might kill your startup and mine. Here’s why and what we can both do to stop that…

We need to change the Senate Tax Cuts And Jobs Act to save our startups (Credit: Schoolhouse Rock!)

The Senate Tax Cuts and Jobs Act is cancer to startups

If you’ve ever worked at a startup, then you know that equity compensation is very important.

We founders pitch the best and brightest we know to join our teams; join our missions. These bright stars often have many job offers. Frequently, those other job offers at larger companies promise bigger cash salaries. But startups have a secret weapon = equity.

Equity is key. It allows the entire team to enjoy the fruits of their labor. With equity, every team member is an owner, and every team member benefits when the company is sold or IPO’s.

Don’t believe me? Read about the wealth accrued by David Choe, the muralist who painted Facebook’s early Palo Alto office for equity, and took home $500MM in the IPO.

It is common for startups to offer equity in one of two ways:

  1. Options
  2. Restricted Stock Units (RSU’s)

Equity is offered in these ways because it is most beneficial to the employee. There is no up-front cash cost, and today employees must only pay cash when the options / RSU’s are exercised. This makes them like lottery tickets — you only have to redeem (“exercise”) your Options / RSU’s for shares of stock (equity) once you know the equity is worth something. This is great! Your tax bill comes due only once you know you can cover it.

The Senate Tax Cuts And Jobs Act, being debated now, violently murders this beautiful system we have today.

Senate Republicans just proposed to tax startup employees on vesting, rather than on exercise. WHAT THE F**K?!

So they want you to pay taxes before you even know if that equity is worth anything. This is like telling you to pay taxes on your home every year because you happen to live in a gentrifying neighborhood.

Let’s extend this analogy. It’s as if the US Government is telling you: “Oh…the price of your home shot up and you don’t have cash sitting around to pay our tax bill?! Too bad…sell your home and LEAVE.”

What’s the end result if the Senate Tax Cuts And Jobs Act passes? No more equity to startup employees.

In all my time as a hedge fund analyst and startup founder, I’ve never seen such stupid tax policy. It’s as if the Republicans want to perpetuate “Modern Serfdom”.

How can you help remove this malignant policy?

If we all team up, it’s actually quite easy.

Just follow these 3 easy steps:

  1. Find both of your Senators’ office phone numbers at this link
  2. Peep this concise list of best practices for talking to staffers
  3. Use my script below and sub {{x}} variables as required
Hi, my name is {{John Zettler}}, I'm a business-owner & constituent, and I'd like to speak to Senator {{Gillibrand}}'s staffer who handles tax reform.
Hi, my name is {{John Zettler}}, I'm a business-owner, a constituent, and I live in {{New York, NY}}.
I am calling to ask that we remove Section III(H)(1) from the Senate Tax Cuts And Jobs Act.
* I run a technology-enabled {{wealth management}} startup
* This will make it impossible to compensate my employees with equity
* If I cannot compensate in equity, then I have to compete on high cash salaries my small company cannot afford
* If this bill goes through as-is, then you will be destroying the startup ecosystem in the United States, which is the largest contributor to job growth
Thank you!

As Fred Wilson notes in his post this morning, it is urgent that we begin making these calls NOW. The Republicans are trying to vote this into law ASAP.

Remember: your participation will move the needle. “As with letters, legislative staff track the number of calls they receive on various topics. Just a couple phone calls into an office over a short period of time can bring an issue to the attention of your legislator and have a big impact.” ¹

When we hire at Commandiv, equity is always part of the compensation package. This helps align our interests with our employees. If we all grow the value of the business, we all enjoy the upside! Shoot me a private note if you want to work with us.

Big thank you to Fred Wilson (Twitter) & Dan Primack (Twitter) for bringing this issue to my attention this morning.