90 Days and My Six-Figure Mistake

Have you missed the ongoing debate on employee equity and exercise windows? Many top people are talking about it. And there are lively public discussions on twitter.

You should read the whole thread.

There is a pool of money for investors and founders in Silicon Valley that comes from employee ignorance. Great founders and investors don’t like it and are clear and fair with equity. Every time an employee wants to exercise their options but can’t for financial reasons, that pool gets larger.

Exercise windows are a painful, personal subject. For my first real job I worked at athenahealth. After two years I wanted to move to California. I left athena and promptly, painfully learned about exercise windows. I was young and ignorant. I majored in computer science, not startup securities.

What’s an Exercise Window?

When you get options, you don’t actually get shares. You get the option to buy shares later at today’s price. But only for a limited time. That limited time is an exercise window. If you don’t buy them in the exercise window, you get nothing. If you can’t afford to buy them, you get nothing. The equity you earned in the company is gone.

The 90-day limit comes from tax law. That limit was no problem back in the 90s when companies went public in about 4 years. Once the company was public you could sell your shares. But it’s not 1990 anymore, and we should stop treating employees like it is.


Back to my expensive mistake: After two years I left athenahealth to move to California. I had 90 days to come up with the cash or the ownership I had already earned would disappear. But all my extra cash at that point went to my student loans or the move. I definitely did not have the cash I needed to get my stock.

But athenahealth had recently gone public. The stock was liquid. I could do a cashless exercise, right? I could sell a small number of shares to exercise the rest. But even when a company is public you can still be screwed. How? blackout periods. I was an insider.

Insiders can’t trade during blackout periods. That’s against (good) SEC rules. Athenahealth had an earnings call right after my window ended. I was blacked-out. I could not sell any stock, that would be insider trading. I could not cashless exercise. I did not get any of my earned equity in athenahealth. Poof.

I could have gotten a loan. But I was 24 and dumb. I didn’t get the right help. I didn’t know who to ask. To be fair, athenahealth gave employee seminars before the IPO. But my situation wasn’t covered. I distinctly recall the phone conversation with the bank handling the IPO right after I left:

Me: “So I can’t cashless exercise?”
Bank: “That is correct.”
Me: “There’s nothing I can do?”
Bank: “That is correct.”

The bank was not correct. I could have gotten a loan. Maybe I could have talked with athenahealth and worked something out. What matters was the bank told me I could do nothing and I was dumb. I knew nothing else. So I did nothing, and got nothing.

The stock has since gone up 250%.

$ATHN from IPO to present day. 251% appreciation from IPO, let alone my strike price.

I lost about $140k to a 90-day exercise window if I recall the numbers correctly. I might own an apartment, not rent a studio at 33, struggling to make a down payment.

I have heard far worse. Just yesterday I heard from someone who really wants to exercise their options worth much more than mine were, but can’t.

We need to fix this. This hurts everyone, even founders and investors. Once an employee learns how equity really works, they often leave startups. Want to make money? Go work at Google. Good talent is already scarce. Many people argue for 10-year options, but that’s a big increase: Options are more valuable the longer they last, especially with volatility. Startups are volatile. Maybe we should always allow a net exercise.

What protections or terms would you want in an offer?