Understanding equity at tech companies, with Billy Gallagher of Prospect

title: Understanding equity at tech companies, with Billy Gallagher of Prospect
author: Complex Systems with Patrick McKenzie (patio11)
contenttype: podcast
publication: Complex Systems with Patrick McKenzie (patio11)
published: 2025-11-20T08:26:36
sourceurl: https://pscrb.fm/rss/p/prfx.byspotify.com/e/media.transistor.fm/766ca4e0/bc68475b.mp3

word_count: 14826

Welcome to Complex Systems, where we discuss the technical, organizational, and human factors underpinning why the world works the way it does. Hi, to you, everybody. My name is Patrick McKenzie, better known as patio 11 on the Internet, and I'm here with my buddy Billy Gallagher today, who's the CEO of Prospect, a company which is trying to improve how employees manage and exercise their equity. Thank you, Billy. Thanks so much for joining. Thanks for having me. A long time reader, and so excited to be here. I'm also excited to have you here. This is a topic that is near and dear to my heart for several definitions and some equity. But why don't you give people a sense of your professional background and then we'll get to the nitty-gritty? Yeah, for sure. So started out my career on the investment team at Coastal Ventures. So was doing early stage venture investing and a bunch of awesome companies. They'd already invested in Stripe, which I know you know quite well. Before I joined, as I got to kind of ride that wave, was there for a couple of years and then joined Rippling. It was about 30 people. It was there as we grew from 30 people to a few thousand. Working at Rippling, I saw kind of the same equity payments over and over. You know, trying to recruit people into Rippling and explain, you know, what is this private company stop worth? Why should I join Rippling instead of, you know, enjoying my barge paycheck at Google? You know, managing my options, helping my teammates and friends with their equity. You know, I'm going to exercise this option. Now I owe taxes on this illiquid stock. We were fortunate enough to have a few tender offers. And so these kind of annual opportunities that you could sell your stock. And now that you know all of that, I just felt like everyone who works in tech gets paid this pretty big portion of their comp and equity. But they're not venture capitalists. They don't know what to do with the equity, how to get the most out of it. So certain prospect. I might start up to solve that problem and kind of think of us as a robot advisor that helps employees consistently earn more from their startup equity and better manage it, lose less taxes and sell at the right times. I'll make a disclaimer off the top in addition to being a small investor and a number of companies, although not prospect at the moment, that could change. We can negotiate lives. Yeah. I previously worked at Stripe and was there for a number of years and have left their full-time employee, but I'm still currently an advisor. People should assume I've had a Stripe equity decision or two to make over the years. But I'm not speaking on their behalf. One of the reasons that I think this is just so important as a topic is employees have a fundamental right to their compensation. And we are making promises when we bring them on inside our companies. We are making promises to them as they do very diligent work, often very hard work over a period of many years. And we should keep our promises to our employees. And yet, particularly with regards to some situations for managing one's equity, people who are given equivalent promises are not treated equivalently by the system because they have different levels of savvy in their ability to manage that. Often that difference in savvy is down to sociopolitical makeup of the employee base where if you went to Stanford, if you have someone who is in your family who has been this before, if it is your second time at a unicorn, if you are descriptively advantaged in society, you are more likely to make better decisions early. And we'll talk about some of those decisions, but some of them have an expiry date which the clock is ticking as soon as you sign your offer letter. And conversely, if you are less well advantaged, it's your first job in tech. If you did not go to a place where a lot of people went into the tech industry, you're going to get hit with a blizzard of terms like RSU is an early exercise and long-term capital gains and investing and blah, blah, blah. And because the people talking to you at your company seem to be very enthusiastic about you and they are very enthusiastic about you and they seem to be kind. You don't assume that there are landmines that you could step on in any given conversation or any given clicking on buttons on your interface. And thus, people who they did the hard work, they got to this position in life where they have useful skills, they exercised those skills for years, can cost themselves hundreds of thousands or millions of dollars because of like clicking the wrong button sign in interface where they were like picking between AMP because I don't know vibes, man, it's Thursday and someone at work told me I really need to click a button today, extremely frustratingly, if they go to the trusted people in their life at work, go to HR and say, hey, I got this email about equity. I don't really understand what's in this email. HR is going to give them a very carefully rehearsed sentence which does not give them any useful advice. And we can talk about the reasons for that but it's been arranging. So we'll talk about like the thorny sort of landmines later in the episode probably but for people who might also be getting Silicon Valley for the first time, how do startups that variety of stages typically structure an equity grant? Yeah, just to echo what you were saying, I think at its best, equity can make everyone odors in the business and can be really meaningful. And it's worse you wind up with some classes of people that pay no taxes on their vastly appreciated stock and others who end up paying quite large tax burdens on much, much smaller grants. So yeah, agree with some of the issues you outlined. Yeah, typically when you get an equity grant, it varies by a stage of company. So typically the earlier you're joining, the more you're getting options. So an option is what it sounds like. You have the option to pay money to buy stock in the company. Those can be a tax advantage to the other structure, which is typically RSUs, which is you're just receiving stock in the company but typically paying higher taxes on that. Those are kind of the two broad classes. It breaks down further into two types of each. Like all this stuff. You can always go one layer deeper and deeper and deeper, but those are kind of the two high level groups. And when you get your offer letter, and this is usually disclosed in your offer letter, although it might have been part of the negotiation prior to joining, you will typically be told what the vesting terms are for your option. And for these can vary, folks, please do actually read your offer letter and equity acts very carefully. But overwhelmingly, the most common among first-rate Silicon Valley startups is four-year vesting with a one-year cliff. What that means is you don't receive any equity for the first year. You receive 25% of your grant on day 365 plus or minus one day. And then you receive the remaining 75% rateably over the course of the next 36 months. So if you are a promise to 100,000 shares for joining the company, what the company really wants to do is give you 25,000 shares for each of the four years. Importantly, unlike your salary, the value of those shares is in successful cases, supposed to go up over time. And this is something that employees often have difficulty modeling, not that venture investors necessarily have an easy time of it. But you expect if you're offered, I'll make up a number of $180,000 for a salary, that you'll get $180,000 and not $187 and not $125. But with equity, it's almost nonsensical to have a discussion about, well, what is 25,000 shares worth? Because you can give an answer today. But what is your true compensation in year four depends a lot on what those 25,000 shares are in year four. And also implicitly, you're also getting compensated for the 75,000 shares that you're in before year four. And some portion of that is like sneaking into the fourth year grant, which is just a concept that both humans and Excel have difficulty modeling. The only thing we can be sure of is, whatever value is scrapped today is not pretty correct. It'll be much more in the future or much less. But importantly, I think something we believe that a lot of other folks, maybe don't believe, is the value is difficult to project, but it's not random. If it was truly a real outweal or a lot of people like that, compared to the lottery, then there'd be no point in trying to understand the value. But if your best friend is Alfred Lynn at Sequoia, and you ask him, hey, give me a list of companies I should join. The list he's going to hand over, a bunch of Sequoia companies, and if you really get friends, maybe it's the non-S Sequoia companies, those are going to have much better odds than the median startup. And so there are signals that we can get into that can boost the odds in your favor. But yes, then we think a lot about what is the range of outcomes for this company? I think that no single line has done more damage to the interest of tech people as a class than the notion that options are a lottery ticket. And it was received wisdom in place like acronyzes. I think I probably repeated it time or two to myself over the years, prior to getting into a more central example of the tech industry. And it's poison. Yeah, the odds are literally stacked against you. When you're playing the lottery or going to spend a real outweal, positive expected value versus negative expected value, another thing that people don't appreciate is that even if one believes the commonly cited stat that 90% of startups fail, I don't think I believe that stat, but it seems to be received wisdom in the community. That does not imply that 90% of people offered equity grants get nothing for the equity grant, because companies de-risk themselves if they build more product to sell it to more users, get larger, et cetera, et cetera. And most employees join the company after it has been periodically de-risked. The distribution of employees looks very different by definition of the company hires 1,000 people, but they're probably doing decently well. The distribution of where people work looks very different and the distribution of what it's funded. Yeah. And even if you have no particular useful place in the Silicon Valley network graph, just the fact of you deciding this problem is the one that I want to spend the next four to 10 years of my life on. And this team is the one I want to spend four to 10 years on the foxhole with. Both of those should be material updates on you for you versus like, I'm picking a startup at random here. There's an infinite universe of things that you are choosing not to do. And hopefully you have some amount of taste, which makes this a better than random choice. And indeed, there are certainly very talented folks who do not have a successful outcome in multiple bites at the Apple. But most people, I think, that are like just very talented at the core job whether that's engineering or whatever. That talent comes with a bit of taste and they end up selecting into options that are better than what truly random chance would suggest. Exactly. When I was interviewing at Ripling, I also interviewed a few other startups, most notably Quibi, which was made with men and Jeffrey Katzenberg's sort of micro TV startup and Atrium, which was just in console Eagle startup. And neither of those companies worked out from an equity perspective. But I have a bunch of friends that worked at both and super talented people who have gone on to do really interesting things. So even if you were sort of saying, hey, you're going to take a swing of the bat and it's not going to work. There are these sort of career tailwinds from working with great people that go on to do cool things that I think are not priced in enough. I think this is particularly true for people who are early in their career. It is well known that the tech industry is unserious about hiring, unfortunately. And so there are people who don't have the right degree or the right institution already on the res may find a great deal of difficulty getting higher at the Appemagoo face-off, which is my started out on a take on big tech. And they often have, unfortunately, but accurately, they often have difficulty at joining whatever the hottest startup is today. And so if one were to put a finger to the wind, it's an interesting problem because the startup that is the hottest at any given moment will feel like it is constantly constrained for talent. But people applying there will feel like they are the ugliest person at the dance because everyone is trying to apply there at the same time. But all the other startups are constrained for talent too. Many of them will react to that constraint by being less selective is not quite the right word, but they will not have aspired into the same procedures that cause you to stand for a degree or get the cow to appear at some of the hotter startups. And then you can get their name on the resume, learn things there, improve your professional network. And then at the next time your resume gets reviewed by a recruiter who is doing the absolutely brutal process that recruiters do where they're trudging someone's life in 30 seconds and deciding whether it needs a 31st second of attention that you don't get swipes. I've never actually used one of the apps that swipes left or right. Swiped in the direction that means no. I think left is bad, but it's been a minute. For me as well. Yeah, if you think about the book Moneyball, you know, the whole point there is the Yankees. You know, I have the highest payroll. They can afford the most legible players, right? You know, today it's Aaron Judge. Back then I think it was Jambi who was like, you know, slugging a million home runs and had all the stats and looked like a Hall of Fame player. And the Yankees can just go, cool. He seems like the best. We're going to afford the most. We'll take them. Same thing today, whether it's OpenAI or Google, saying, okay, you went from, you know, Stanford just striked to Uber. I, great. Well, how are you? The whole book is about you open up athletics, saying to your point, we're not trying to get bad players. So we want to win the title too. But we can't afford to just go up with the legible ones. And so we have to look for the people who are undiscovered talent. And starters have to do the exact same thing. You can't afford to pay the same amount as top companies. And so there's a chance that every people who are genuinely quite talented but don't have that bad agreed to get their foot in the door. And I think that's true of everything from, you know, going for a series A, series B, startup that has the basic investors, but it's just like not a household name yet, kind of going out on the risk curve. And then it's also true for breaking into the industry. I think it's one of the strongest arguments for going for a startup that's not one of the ones on the sort of bleeding edge of how it is first at bat. You may not make as much on the equity, but you're going to get a good name on the resume. You know, you're going to get into it, totally want to make it our break into product or sales. And then sort of the next one is the move where you can maybe make more on the equity. My general advice to people earlier in their career is there are typically things where a smart person with taste understands that, you know, X company's product is good. They seem to be doing pretty well. And there seem to be interesting people there. That company is probably better in expectation than joining whatever the name that is on the front page of Fortune Magazine, or the conversely like the replacement rate opportunity in Silicon Valley. But echoing another thing you said, we're all capitalists here mostly. And the decision to put people's total compensation into equity is not simply because we as an industry just love dumping buckets of cash on top of people said stochastically. It solves a real problem for companies, too, where they are cash constrained. They are, you know, CEO is going out every 18 months to places like Coastal and Sequoia and others and trying to say, okay, I will sell you little bits of this company that I really want to own a lot of to get enough money to continue paying my team and hire the new people for the next 18 months. And I'm aware that I cannot sell enough to the people who are professional money managers to hire people at competitive market salaries. And so therefore I will hire people for below the cash compensation or de facto cash compensation that they could get without loss of generality Google and give them upside and return for that. I think everyone should be okay with that. Occasionally, there are people that grouse about it later when, you know, we roll history forward seven years and say, oh, there was a massage therapist who earned a million dollars on their equity and like, no crying in baseball, aren't it? You were a capitalist. You walked into that one and that was like, you know, bargained in one. You know, I think it was so interesting by where we are today. You know, thinking machines, labs has raised billions before they have been launched their product. I saw it yesterday. Jeff Bezos has started a new company from ETS. They raised I think six billion. I don't know specifically if they've issued employees equity, but I'd be quite surprised. I didn't. I know thinking machines and similar, you know, safe super intelligence other folks do issue equity. And so what's interesting is even for these companies now that have removed capital as they come straight, it's so embedded in the culture and sort of the ethos of Silicon Valley of you can imagine someone thinking about joining thinking machines. They tell their friend, well, I got 400K in cash, but no equity. They'd be like, no equity. Why are you joining the startup? And so I think it is, in some ways, become even larger than the simple economic exchange and become sort of this cultural artifact. You know, I think the original reason was to make employees owners, but it's also just become sort of this expected part of your comp. I think it's really interesting that even removing that constraint, which is real for 99.9% of startups, certainly real for us, but even when you're moving, the giving employees equity is still part of that edge. And for folks who haven't looked at this from the other end of the table, the typical way structure is that relatively early in the lifetime of the company, somewhere around, say, Series A, there is a equity plan written down on paper, and that becomes the Bible for the cap table for the next 10 years. And that will typically allocate 20% of the company to the employee equity plan, where most of it is not issued yet, because you can't simply give it to all the people who are there in that wonderful Tuesday, but need to reserve most of it for future issues. The tough things about companies is they can always issue more shares, but you can't issue more percent in the company. It will always sum up to 100. And so, what happens as the company does more financing rounds? It's that it does issue more shares, and everyone who owns something in the company as of day one, after a new financing round, will find the total number of shares in the company larger than they were on previous day. And that will, what's called dilute someone's existing equity. And so, in the earliest day, when it's written down on paper, the employee equity plan, so employees as a class will own 20% of the company, that will typically by the point where the company is, like large and successful, have been diluted down to about 10%. Which, sometimes people say, why do employees only get 10% of the company, but it is a singular thing in capitalism as practice anywhere, or even in the United States, to say, employees actually own 10% of the company at the time of that IPO, and a little bit after it, for, descriptively, the largest companies in capitalism, where if you look at other storied firms, like say Ford or something, non-managerial ownership of Ford is basis points, if that, even if the company has theoretically some sort of employee stock purchase plan, or similar, so they can tell people, yes, you too will get a extra, oh boy, then I was a participant in employees' stock purchase plan once back in the day, in a Japanese megacorp, and they were like, yes, good news, your shares did an extra 2% better this year, which means all of you can afford almost an entire lunch in Nagoya. I think the acknowledgement of an ad reads, sounds cooler in Japanese. Konoban-kumi-matsugi-no-sponsan will take your date, we'll introduce you. Cool, right? You might have heard of this podcast that cuts to PEPFAR and USAID work extremely disruptive to health care and some of the world's worst-off communities. Private funders ended up picking up part of the Slack. How would you decide whether that's the best opportunity for your charitable dollar? Particularly if you don't have a team of professionals working for you. Give Well is working for you, and everyone else. Give Well is a nonprofit. Their team of researchers works in real time to track the impact of foreign aid cuts, and they contribute their research for their children, or for free. For example, they've found one of the most effective interventions is paying care givers in foreign nations directly in cash, to take their children for routine childhood vaccinations. This decreases the disease burden on the kids and their families and reduces childhood mortality. Give Well has spent 18 years researching global health and poverty alleviation. This work is funded by donors, who think it's useful for directing their charitable giving. Give Well also lets you donate to the causes they think are most effective, and will pass 100% of your donation along to their recommended funds. To make a tax deductible donation today, go to givewell.org and pick the podcast and enter complex systems at checkout. Make sure they know you heard about give well from complex systems. Again, that's givewell.org to donate or find out more. I have an engineering degree and code my own websites. It's probably the most irrational choice I make in business. Low leverage, a spiky maintenance burden that always comes with the worst times, and they don't even look good. Don't get advice about design for me. I'm Framer, a sponsor of today's episode. Framer already built the fastest way to publish beautiful production-ready websites, and it's now redefining how we design for the web. With the recent launch of design pages, a free canvas-based design tool, Framer is more than a site builder. It's a true all-in-one design platform. From social assets to campaign visuals, to vectors and icons, all the way to a live site. Framer is where ideas go live, start to finish. Ready to design, iterate, and publish all-in-one tool? Start creating for the first time in a week. You make a sure-to- complete design, and use code-compix systems, all one word, all capital letters. For a free month of framer pro, framer.com slash design, promo code, complex systems. Rules and restrictions may apply. So we have the stock options versus RSC distinction. The employee will not be forced to make a choice between stock options or RSC unless you're making choices between different companies. This choice will be made for you by giving the same choice to everyone at the company at the same time. So there is no sort of equity dimension to that, but up them that you need to worry about. Stock options in particular have a function called exercise and a decision to exercise, quote, quote, early or not, which causes a lot of grief. And since they're issued early in the life of the company, when that grief happens, it will often happen to people who were subjectively in, quote, unquote, the best position. If you allow them to roll time forward into the future at IPO day or later, can we talk a little bit about the decision to exercise? Yeah, for sure. So we can maybe bring it into two buckets, early exercise and regular exercise. So early exercise, as you're sort of mentioning, is the option to exercise your options or some portion of them. It's not binary. It can be any number between zero and 100 percent ahead of your best and schedule. So what extreme example would be you join a Series A company. They just raised an A from higher perkins. You're super excited. You exercise 100% your options your first day of the company. You what you're doing there is really sort of increasing the variance of your outcome. In the best case scenario, the company goes on, you know, becomes, I think, Glean is a great client or company, you know, becomes, becomes an awesome success. You will lock in the lowest possible tax burden as you typically get taxed on the spread between the fair market value of the company and your exercise price. And if you early exercise, that spreads off from zero and so it's off from no tax burden. So so kind of best case scenario there, you want the lowest tax burden. The worst case, of course, is the Series A company that goes bankrupt and whatever money you spend, you don't get back. That's early exercise and can be very, very valuable. And for the benefit of people who haven't been through this before, options embed a strike price. And the entire reason we use options in the United States is a bit of consensual fiction that employees, companies and the IRS all pretend that giving an option to someone has not given them something of value. And so they don't need to pay taxes on it immediately, whereas obviously an option is something of value. I mean, you turn them into homes eventually and many other things in the world. And we, you know, we run our entire industry on them. But this is the consensual fiction that the United States has through its duly pointed representatives as seen fit to endorse and some of their countries too. The price of that option is the fair market value as of not necessarily they joined with the last time they priced the company via typically the expert opinion of their outside 409A valuation service. And the 409A is a very funny kind of dance people that haven't been through this. I've seen this on sort of both sides of the table where, you know, a founder goes out, they raise money, they're out pitching up and down St. Bill Rhodes saying, this is the greatest company ever, you know, based on my unique genius, we're going to be this $100 billion company in next time. And then they turn around the next day and they need a new foreign and a valuation and they go to their auditor and they go, this is the worst company ever, you know, where we have no money. You have all these competitors. This could go belly up any minute because we're basically trying to do there when you're talking to the VCs, you're trying to get the highest price possible and you're talking to the auditors you're trying to get the lowest price possible so that your employees have the best tax advantages or the lowest tax burden, essentially, within reason obviously. And so it's a funny number that really neither of those numbers has a ton of bearing until you get much, much later stage and you're actually able to sell at any of these prices and the early stages is particularly hand-wavy math. Yeah. And so if you are one of the earliest employees of a company, your strike price might be extremely little. This company is a figment of someone's imagination and a laptop in the corner, you know, your strike price might be a penny a share or less. And if you're granted a company number of hundred thousand shares, you might owe a thousand dollars to the company to exercise your shares on day one, which is real money. But it is put it into context. If you are joining a company at, say, Series C when they are still using options, you might be asked, like, okay, would you like to exercise all of your options today? The cost of doing that will be three hundred thousand dollars. And many people who have not been through the game before should not have three hundred thousand dollars have promptly available cash. And as you mentioned, you know, the decision to exercise that really increases the variance of your options. This is one thing that people really need to understand, like if you choose to pay the company three hundred thousand dollars to lock in the low tax basis, under zero circumstances does that three hundred thousand dollars come in the back. Hopefully you get different money from selling the shares, but like that money is no longer yours. If the company goes belly up, enters bankruptcy, et cetera, et cetera, you do not have a bankruptcy claim for three hundred thousand dollars. You have paid for a thing of value from the company they have delivered it and you are even Stephen on. So there are some people who worry about, like, I could be ruined if I early exercise these options. So I want to wait a couple of years and see whether this company is likely to be successful or not to exercise my options. And that causes one of the, there's another mindful, landmine that you can step on, because what happens if the company does very well between T zero and T plus three years, and then you attempt to exercise your options? Yeah, so what happens is you then owe a bunch of taxes. So you're say three years in fact, it happens with a lot of our, our users who joined some of the very busy AI names, where they joined out a company a few years ago, they turned around, they just been working for the last three years, and all of a sudden the preferred price has increased, you know, tenfold in a few cases, actually much more than that. And the fair market value actually goes up by more than that, because the fair market value as a percentage of the preferred is actually increasing. And so the tax burden usually grows faster than even top on growth of the overall company. So your tax burden might have gone up, let's say 20x. Now the good thing is you're saying, okay, I joined this company, they gave me a million dollars in equity. That million is now worth ten million. And my tax burden is, you know, four and a half million. Tax burden of four and a half million is not super fun, but certainly the net result of six and a half million after all the taxes is still interesting. So we have to decide then is, okay, we're sort of part way through this journey, right, of joining the company we're now in two, a year or three. And then hopefully at some point in the future, I can sell shares in a tender offer or we get acquired or we can go public and I fully exit the position. We have to decide is, do I just leave these options, take on zero risk, I'll pay the highest taxes, you know, certainly if we go public and I sell every share and I'm in really any state for the amounts we're talking about, but, you know, you're going to pay the highest tax burden. Or do I exercise the options today, you pay a decent tax burden just for exercising or your tax on the spread between the fair market value and the strike. But you can then lock in long-term capital gains on if you hold them on the appreciation moving forward. So if you're saying, hey, I'm at, you know, XYZ great company that's valued five billion betting through or 20 billion, you can lower your future tax burdens. Of course, if the company goes down in value, you risk the capital. So that's kind of the crux of the trade off, right, is there's risk and reward and balancing those is not trivial. I hate throwing up more vocabulary words through people, but here's the useful concept to have the concept of a bargain element, which is, as you said, the spread between what your strike prices to exercise the option and what the option is the shares are worth on the day that you exercise. The bargain element gets taxed at ordinary income rates, which in the United States are higher than the rates that we give to long-term capital gains. And then if you hold the stock for at least, I believe a year after the point where you exercise it, then the gain on that stock from the point of exercise is kept at the long-term capital gains rate, which is much lower than the ordinary income rates. Well, depending on what state you're in and similar, but what is it, 15 or 25 percent, you can tell I've never had the option to pay long-term capital gains for a material amount of money. Fun Japan, the story is for you, but neither are you here nor there. Yeah, and that's all true of non-qualified stock options. So I think you mentioned earlier, there's kind of two types. So the NSOs are taxed at ordinary income. As if this wasn't all complicated enough, ISOs actually have a different tax system, which is more beneficial, but much more complicated, which is very annoying. So ISOs are taxed or something called the alternative minimum tax, which you've maybe heard the acronym A and T, which will tend to dread. And this is essentially to vastly oversimplify calculating your full taxes under the regular system, calculate them fully under the alternative minimum system, and then comparing them and paying whichever tax burden is greater. And just two kind of really three quick things to highlight there. Those rates are typically less than ordinary income, so they're usually around 26, 28 percent, whereas the ordinary ones can top out at 37 percent. There can be cases typically where you can exercise a small number of options without actually incurring AMPT because your AMPT tax burden is less than your regular. And so you can sort of exercise a very small number of ISOs every year without actually paying taxes. And then when you incur AMPT again, as if this wasn't complicated enough, you incur something you're guessing called an AMPT credit, which is a tax credit you can use in future years. So yeah, the IRS does not make it easy to calculate and properly manage all these smooth cases. And I'll say the thing that the IRS always says when people give criticism of them, hey, we're just the messenger. We did not write these rules. The rules were written for us by Congress, and we just tried to implement the legal code as the duly elected representatives of the American people have told us to do. I have some amount of sympathy for that point of view, but be there as it may. The thing that HR will tell you if you say, I have a series of very difficult decisions to make here, where I don't know if I can swing $300,000 at the moment. So I have essentially decision every day for the next 10 years that I'm at this company or as some portion after, on whether I exercise today, how much to exercise today, and how that will impact my taxes both in the current year and future years. Either I have like the best Excel spreadsheet of all time, or hopefully someone is helping me out with this. And in our previous discussion, you had some choice words for help people typically make these decisions. And I would love to you to articulate some of those choice words because they rhyme painfully with my experience. Yeah, for sure. And I do have a lot of sympathy for the HR folks here, just in that, you know, if you think about the typical HR person and the skills they have versus the skills are far far for this, you know, they're not a venture capitalist, they're not a CPA, you know, they don't have expertise and sort of all the different areas as touches. They have equity too, and they don't understand it either. Yeah, exactly. Maybe the CFO understands it well, but, you know, A, their time is quite valuable versus sitting every single employee down and B, they've kind of had to drill into their head of never, ever give anyone anything even remotely approaching the slightest bit of financial unpracticalized. Can we say a few more words on why it isn't simply that lawyers are risk averse here. There is a very legitimate reason why companies clam up with respect to giving anything that sounds like investment, advice or tax advice. And basically, that is because the United States, the extent that it has securities regulation, which goes up and down over the years, it was pretty forceful for a while now who knows but now you're here and are there. To the extent it has security regulation, it's largely to protect unsfiscated investors from companies or stock promoters that might be doing them wrong. And when you're selling equity to closer, et cetera, your large is selling under an exception to these regulations, which says, okay, these are the big boys with sophisticated people working for them, they can manage their own risk. But you don't have that option when you are quote unquote selling equity to ranking file employees. And again, like this is a product, it is being sold that you are transferring the company valuable goods and services and often cash money to get that equity. And so the worry is from the, you know, lawyer slice HR slash company management is like, if you make representations to someone that aren't true, even if you were attempting to make representations that are the best in their interest, they could potentially have a put right against the company or use specifically. And a put right means if this company underperforms expectations, but you've told someone, yeah, you should really pay $300,000 cash on the barrel to exercise these because they will, this will help you on your tax burden in a couple of years. They might be able to come back to you personally, Bob, in your, you know, T plus five and say, Bob, you told me to spend $300,000 on my share, Bob, Bob, I'm not an accredited investor, Bob, Bob, you owe me $300,000 company's bankrupt. I don't care. And my lawyer tells me that doesn't matter either. You have a house. Figure it out. Yeah, particularly the folks that do know this, the other, the CFO, the founders, the VP of finance, the people that are in the rooms negotiating with the investors, they often are the sophisticated actors that sort of keep players. So there's suddenly, it's real reasons why they don't want to, you know, be giving employee by employee guidance here. And so what typically wants it happening is it is kind of two flavors of this. Typically, there's, there's a sort of bootleg spreadsheet that's kind of passed around the company that some start up better and, you know, engineer number three is on their third tour of duty has made and, and it's, it's essentially, I think anyone listening who's, who's working to start with, probably seen some version of this, essentially a Excel spreadsheet, you know, it's sort of a very clear instructions, make a copy of this, don't mess up my formulas, punch in how many options you have here, punch in the FMV there, you know, and here's some very basic calculations for you. And then often, you know, the comparisons to, okay, if we have an oversized outcome, here's your accuracy is worth, a striped size outcome, here's your accuracy is worth. I, yeah, I can't imagine what the AI companies have been punching it as their, their comparisons in these as they exceed the sort of 100 billion mark being impressive. But that is sort of the good version. And the bad version is essentially vibes based investing of people, you know, sort of deciding, well, exercise everything or just as nothing or I'll sell everything I can or I'll sell nothing, and sort of y'all and helping for the best, which I don't think is the greatest investment strategy. And I've seen perpetually complicated, quote, unquote, bootleg spreadsheets from a number of places over the course of the last 10 years. And, you know, more power to people who want to help themselves and their fellow employees and understand this kind of thing, I think it is a service and in the cause of righteousness that employee number three might knock that spreadsheet together. However, there was a reason that Wall Street does not run on spreadsheets that are knocked together by engineers doing it in their spare time. And even if they get all the math right, et cetera, et cetera, which is not a given on bootleg spreadsheets, Excel, a complicated thing. And you screw this up a little bit and people end up owing hundreds of thousands of dollars extra in taxes, even if they get everything right. There is like scenario planning that needs to be quite tied to people's particular circumstances. Again, it is a wonderful thing that the bootleg spreadsheet option exists, but it will typically assume like, okay, you are the most typical person who has been in the state of California for the entire time of your service. After you do things like, well, remote work is the thing these days. In year three, I moved to Nevada or moved to Texas or moved to Illinois. These are three very different scenarios by the way, but I moved somewhere for family or for whatever reasons or, you know, God forbid, we had a divorce or one hopes on the first day to be there for the entire length of one's next stage of the career journey or minimally to vest out the next four years. But sometimes that doesn't happen, you know, someone in the family got sick. The company had a different idea of where it was going in your department. There was a pip involved, yada, yada, yada, yada, like maybe you only invested two years. And by the way, if you get voluntarily or involuntarily exiled from a company in the middle of investing grant, like your timeline, I'm making decisions about investment, just cannot move up by quite a bit where it might be like, okay, notionally, you had this issue of every day, I have to decide whether I exercise or not and whether to lock in some Texas now for to save lots of Texas later. Now my decision is like, do I want to exercise or do I want to see the value of these shares? I will never get it in the future. And you often have 90 days to make that decision. You have 90 days to make the decision and it's often not the number one thing on your mind because like speaking bluntly, you might have just been fired and are trying to line up a next job or like people sometimes God forbid, but sometimes people have to leave companies due to family tragedies and one would hope that companies would extend as much grace as possible in the circumstance, but again, that document that they pre-committed to five years ago often doesn't leave them a huge number of options for giving grace to people. And so there might be a clause in it that says, if the employee dies, which unfortunately does happen to some people who work at startups, we will give their family 365 days to make the decision on the options, which is longer than 90. We're doing what we can here, but there is often not a, like conversely, my wife has stage for cancer. I cannot deal with this right now than the document says, well, that is not listed as one of our compassionate things here. And so make a decision in 90 days or don't and we will make the decision for you and for the value of these shares. Yeah. These terms to your point, you know, it starts with, okay, I, you know, I'm a startup founder, started this company, I work with, you know, one of the normals that I've come down to law firms, they pull off a template off the shelf and say, you know, here's all the different terms you need. The founder is extremely busy and goes, cool, that's a template and that's what you normally do, sounds great. They don't often go through with a fine tooth comb and say, you know, does this online with the way we want employees being incentivized? Is this the right-rated to sort of handle this? There's been a little bit of progress in the last few years, I think something great is there's more frequently extended windows to exercise. So you're seeing two, three number of companies doing even seven to ten years to give employees to exercise, but I think it's fantastic. Yeah, the extended exercise window is probably the most pro-employee change that I've seen in startup since, well, of course, in my professional career 20 years ago, I kind of view it as a YC and similar were great for apologies to former colleagues who were investing. They helped to appropriately rebalance the balance of power between founders and professional managers of money in a way that was very foul and their founder friendly. And similarly, longer investment windows are pro-the-interest of employees. And unfortunately, again, all parts of a cap table have to sum to 100%. So necessarily, this means that some other people on the cap table lose out to as a result of employees actually exercising all their equity. As someone who, again, by lose out to an investor every time someone exercises equity, but this is the business we have chosen, we made that commitment to someone we should feel great about the fact that exercising the equity successfully. And I think Silicon Valley should feel morally scandalized every time an employee is forced into exercising by circumstances. And there was an article when I can't remember the company that first popularized the extended exercise windows, but there was an article written by a venture capitalist that said, well, this is just compensating people who are no longer with the company and withholding equity from us virtuous venture investors and founders and other people who could join the company tomorrow and like, wow, that is the most cynical thing I've ever heard someone write in a professional space. Yep. Yep. And it appropriately caused quite a blowback to that firm, I remember we were discussing. And I've seen that with certain investors, we met where I kind of walked them through our whole mission, our idea of, you know, basically, of employees, understood their equity better, managed it better, consistently added up, you know, 2% 5% improvements in their management here and there, it can accumulate employees making 20% more on their equity over the course of their careers. And I've had some investors who are like, that's amazing. I'm a great investor, you know, if anything, you know, employees acting like owners will lead to be having better outcomes. And I've certainly met some investors who are like, it's a zero-sum game and that's a slice coming out of my slice of the pie and I'm like, I don't want to work with you and I hardly want to know you. So definitely an interesting difference in approach there. Yep. We mentioned some of the things that can cause complexity here and in making decisions. Obviously, they don't start as easy decisions, but you add just something that seems like only a little bit of complexity, I mean, oh, here's an example. You can be a part-time resident of a state very, very easily and it turns out that in generation defining companies, there are people whose job is to keep a spreadsheet of how many days certain employees above, like, say, X watermark in the company spent in various other states because, like, if you attend a conference for a week in Chicago for work, you might not think I was an Illinois resident for a week, but if you've vested $4 million that year, Illinois will certainly think that you were a resident of Illinois for a week and, you know, $4 million divided by $50, like, we'd like $40,000, please. I'm implying, okay, they don't get half of it. Well, you get the idea. And even if the state is not the one doing this compliance work and your company is not keeping the spreadsheet, you should be because ideally, you have a respect for the law and your accountant should, if they have a respect for the law. And so, you know, in years where I resided in neither Illinois and North California, I've managed to write personally, I'm going to forget checks to Illinois and California because I traveled to those states and had a laptop for the duration of that travel and did work on that laptop in a one to two week period. I do not think that I'm anywhere near the top end of, like, most complicated situation. It can be particularly tricky with the folks who are doing sort of the digital nomad piece where it's actually talking to a partner of ours who was CPA about this a few days ago. We were talking about how, you know, sort of the most important thing is establishing residents, right? So, if you move from a high tax state, California, New York, to a low tax state in a tax reserve, Florida, but you sign up one year lease and you change your driver's license and you, you know, start pointing down route, certainly, you bought a house. You know, even if you've only been there for a month, it's going to start to look like you are a resident and you've moved and then, you know, certainly, you're challenging for work. You should track that. But you're establishing residents. But in tech, we see a lot of folks who are, you know, sort of saying, well, I work remotely and I can be in an Airbnb in North Carolina this month, then in Florida, the month after that and then in California and, you know, kind of hobbit all over. And unfortunately, you know, some of the hardest ways I've heard is whatever the kind of highest tax jurisdiction, you spend any time in this thing, we're going to claim them as a full-time resident and, yeah, you exercised a bunch of options, the UOS, you know, quite a tax bill. So yeah, definitely, it's a very important track. The legal reality doesn't match the reality people have in their heads, but tax positions don't necessarily match the reality people have in their heads. They match some sort of iterated negotiation between taxing authorities and taxpayers as a class. And I feel a little bit for the tax paying authorities here on like, oh, you were in an apartment and you had a refrigerator in that apartment and you had food in that refrigerator? Yes, there are many residents of our state who rent an apartment and have food in the refrigerator. That's what residence means. Why should I give you the rich and sophisticated person like a tax benefit when I do not give that benefit to people who are working at several eleven that like fundamentally offends my sense of justice and the orderly administration of taxes. And hearing that argument, I'm like, yeah, you know, there's there's something to it. But as you said, renting a residence is one of the many bright lines that gets mentioned in the sort of thing. And people might see like Airbnb as a close competitor to hotels, but tax agencies see it as a like you are like literally physically adjacent to an apartment, which is rented on a year-to-year basis, and you have the same product, morally speaking, sure, it might have only been for seven days, but the law doesn't care about that. Like you established residents for those seven days. And then I'm going to say you established residents here. Now prove to me you established residents somewhere on day eight because if you can't, your residence here is continuing and then that leads to the really from the perspective of the taxpayer outcome. Yeah, I think it's one of those like funny kind of really lagging examples of just how the tax law in general has not come up caught up with these sort of internet lap tap class world 11 now of, you know, even more back to say the 1990s, sure, you might live in New Jersey and commute over the bridge to New York for your job in the office. But those two points were typically fixed, you know, you would not have many people that were like, well, I work as a lawyer or accountant or carpenter in New York this month and then I'm up to main next month and then I am out to Colorado. I used to have that sort of class of folks that were so migratory. And to the extent that you had folks that have those issues, they were often in a professional community where everyone had the issues, they were, you know, their accountants were very good at them. I love all accountants and I love my accountants, but I will say that it is dissatisfactory when work says you need to get professional advice on this sort of thing because if you do the standard things that people do to find accountants, the person who is giving you professional advice, which they were duly educated and duly licensed on has, let me be blunt here, no earthly clue about the issues that this presents for them. It is very possible to have a CPA and not understand what an RSU is. When you get into the sort of heady, like, you know, multi jurisdictional tax issues or complicated tax positions or those like major life events that can really throw a lot of complexity into this stuff, basically nobody but the big four is going to have anyone in the building that has done it before. And even the big four, maybe you get the best answer that they are capable of given or maybe you don't. And large or as you have variance in abilities. Yeah. And unfortunately for many of these things, you as the taxpayer need to have a consistent strategy and a consistent story, starting well before you were rich and, you know, indictivally, finger to the wind if you want to get tax advice from the big four, that's about a $30,000 a year proposition. And if you work at a high-flying company, there are people, you know, who attend meetings with you, who should pay $30,000 a year for tax payment for tax advice services. However, you and your first day at working at that company are probably not going to say like, you know, I did my own taxes in turbo tax last year for like $75 or whatever it is, but I should really start paying $30 grand or so. And if you don't, like, you will be dragging around the tax consequences of your one decisions for the rest of your life. Well, it's crazy. Even the much lower numbers, you know, we have partners who are CPAs, who are for people and, you know, someone starts working with us, they're building a strategy exercise. Their options are saying, hey, before I pull the trigger on $400,000, I'd like to, you know, work with a CPA. And even at the $1,000, $2,000, $3,000 a year range, I see some folks that are sort of taking it back by that number. I think for some reason, accountants are like, like, you're handing me down quotes that we just like pass of, you know, the number of people I've worked with that are like, oh, I use my, like, moms, all the accountants, and I'm like, well, today, no one and I so is not like, not really. And, and, you know, you think about the sums of money you're managing here, that's slightly better improvement there can save you 10x what you pay, but it is something that's sort of odd that people are not used to paying for. I think probably should because it's not very fun. We have a relatively complicated situation, but a lot of the complexity comes from things that are not uncommon in the works for high flying Silicon Valley company class. And I pay about 10 grand a year to do taxes in two countries, which will probably hit to at least a few people that listen to this given how many immigrants that tech hires and how many people do a tour of duty at a foreign office of the company that they start their career at. Yeah, the hand me down cloaks of accountants is a real thing. And you might not understand the degree to which you have gotten into a complex situation early in your career, and knowing what I know in year four, I would not have made the decision to have this account and prepare tax returns for years one, two, and three. And that can increase your cost in year four to have someone redo the tax returns from the last couple of years in a bad circumstance. Your return might be passed the point at which things can be redone on it, or returns can be resubmitted, but like election decisions cannot be remade three years after the fact. Or failure file, the obvious document you want to explain that lovely landmine to people. Yes. So when you early exercise in order for the election to really matter in the eyes of IRS, you file a document called A3B, which is essentially saying I want to be taxed now on this property that I'm acquiring, not in the future. When you file this, you then lock in your early tax burden as particularly important for a tax break called QSBS, qualified small business stock, which is probably the most advantageous tax break available in startup land. You can get up to the first 10 million in gains tax-free. This has become slightly more complicated in a good way in that it's more advantageous to employees now as it starts to phase in percentages like half of those tax free in three years, 75% after four years, 100% or five years. Suffice to say it's a very important tax break. If you file the A3B and you lock in your tax burden, you can easily, or often hit QSBS and you can often hit a lot of tax burden. But if you do not file that within 30 days of exercising, there's nothing you can do. And so it is quite important for the land. Just to say a few more words on 183B does. We talked about investing earlier, so while you might have the experience of, I was at this company for four years, so I got all of my initial equity grant all up front. The documents that describe the equity grant say, well, actually, you got 25% of it on day 365 and the remaining 75% rateably over the next couple of years. And it was worth a different amount of money and a higher amount of money on all those vesting days that was on that first day. 183B says, I expect this to be worth more in the future. You, the IRS, take no position on it, but just like putting you on notice, like tax man and owl, please, because it's worth, you know, nothing right now in this early equity exercise case. If you don't say that, the IRS will say, well, and this happens to company founders, not infrequently, you know, you've invested $4 million of stock this year. Stock is not liquid. No one will give you $4 million cash money for that. But the loss of the United States, too, not care. If you earn $4 million of chickens, we don't want you to like send us drumsticks. We want you to send us money. If you earn $4 million of stock, we'll take the money. So you need to come up with, you know, $1.4 million cash money this year. And if you say, oh, shoot, I'm innocent taxpayer here. I, I didn't know what an A3B was or I knew about it, but I was busy. I had a company to run, et cetera, et cetera. Look kindly upon me. What the IRS will say is there is no statutory authority for us to look kindly upon you. In addition to that, of all taxpayers in the United States, why should the rich and sophisticated person get a $1.4 million gift from the taxpayer? No. Like, we want that $1.4 million. If you don't have the cash, that's fine. We can start the penalty clock working right now. And we will pursue you till the end of the earth, till the end of time, because the United States will be around. Thank you. Every CPA in startup dumb has a story about a founder and some of them are people you know who was, you know, like personally bankrupted by the sort of thing. And many more people who are not really personally bankrupted, but like huge amounts of stress had to call in favors, you know, there are ways to find $1.4 million in a hurry in Silicon Valley. And that is too our credit. But often they sound like, you know, calling up one of the richest people you know and saying, there will be like, how do you legal and personal consequences for me if I don't come up with $1.4 million. Can I please impose upon you, Bob, to lend me $1.4 million. And as a person who has had to make a phone call, not for that reason, but with similar content over the years, that's never one you want to have to make. No. And 30 days goes fast. I mean, even for us at a startup where entire ethos is understand the equity, get the most out of it. I still have to hound folks of, you know, hey, welcome to the team. Did you file that 83B, file the 83B, because you know, you get into your work and a week passes, two week passes and all of them, you're, you know, on many days left. Stripe Atlas was helping people who are early stage startup founders. And we weren't worth, you know, we're not lawyers. We're not allowed to give people legal advice, but we tried to give them as much information as possible to encourage them like, you really need to put this in an envelope. And then in the intervening years, Stripe figured out a way to file the 83B elections completely on if they have to be filed on paper, the IRS, what are you going to do? But Stripe scalably sends out paper on behalf of founders so that nobody forgets to file their 83B election, unless that is considered choice, which almost no one should make. Ask your tax advisor if you just believe me here, not giving legal advice or tax advice. I actually just probably stepped over the line, but oh well, thankfully I spent a few years in my career working with the people who are literally world experts on the topic of what is unlicensed practice of law. And so I know what it is, thankfully they are no longer on the hook if I accidentally overstep for a few senses. Yes, I think some of the, the great people that introduced us, you know, as we both kind of asked them from different angles, not to phrase it this way, we're going to phrase it that way. This sounds very quotidian, but it's fairly real. There's a reasons why I use certain locations like a company which blah, blah, blah, blah. It's not advice. That's information about what the tax law is. You should, blah, blah. That's advice that they had the word you in it. And even though the word you crops up into like informal English speech all the time, a company, a founder who dot, dot, dot. Reminds me of there was a very entertaining book on County Valley a few years ago where the author clearly worked at, worked at a startup and all the descriptions were probably getting around an NBA that were sort of like, when I worked at the, you know, hot analytics startup, you know, in the mission bay. And a lot of the better advice you give is, is you know, if you work California taxpayer with double trigger RSUs in a payments company that just converted those into single trigger RSUs here at things you might consider. And my highly paid legal advisers would say you are thinking in a good direction and how to phrase that sentence, but take out the word you minimally. And then avoid particularizing it to like a payments company, yada, yada, and wink heavily. But to be that estimate, we're at about an hour 20. But if there's another topic we want to hit so we can hit the, the, the only things that if you want to get into any of the more like, we've done a lot of sort of the early stuff, you're going to get any of the expert things. I think maybe two things that are interesting are just tender offers being much more prevalent. There's so many, we've talked a ton about buying your equity. So many opportunities to sell a portion of your equity and all kinds of interesting things we can talk about there with like, you can sell earlier now, but you're often cap and selling 20% so it's easier yet partial liquidity for harder to get full liquidity. This is not a static set of problems. The market practice has evolved over time with regard to equity first to actually offer it. There have been changes in how high-flying companies work in recent generations of them versus say back during the dot com boom companies to grow for a while longer, yay. One change that has been remarked about is companies stay private for longer, which means that there are more decision points people have to make and more liquidity issues. They have to manage, they might have to manage liquidity around some sort of a loan option which is its own ball of wax. But you mentioned to me another issue which is Jason's, which is companies are doing tender offers now. For the benefit of someone who hasn't been in tender offers, it's simply like prior to the company going public, the company finds a investor or some pocket of money. It might be an existing investor, it might be new investors, it might be the company itself, which is willing to re-purchase equity from employees at some price. And often the tender offer will come with strings like you're allowed to sell only a certain percentage or you're allowed to sell up to like X dollar value and it will be a take it or leave it to offer. So it will not be negotiated in an employee by employee basis. And you know, you have two weeks to decide whether like the most important financial transaction in your life goes through a net, what do you want to do? And because this will often be in the case where it happens at the most cash money that hits an employee's account in that year, there will often be a secondary consideration on, okay, if I have that cash money hit my account, one, tax accounts is obviously but two, should I think seriously about like using the tender offer to exercise other options? And this is, as you pointed out, a thing that employees have not previously had to wrestle with and that at high-flying companies, they basically have to wrestle with annually or more now. Can you talk a little bit about what you have seen from employees at various high-flying companies and then that a little bit about how prospect helps people think through these sort of problems? Yeah, for sure. We kind of see maybe two flavors of it. In addition to just tender offers being more common in general, we're also seeing them happen earlier and earlier. You know, where a secondary used to sort of be a dirty word, you know, it's kind of add just connotation of the founder is, you know, selling a bunch of their shares to buy a Ferrari's and, you know, go on, extensive vacations and not build a business. And can I jump in for a minute there just for the benefit of people who haven't worked in VC? A secondary is a secondary sale where every time a company raises an investment round, it's selling parts of itself to somebody that is the primary sale. The secondary sale is in a sidecar agreement to that initial agreement usually. Someone else who owns part of the company, like say, the founder is selling part of the company to either the same investors or different investors. And in the mystery history, this was largely used to have founders specifically, sometimes very senior executives like CEO, take a little bit off the table, both so that they were, you know, recognized for performance in the first couple of years and also bluntly but accurately, there's a certain lifestyle that is expected to have high-flying CEOs of Silicon Valley that it's not capable, like you can't do it at $200,000 a year. And some of them would say, okay, well, I'll get a partial paycheck on my equity for $20 million in year three and then, you know, have a nice condo to entertain guests out of it for the next couple of years as we continue building this business and hopefully have the rest of the equity be worth a lot more than 20. And for a number of years, there was stigma and VCs didn't like people doing secondaries at all and then market norms, shifted power and the direction of founders and so secondaries were broadly destigmatized but still only available to founders and sometimes very senior employees management and similar. And then the tender offers have largely been partly for legal reasons but partly for internal fairness and communications reasons available to some combination of say all current employees or maybe all current employees and past employees or I suppose you could have tender offers that only went to past employees, all of that would be the dot. Exactly. And, you know, all of these things, I think it is the sort of the dynamics of a pre-market right where a great software engineer could work at Nvidia, they could work at Google, they could work at OpenAI, they could work at cognition and so all these folks are kind of connected by recruiting for top talent. And so what we're seeing is, A, companies are doing tender offers far earlier in their life cycles, you know, even seeing, hey, if this company is just worth a billion dollars and only a few years old, if you key early employees want to sell a stake, you know, within guardrails, the investors and end founders, I think it's appropriate. So one of these people aren't selling 90% of their stake and you know, become a misaligned but you know, A, we're seeing this earlier and then if some of these larger companies certainly seeing tender offers every year, we've even seen a few companies, you know, where the value is appreciating so greatly that they maybe did a tender offer in January or February or March and then half of the year they're saying, the business has grown a ton, you know, XYZ tail when it's kicked in and this investors are excited and we're doing another one at a double the price and, you know, we are seeing that and so just the complexity for employees is going up and up and up as you're deciding now. Okay, any of these 355 days in the year, I can buy my options. Now I've got, you know, one or two times a year or in some cases one time every two years that I can sell the equity, you know, something important about tender offers is companies will never promise that they'll have it again in the future, but they're always sort of saying something to the effect of we will try to do this in the future, subject to investor demand and subject to, you know, our ability to but no promises. And so every time you're selling, you're kind of faced with this tradeoff of, I work all day every day at this company, you know, I really want to make it re-value or believe in the story, should I hold, you know, the vast majority of my network from this company at the same time, I know, when I'll be able to sell again, you know, whatever cash I need if I'm thinking of buying a house or taking care of a family member or, you know, spouses who start a business, should I take that out now or might we double in value in six months than I should sell that? When shares were liquid for the first seven years of company's life up until the point of IPO, you could be forgiven as an employee for understanding that stock price is only ever went in one direction up into the right because you got them at a very low strike price. And then IPO day was a number much greater than the strike price and after IPO day, yeah, sure it will wiggle around a little bit, but you will have the ability to either sell your shares or get alone against them relatively easily. In a world with more liquidity, more liquidity is unambiguously in employees' interests. However, it increases variance in both the value of your shares and in your ability to make decisions well or make decisions poorly. Many people who remember what their company's price was at because it was on documents and say 2021, also remember what it was at in like 2022 and those are very different numbers. And they're very different in a straightforward way where like if interest rates go up, the value of all equity goes down period. This is drilled into the head of people who work on Wall Street, but sensibly many people come to Silicon Valley because they don't want to work on Wall Street and they don't necessarily have the like equity prices are heavily tied to, you know, fed interest rate announcements like tattooed onto their forehead. And so for the benefit of people who don't have that tattooed onto their forehead, we have either the bootleg spreadsheet that is doing vibe space exercise decisions or we have prospect which makes software to help people think through these questions. Yes, exactly. Yeah, we build up pretty sophisticated strategies for you. These can be combinations of exercise and sales steps across many years. And so you're kind of all the things we're talking about, well, should I exercise 25% this year or 50% should I use 50K or 100K? Well, next year, what if I sell my options in a catalyst exercise, which is a lovely bit of complexity we didn't even get into, you know, or should I sell common stock hell into long-term capital gains, you know, kind of as you were saying, you know, should I, you know, elect to sell, you know, this option grant would be higher price or that one. All that kind of complexity we handle and kind of model for the employees. Specific identification of lots is probably something that no one ever wanted to learn about when they got into engineering school. That is a topic that you will eventually encounter at least once. And that is the sort of thing where one would hope that a CPA understands that like specific identification of lots and FIFO are two different things. They might not know. And the difference between those two is quite material. And paradoxically, the punishment you get for you doing well in your career and your company doing well is, you know, if you are year seven at, you know, a great startup, you've probably got a number of refresh grants at all manner of strike prices and then you've exercised across all these different years and have all these different acquisition costs. And so, it's a lot of fun coming through those and figuring out which the right one to or what's the right combination to use. For the benefit of people who haven't worked at the startup before, we discussed the most common case where someone vests equity over the course of their first four years. But it would be a terrible thing for Silicon Valley. If everyone got to four years plus a day and said, I'm out. And if they only get equity for the first four years, a lot of people would say that because like you get to four years plus a day and your effective compensation just decreased by say 80%. So what companies do to avoid that is for employees that they would really like to stick around longer. They start saying relatively early in their employee, okay, we're going to give you a new window where you will vest equity over time, the same fashion that like you vest sell every month, we just pay it to you every month. Brass tax, it is probably not going to, if the company is doing well in the course of the four years, it probably won't replace the initial equity grant, but it will make it feel less like you're getting punched in the face when you see your compensation package in your five. And as you mentioned, complexity increases quite a bit. You have essentially a waterfall chart if, okay, I had these four years with these exercises and then I'm going to layer on top of that a number of refresher grants that started at different dates, they have different prices associated with them, yada yada yada. And then some of them were like partially rescinded for whatever reason, some of them were partially exercised, some of them were partially sold in tender, blah blah blah blah blah. And you know, that wonderful engineer who did that great version of the bootleg spreadsheet that is going around has probably not modeled all of these out the way an entire engineering team would. Yes. Well, and there's a lot of, there's a lot more complexity of the in refresh grants. So the four year one year cliff is like pretty standard. If you give someone that framework that should work at most startups, but a lot more variance in refresh grants, some people do stacking one year grants that best quarterly, some do a new four year vest, some do these crazy backweighted vest and it is not worth digging too much into this, but just to fight to say that there are a lot more flavors of how you handle refresh grants than initial crap. And then I'll say one other thing, although it could be worth the zone episode, the liquidity problem for people making early exercise decisions is one of the great aesthetic and moral problems and Silicon Valley to me. And there are legitimate reasons why companies are extremely diverse to people and doing your transaction, which sounds like loan me money today and I will give you upside on my equity in the future. And there exist a number of companies that want to facilitate that transaction, which companies, the companies issuing equity would love if they could burn their business to a center for various reasons we don't have to get into. That said, those loans, which are ones that your company would certainly prefer you not take advantage of, are not the only loans available in capitalism. And there are some people who probably should think hard about, like, is it worth me getting a $25,000 cash advance from American Express to like exercise my equity now that I've just joined this company? That is again a thing that is probably not in the bootleg spreadsheet, but I remember when you showed me a demo of prospect that you can model things like, okay, if I'm in a lucky position in life and have family that have money, can I get a family loan for this versus can I convince someone in my professional network to help me out versus can I go down to a main street lender versus can I deal with one of the companies that would prefer me not deal with? Yeah, and there's a wide, as you're kind of saying, there's a wide variance in what you can order off the menu here from I borrowed something from my brother to against 401k or my equity loan to American Express as you said to some of the folks that do specific equity loans that companies dislike for good and bad reasons. And I would say there, it also really depends on the company you're at, you know, and hard to give blanket advice besides saying that it's bad to give blanket advice right in that, you know, if you're at a very maturely stage company, you know, the space taxes of the world, the considerations that should be quite different than if you're at a serious B company that's still fundamentally risky. And you know, we try to help you out. Yeah, and unfortunately, the financial industry is very good at solving the problems of rich people with liquid equity. And so as you get into the, you know, 10 plus years in a company and start to get the happy, terrible position in life where you understand that they're private bankers and then there are private bankers and that contracts can be bespoke with banks. You get more options available to you in tapping it liquidity. But again, decisions you made when you had relatively less money and we're not on the radar of private bankers and where even if you were that the, you know, banks with private banking practice would say, yeah, no, we're not VCs here. We don't take equity risk. Like we want to loan you money in the certainty that you will repay it. You know, you will not have the tools available in your one, two, minimize your tax exposure that you might have available to you in like year 12. It's a bit like being like a very high end restaurant and just realizing over the course of the night, there's like always one more private dining room kind of behind the next wall. And, and you know, as you progress in your career, you make it a different dining room. But there's always another one. I am random anecdote for you from a particular large bank's customer service software. They have a scale to inform all employees of the bank of the relative wealth that their current customer that they are speaking to represents just so that you don't accidentally offend someone who is an extremely lucrative customer of the bank. And because this bank is crass about this, that scale is $1 signs through $5 signs. And the indicatively, I haven't seen their training docs, but I know some people who know some people. And much of the game and startup dumb is that the vast majority of us start out at $1 sign. And some of us will make it to two and some people who are a combination of very skilled and very lucky will make it to $3 signs. Well, you know, potentially some founders get two, four or five dollar signs. And every time you go up a dollar sign, like life is great for you. And you also get a new class of very hard problems that no one grew up knowing how to solve. Well, relatively few of us grew up knowing how to solve. Perhaps some people have a special interest in tax optimization from an early age, but I did not. And so I'm very glad that you are helping people navigate this sort of thing. Where can people find you and prospect on the internet? Yeah, for sure. Prospect is at join prospect.com. And then I'm on Twitter at Gallerbilly. Awesome. Well, thanks very much for taking the time with us today, Billy. And thanks everyone for your time and attention. Hope that was useful for you. I can't give you advice if you email me on this sort of stuff, unfortunately, but you can read this transcript and the stuff that prospect will be publishing over the next couple of months and hopefully make good decisions for yourself, your family, your loved ones and causes you support over the next 10 plus year. So you're a career. And on the much shorter time frame, I'll see you next week on complex systems. Thanks for tuning in to this week's episode of complex systems. If you have comments, drop me an email or hit me up at patio 11 on Twitter. Ratings and reviews are the lifeblood of new podcasts for SEO reasons. And also because they let me know what you like.