Anyone have stock option horror stories?

Not a terrible story, but I was an early employee in a startup and was given a small batch of options to start (and some measure every year as bonus) -- nothing exciting. I think the strike price was like a $.05 a share or something with 20 million total shares and I had ended up with something like 20,000 shares.

As I moved up the ladder I replaced a VP and took on his shares instead as an incentive. It was 1.5 million shares. One year I landed a couple huge deals for the company and brought in bonuses worth more than the strike price on all of that and almost bought them.

While I was thinking about it, the executive in charge of marketing and sales left and I ended up meeting him in a local parking lot to pick up his laptop and some other things. He handed me and envelope and told me to give it to the CEO and that it was confidential. Being curious I looked in the envelope anyways and it was around 4 million shares in stock certificates in the company. I have no idea why they were being transferred but I'm sure it was some contractual contingency to return the shares based on some trigger in his contract.

Being honest, I turned in the stock certificates as instructed, but decided that something felt "off" and I chose not to execute on purchase of my options.

Over the next 12 months we tried to exit at a $25m valuation (which would have made me on paper at least a small time millionaire), failed to find a buyer, the CEO left, I became President of the company with the task to shut it down rendering my options worthless anyways.

In exchange for sticking it out and helping shut the company down, I left with a very nice parting bonus and a promise of strong reference from our VCs as a former corporate officer which helped me get my next position with another startup (which ended in disaster but that's a different story). All that was worth well more than my options in the end so I guess it was worth it?

I worked for Real Networks in 2000. It was my first job out of college. I remember the recruiter probably thought she was clever telling me that "Your salary is low but you've got a lot of options." I had no idea what options really meant. I got 30000.

In six months those options were worth $5M. Wired wrote up a great article by this guy who played a great practical joke on everyone. The greed was so bad, people would check the stock every five minutes. This guy setup a proxy, and when people went to the bathroom he would switch their proxy settings to point to his proxy. His proxy did one thing: take any numeric values and half them when the page had our stock symbol. People would return to their desk and freak out that they just lost half their portfolio value.

I quit on my 1.5 year vesting date, and my options were still worth $150k. I waited a month and they went underwater.

Oh well.

A friend of mine got a bunch of stock options, and exercised them. Then they tanked. He got hit with a tax bill so large it more than wiped him out. His family wound up in a trailer.

Moral 1: When exercising options, sell enough on the same day to pay the tax bill.

Moral 2: When dealing with large sums like that, consult with a CPA.

Tried to leave a FAANG, was offered huge handcuffs in the form of more RSUs. Left anyway a few months later for a startup at 0.5% equity. Left that startup in 9 months to go _back_ to said FAANG, leaving my startup options unvested.

Returning to FAANG left me with less than half the RSUs I originally had (since then worth about $2m), and that 0.5% options in the startup? Said startup was bought right after I left and my options would _also_ have been worth about $2m.

So I was ultimately right back where I started, having narrowly avoided lots of money two separate times.

The most famous must be the Skype story right? Have a bunch of language in the employment contract, which gives the employer the right to take back all the vested shares you have been granted if you are "fired for cause"? Then fire everyone for cause right before liquidity event.

https://techcrunch.com/2011/06/26/skypes-worthless-employee-...

Horror story: https://news.ycombinator.com/item?id=11200296

From danluu’s well argued article that options are mostly bad: https://danluu.com/startup-options/

With the opposite argument from yosefk in Israel: https://yosefk.com/blog/stock-options-a-balanced-approach.ht...

I agree with danluu, and strongly disagree with yosefk. My experience in New Zealand is the payoffs for equity are far worse because the rewards versus the risks are so bad (because VC is batshit mental in NZ), and I expect the problems are equally bad in other countries. The USA is an outlier.

I started at Akamai in July 2002 and I received an option grant as part of my offer. Since I had options before, I thought they were all priced at the closing price on the day they were approved by the board. But Akamai had a provision in their option agreement that priced the options at 4 different prices. The price of the first quarter of my stock was the closing price the day the grant was approved by the board. The 2nd quarter was priced 90 days later, the 3rd 90 days after that, and the final price as 270 days after the initial grant. No one mentioned this odd pricing during the interview process, and I never thought to ask about it in the interview process, I just assumed they priced them all at once like my previous options.

I was told after I complained to HR, that they did this for MY benefit! Because their stock went straight to $300/share at the IPO and then started a slow decline. This was a good policy for people that started after the stock hit $300 and before I started because each quarter of their stock was priced lower than the previous quarter. But for those of us that started close to the bottom $2/share, it sucked!

One guy who started after me quit when he found out about the 4 different prices.

Joined as employee #2 of a startup. Over the years, accumulated about 1.9% of the company shares. At one stage, the company was valued at ~$300M. Several buyers approached over the years, the chairman only wanted to sell at a ridiculous near $1B. So it never got sold. Several in-fightings, layoffs and a few years later, we exited with $18M acquisition.

I have never had a stock option that was worth anything. As a result, I count their value as zero if they’re part of an employment offer, although it’s been a while since I’ve had them as a putative benefit as well.

With my own money I purchased approximately $15k in shares over the course of 8 years out of a 13 year tenure. Company was purchased by private equity. The CEO lost his crackers, I left, and it took the company 4 months to send me a first right of refusal with the value at $30k. Within that agreement, I had to sign away holding the company liable for anything and never threaten to sue — this is after the CEO torpedoed a job offer of mine, said some racist things, and sent me a cease and desist for a former customer calling me about a job offer.

In any event, I still own the shares. I wish I didn’t because it would have been a cleaner break without a non-compete. But, I’m stuck… don’t want to sign away rights for what is my own money. Just holding onto them to see what happens as any legal fees outweigh what they are worth.

Sure: famously, a bunch of people that paid to exercise their @stake options (@stake was one of the first large security consulting firms, funded by Battery Ventures) after they left the firm got zero when @stake was eventually acquired by Symantec; the deal carved out retention grants for existing employees, which of course weren't extended to former employees. A bunch of people were out 5 figures, as I recall.

When I left Arbor Networks, I didn't exercise my options, in large part because of that horror story (further rationalized by having started a company of my own --- Matasano --- and deciding that if I was going to put money down on any company, it might as well be mine). I probably would have made some money when Arbor eventually sold! So: bad stories in both directions. :)

First startup job in the dot com era, employee #30 at a pre IPO startup. Started same day as another guy I will call Steve. I got a nice stock grant but didn’t really understand it so I bought a few books and read up on options and AMT. Two years later and we are a public unicorn. I carefully exercised my options and sold my stock, keeping track of my taxes and paying an accountant just to be sure. Steve exercised his, held the stock and rode it down in the crash. Ended up completely bankrupting him, he lost everything due to a massive AMT bill. He’d used H&R Block to help with taxes and back then they had no idea about AMT.

One thing I will add - I did fine but if I’d known about ETFs back then I’d be a lot wealthier. Don’t make the mistake of trading actively and especially don’t make the mistake of investing your tech gains in more tech until you have diversified enough that you don’t care if you lose it.

I negotiated for more stock and less salary on joining (poor choice in retrospect) and exercised on leaving ($3k). Four years later they did a reverse stock split (90k:1) at a low valuation and I was forced to sell my shares back to them for $700.

(Full details: https://www.jefftk.com/p/stock-options)

The fair market value was $3 per share. I calculated my AMT to be $0 and exercised. The company then retroactively quadrupled their fair market value price and I suddenly had a $10k AMT bill. The company was private, so I couldn't even sell the shares to pay for it.

I quit my job to start a company, trusting the legal to my business partner. We exchanged a written egalitarian cap table, but he secretly gave himself >100x more shares than listed. Yet, he called me "co-founder" and wrote that I held the most shares of anyone. In actuality, I vested <0.5%/year. Nearly a year in I found out, causing me to leave after having drained my savings in exchange for almost no equity.

Long time ago, promised 2% of the company with a 5 year cliff, got kicked out a week before cliff ended, company is wildly loved among developers around here too. Lessons learned, perspectives changed.

Friend had $10M in options. Never sold any, as it was going to only go up for sure. Company tanked, sold at fire sale, got $100,000 in the end.

If you had the value of your stock option in cash, would you invest it all in a speculative Silicon Valley company? No? then diversify. And do it now.

Not me but my friends: My first job was at Sendmail. A few friends exercised all their options when they left, writing checks to the company for 6 months of salary.

A decade later they company sold for a fraction of what they took from VCs, and no one made any money (and only the VCs got anything back).

Ten years before they could finally write off their loss!

This was fifteen years ago. I realized that something was coming up and decided to sell fonds titles. I opened the online banking system and sent the order. Two days later the crash happened.

Have I been lucky? No.

The bank patiently waited three days before executing the order.

I am afraid they immediately sold the titles and kept the difference. After all no risk here. If the prices would have went up they just would have backdated the sell. I realized why bankers are rich. They have the power and can turn the game to their profit. They just have many possibilities to tweak something such that I lose.

Ten year later I retried somewhere else, crypto, to realize that the same crowd is also in crypto.

Luckily I didn't go all in. Twice. I can afford the losses.

I feel like just how people say always get a lawyer when you get some legal paperwork like a cease and desist - I say get a CPA when exercising options. Many times you can book them for a one time appointment, it'll probably run you somewhere between $150-$300. Totally worth it when I had to do it. (although no horror story here)

Not really a horror story, but a lesson. In 1998, worked in USA for startup, got stock options. Head a healthily sceptical attitude, only counted on salary which is real money. Nevertheless, I purchased the stock options, at $0.05 each thus spending $100, thinking "Be daft not to. Not convinced these'll be worth spectacular money but don't think I can lose". Then along came the telecomm and dot com busts. So lost whole $100 as the company was wound up. Felt possibly worth it for the schdenfrude of watching somewhat unkind / aggressive senior managers / investors losing big sums ;)

Cost $300K total: $100K to exercise, $200K in paper gains. Looks like it will pay off bc valuation has continued to go up, but the 90-day exercise window is punishing for cashflow.

Didn't know about 83b election, didn't make use of QSBS exemption; learnings here: https://www.productlessons.xyz/article/how-stock-options-for...

Joined a company with a billion dollar evaluation. They IPO'd a year after I joined, just months after exercising options. The stock tanked.

The AMT taxes will likely be tens of thousands of dollars even if I don't sell.

Took an offer for an early stage startup, ~0.25% of the company vesting over 4 years (best I could get at the time). Company proceeded to dilute 40-50% per round (pre-seed, seed, and series A) while bringing on an endless stream of do-nothing managers, and didn't top-up any of the existing employees grants or do any annual refreshers. They got upset with me when I brought this up.

The company is floundering and hasn't launched anything technically new since a good amount of the original team left. I suspect it'll limp along for a few more years before it's acquired at a loss. The last funding round removed all but one of the founders from the board, so... too bad for them...

2001. On my way out the door, the boss asked if I was planning to buy my options. I said I probably would. He shook his head and silently mouthed “Noooo”. Two weeks later our lovely VC punters shat out an 800-for-1 reverse. Thanks boss!

Just another anecdote. The company I worked for had pretty severe restrictions on when you could sell your stock, it was disallowed for some fixed time period before and after a major announcement. The company seemed to engineer their announcements so there was never an opportune time to cash out.

Not quite a horror story...

Over the course of about 7 years, I "amassed" options for about 100,000 shares ($0.10 each).

I got laid off in the great recession of 2009 and I was pretty annoyed at being laid off (I won't go into details, but I felt that there were many others who deserved the ax before I did).

After being laid off, I believe I had 6 months (maybe 12) to exercise my options.

Obviously, it would have cost me $10K to exercise everything.

But I was still annoyed and I decided to cut off my nose to spite my face: I exercised TEN DOLLARS WORTH (100 shares) for the petulant reason that it would simultaneously demonstrate that I had no faith in their viability and that it would cost them more than $10 in postage to invite me to yearly shareholder meetings.

Well, I got my 100 shares and two years later, I also got notice that they were GOING PUBLIC!!!

My heart SANK. Acting like a petulant child was going to cost me hundreds of thousands of $$$. Possibly millions, depending on how the IPO went.

Then I read the fine print. The IPO was going to involve a 6000:1 REVERSE split. In reality, I would have had about 17 shares if I had exercised everything.

Then, a few months later, the IPO was canceled.

Eventually, I received a check for $0.01 because the reverse split of my 100 shares amounted to essentially nothing.

Not a horror story but just a disappointment story.

I had options at $10. I joined and the stock dropped all the way to $0.57 before rebounding to $5 when I left 5 years later in 2005.

During my exit interview the HR person says "Oh you have unexercised stock options."

I told them to look at the current price and my option buy price. They withdrew the question.

Not exactly horror, because I did enjoy the ride but was CTO and employee 3 of a startup with a promising idea that didn't pan out. I had a good number of shares, although far fewer than the CEO and COO, would have been worth some good dosh if we had sold for £1M+. Incompetent leadership, no sales, Directors not stepping in soon enough and the company ended up selling for a small enough amount to pay back Directors loans with nothing for the shares.

Annoying but you shouldn't fantasise about it unless you have a major input into the company success. If not, you are more likely to watch others fail and feel powerless and frustrated. We can all look back and wonder why we didn't buy 100 bitcoin when we first heard about it but we can't so work somewhere you enjoy, earn enough to be comfortable and if you do make some cash, great.

Left a FAANG job for a dream job at a small company you've heard of for a large pay cut and .1% equity. Got fired 9 months later. No equity vested. Small company is now a $10 billion company.

I'd be less bitter if I left at 3 months, but at 9, it hurt.

I had 2,500 stock option in AMZN in 2001 at a strike price of something like $7 or thereabouts that I sold all of them at around $40. Plus some RSUs and made around $100k.

Thought retail margins would mean AMZN was never profitable and eventually that side of the business would crash and burn. Meanwhile, I figured that the trick to building out your own infrastructure cheaply (basically "just be really fucking cheap and fire people who do expensive shit like build out SANs") would catch on and the margins would disappear from the AWS/EC2 business as everyone just built out "internal clouds" for 10x cheaper than buying from AWS.

I got stock options from a startup I was working for. 3 months later the company was bought out, and all our options were worthless.

The icing on the cake was the founders holding a party to celebrate how rich they became from selling out.

Happened to a friend of a friend who bought his vested and super-cheap options when leaving the company, while it was still private. This was in Canada, but the IRS wanted capital gain tax to be paid right away. And the cap gain was in millions, because of the current company valuation. I think he lawyered up and somehow found a way to defer the payment until the company went public. So it wasn't devastating per se, but still very unpleasant. From being an almost millionaire to a real chance of being bankrupt in a matter of days.

Is it considered a horror story if you realise the company likely won’t have a significant upside?

If anyone wants to exercise some totally not worthless options… they expire in 2 weeks shrug

No specific horror story. Just the fact that as a young employee in the tech industry I had no idea that ISOs trick you into thinking that they are something even distantly related to a regulated system of financial instruments.

When in fact it's just a cover for "the CEO does whatever he wants" and your stock is pretty much arbitrary and has no guarantees whatsoever. Dilution (the biggest scam of all), valuation, down rounds, lock-up periods, etc. You go in (young) thinking that the appearance of financial instruments means they have some protection, but they don't.

In fact, I sometimes think that this should be more heavily regulated, and why does the IRS/SEC bother to oversee some aspects of this but let the other aspects completely blow in the wind. But maybe that's just how this industry is, and no policymaker will care enough for this concerns of this specialized (and yes, fortunate and high-paid anyway) workforce.

But at least go in with eyes open and informed.

Not sure if this is a horror story but it's an interesting recent dilemma. I started as a contractor for a startup about 8 years ago and was awarded some Non Qualified stock options that vested but were not exercised. I never came on board as an employee, but did do contract work from time to time. After a couple of years, I moved on to better opportunities, but the contract was never really terminated. The startup in question recently merged with a larger company and during due diligence my options were discovered.

So.. they let me know I have these options if I wish to exercise them in the next 90 days. It looks like I'll have a taxable event just by exercising them as they are NQ. Not sure if it is really worth the risk as I still haven't been able to get a fair market value of the shares from them and I don't see the opportunity for them going public or being acquired any time soon.

Not a horror story, but: I had some stock options. They were in the money. I sold some and kept some. The stock went up. I sold some more, but not all of it. I was keeping an eye on my yearly income and where I shifted into the next incremental tax bracket. On December 16 (of year X), the stock price was really attractive, but I was going to pay a higher tax rate on the gains if I sold, so I decided to wait until January to sell.

On December 18, the company announced that it was buying another company. The stock market didn't like it, the price tanked, and I lost more than I would have paid in taxes.

Moral: When money is growing on trees, pick it.

But of course it's not that simple. In other circumstances, waiting could have been exactly the right move. But waiting carries risk, and I was not properly recognizing that risk.

I got ~25K stock options from a startup while I was working as a Software Engineer. The company was sold so it was time to cash out the stocks $$$.

My team was working on a separate side product than what the original company was doing. After company's exit, we learned that we will continue in a spin-off company instead of joining to the others. We agreed to leave the company, signed the papers etc.

In the evening, I visited the stock brokers website in order to calculate how much money that I will get. $$$

I felt like having a cold shower when I saw that all of the stocks that I vested so far is gone. It is crossed with red mark and comment says: `Voluntarily given up.`

I had a horrible night, trying to understand how this has happened to me.

Next day, I learned that it is just an issue with the broker and I will get my compensation so I relaxed.

That was my horror story.

it all worked out in the end, but when I left I had a few thousand options that were just barely in the money. Maybe $2k total. Unfortunately, they neglected to report the cost basis and the IRS sent me a $900k tax bill! It was certainly a heart-stopping letter to read.

I got "phantom stock options".

They were as advertised.

Young and naive story ahead so I apologise for any anger it might cause, cos I certainly get angry every time I think about it.

First job after I finished university, and I joined a start up that looked relatively promising. It was my first my second corporate job, though the first was a terrible year in industry as part of my studies.

Leadership gave lots of promises (not just to me) about the company and all, and honestly, I'm pretty sure in the early days much of it was okay to promise.

I started on a relatively low salary. Got no options. Moved up the ladder, and got some options. It wasn't a lot, so I didn't think much of it. Heck, here in London, the stock options game for start ups is nowhere near as strong as the US (mind you, I didn't know about this back then either). I was never told about a strike price. I never read the options contract. Lots of mistakes on my part.

About a year and a half after I joined, I got a sizeable pay increase because I suppose I had shown my worth maybe? I dunno. Right around that time, structure changed a little bit. I made the mistake of not checking my pay cheque to validate I had been given my pay rise. For about 6 months I hadn't been given my new pay. I raise it with the relevant people. Because we had hired someone new, and they couldn't find the new contract I'd signed (???), the new person had to go to the CEO to double check. That took another 2 months (don't ask me why).

So I had about 8 months of the pay increase difference not paid, about ~£12k. They get back to me telling me they've confirmed that I was given the pay rise, but they won't be able to pay it in cash, and instead have to pay it in stock options. Without challenging it, I accepted, because I did believe the company would grow.

Fast forward another 1.5-2 years, and I realise the company is a sinking ship, or if not, it's just drifting aimlessly. So I leave. I hand in my notice. Over the next week or so I have meetings with plenty of people to persuade me to stay with all the promises (not even a promise of a pay rise). I'm not persuaded, so our CEO straight up tells me I will lose my stock options if I leave. Didn't even get possibility get my money back. Nothing.

7/8 years later, the company is still drifting. Many aren't paid in full, or on time. It may have been a bunch of costly naive mistakes on my part, but from what I'm hearing it would have cost me more if I'd stayed.

Moral of the story: you should double and triple check your contract, whether you're young or not.

First job. Joined a large multinational in the late 90s. Every new hire was given about $20k of in the money options right away. Option buy price at $20, share price at around $40.

Within a year the SEC was investigating the top bosses. Stock price collapsed more than half. Options worth nothing. New management decided to restrike the price of the options for of many of my coworkers, erasing most of their loses. But mine were outside the magic period of time ://

Over and over.

Exercise options early to hold shares long enough to avoid capital-gains tax; but company is sold for cash, shares get converted instantly to cash, triggering Alternative Minimum Tax. It sucks.

We ought to be able to sell our shares to our IRA as we exercise them. But we can't.

We IPOd with a valuation of about 2B. By the time engineers could sell it had fallen to about 300M, and many early employees who were convinced to exercise pre-IPO ended up with nothing due to a very high pre-IPO value and AMT taxes.

Exercised about $35K of options soon after I left an IOT company that seemed very promising. A year and a half later they were acquired in a fire sale deal that wiped out all the investors.

Don't play with money you can't afford to lose.

My experiences:

1. Had my own startup, I was CEO. At one point we had a good LOI-valuation, I was a paper-millionaire. In the end we failed to raise, failed and I didn't make any money. But at least I didn't invest/lose any of my own money, and exited without screwing anybody over. Only lost money on oppty-cost, ie. money that I could have made if I had a regular job.

2. Worked at a resonably successful startup for 3 yrs, started in 2012. When I left in I exercised 10,000 pieces of stock for $5,000. It's now 10 yrs after my start date, no liquidity in sight, company is not doing so great. Probably what those 10,000 pieces stock will be worth is 1 month of my current salary, so it's irrelevant now.

3. Worked at Facebook for 18 months (London, E5). Vested arond $100k of stock, payed ~55% taxes, sold stock right on vest date, made around $45k. If I would have kept it and sold at the highest point of the stock, it could have been ~$150k. Today it'd be worth around ~$75k (FB stock was cut in half in the last 6 months).

The upside of stocks: I do know people from Facebook who got early stock, and Facebook is the last job they'll have...

4. Worked at a delivery startup. At this point I was smart enough to ignore the stock and negotiate strong on the cash salary, so I made good risk-free money every month, but still vested a lot of stock. In the end the company failed, technically the stock was re-valued, so all my stock was worth something like $0.01. I did a great job managing my expectations, so I wasn't unhappy (I knew the CxOs are crooks and it's unlikely the company would be successful).

5. Current job at a non-tech BigCo doesn't have a stock component, just a high base salary, and no taxes (Dubai). This is the way.

6. The funniest stock story I have is from a job offer I didn't accept. This company gave me a reasonbly good offer with a stock component, where the stock contract had this specific language:

> ... shares issued under this Plan shall be "hypothetical" stock, which means that the Company gives the Employee the benefits of owning stocks in the Company without actually giving the Employee stocks or shares certificates ...

The contract had 3-5 clauses in there which said that the CEO could essentially decide to void my stock at any time for any reason. I told the CTO that these are red flags, he told me he agrees, he had the same concerns, but blah. In the end the structure of the stock plan was one of the reasons I declined, it was a red flag for company culture.

https://www.chicagotribune.com/sns-tech-taxes-story.html

Horror stories from the dot-com bubble. Mostly about AMT.

The only horror is how rarely they are given in “rest of the world ville”

Worked for crypto startup in 2016. Went through divorce at that time, did not want to make shady investment, that could upset judge. Go figure :)

Bought BTC at 65K because it could only go up.

Have you seen recent /r/wallstreetbets? https://old.reddit.com/r/wallstreetbets/top/

I have a friend who, as an early employee, attempted to buy his options and the record of him ever having a vesting schedule was "lost".

He would have to fight a legal battle to get the option to purchase his options.