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patio11's profile
Patrick McKenzie
Patrick McKenzie
Patrick McKenzie
@patio11

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Patrick McKenzie

@patio11

I work for the Internet, at @stripe, mostly on accelerating startups. Opinions here are my own.

東京都 Tokyo
kalzumeus.com
Joined February 2009

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    Patrick McKenzie‏ @patio11 31 Oct 2017
    • Report Tweet
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    Stripe Atlas wrote a short, comprehensible guide for what founders need to know about their equity. https://stripe.com/atlas/guides/equity … Some thoughts:

    3:46 PM - 31 Oct 2017
    • 25 Retweets
    • 151 Likes
    • Dave Beath ‎Team Lead @NURTW PinkPanthea tempfolder 🇮🇱 Satish Shankar Liz Fong-Jones (方禮真) unload nslindtner Justin Hoang 🇨🇦
    2 replies 25 retweets 151 likes
      1. New conversation
      2. Patrick McKenzie‏ @patio11 31 Oct 2017
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        One does not receive equity in one's company automatically as a function of starting it. Equity is not like copyrights in this regard.

        1 reply 1 retweet 9 likes
        Show this thread
      3. Patrick McKenzie‏ @patio11 31 Oct 2017
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        This is a problem which can be fixed but the fixes will require you to talk to an attorney and hear some very discomforting things.

        1 reply 1 retweet 6 likes
        Show this thread
      4. Patrick McKenzie‏ @patio11 31 Oct 2017
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        The immediately proceeding tweet is going to be a theme we come back to a lot in this tweetstorm, so I'm warning you in advance.

        1 reply 1 retweet 4 likes
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      5. Patrick McKenzie‏ @patio11 31 Oct 2017
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        The most founder-friendly way to purchase equity is to purchase it before the company has done anything meaningful, right after inception.

        1 reply 0 retweets 6 likes
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      6. Patrick McKenzie‏ @patio11 31 Oct 2017
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        This lets a founder purchase the equity for par value, which (since it was a freely choosable number at incorporation) is likely very low.

        2 replies 0 retweets 5 likes
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      7. Patrick McKenzie‏ @patio11 31 Oct 2017
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        If a founder neglects to purchase equity immediately and creates substantial value in the company, buying at par is not an option anymore.

        1 reply 0 retweets 6 likes
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      8. Patrick McKenzie‏ @patio11 31 Oct 2017
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        This is a problem which can be fixed but the fixes will require you to talk to an attorney and hear some very discomforting things.

        2 replies 0 retweets 5 likes
        Show this thread
      9. Patrick McKenzie‏ @patio11 31 Oct 2017
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        You thought I was joking about that line? I have it in my clipboard, because the landmines are scattered with equity issues.

        1 reply 0 retweets 5 likes
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      10. Patrick McKenzie‏ @patio11 31 Oct 2017
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        Silicon Valley VCs have seen a lot over the years, and they (and YC, and many other folks) will strongly recommend vesting co-founders.

        1 reply 0 retweets 4 likes
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      11. Patrick McKenzie‏ @patio11 31 Oct 2017
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        Vesting means that one's company holds the right to repurchase founder equity if a founder leaves, with this right decaying over time.

        1 reply 0 retweets 4 likes
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      12. Patrick McKenzie‏ @patio11 31 Oct 2017
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        One could model this similar to earning the equity over time like one earns salary over time, modulo some subtleties.

        1 reply 0 retweets 3 likes
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      13. Patrick McKenzie‏ @patio11 31 Oct 2017
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        The vesting terms you are likely to hear most frequently are "4 year vesting, 1 year cliff." 25% vests at 1 year mark, rest over 3 years.

        2 replies 0 retweets 6 likes
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      14. Patrick McKenzie‏ @patio11 31 Oct 2017
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        Co-founders leave after 6 weeks, frequently enough that it is a cliche. Vesting prevents them from walking away with 1/3rd of the company.

        2 replies 1 retweet 9 likes
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      15. Patrick McKenzie‏ @patio11 31 Oct 2017
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        More than one founder has announced an acquisition and then received an email (or call from a lawyer) starting "Remember me?"

        1 reply 1 retweet 5 likes
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      16. Patrick McKenzie‏ @patio11 31 Oct 2017
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        If that co-founder did not have vesting written into their terms N years ago, and did not rigorously execute the repurchase, lawyer time.

        1 reply 0 retweets 4 likes
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      17. Patrick McKenzie‏ @patio11 31 Oct 2017
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        This is a problem which can be fixed but the fixes will require you to talk to an attorney and hear some very discomforting things.

        1 reply 0 retweets 5 likes
        Show this thread
      18. Patrick McKenzie‏ @patio11 31 Oct 2017
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        I always say "Social Network" at this point because it's going to be literally salient enough to be a subplot in the future movie about you.

        1 reply 0 retweets 3 likes
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      19. Patrick McKenzie‏ @patio11 31 Oct 2017
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        Did you know that you can bankrupt yourself by starting a successful company? It's fun and easy. All you have to do is forget 83(b) election

        2 replies 2 retweets 16 likes
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      20. Patrick McKenzie‏ @patio11 31 Oct 2017
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        The IRS treats founders with vesting as having earned their equity over the lifetime of their vesting period, rather than all upfront.

        1 reply 0 retweets 4 likes
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      21. Patrick McKenzie‏ @patio11 31 Oct 2017
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        Since it is earned for services rendered, one is obligated to pay tax, just like if the company compensates you with e.g. a chicken.

        1 reply 0 retweets 3 likes
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      22. Patrick McKenzie‏ @patio11 31 Oct 2017
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        The IRS is uninterested in receiving shares or chicken; it says "Value the property at fair market value, then pay us N% in US dollars."

        1 reply 1 retweet 4 likes
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      23. Patrick McKenzie‏ @patio11 31 Oct 2017
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        A founder can quite plausibly be earning (for tax purposes) ~$350k per month in illiquid shares by the end of their vesting period.

        1 reply 0 retweets 6 likes
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      24. Patrick McKenzie‏ @patio11 31 Oct 2017
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        If that founder did not remember to file a 83(b) election within 30 days of starting, the IRS will ask them for roughly half of $350k. Cash.

        1 reply 0 retweets 11 likes
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      25. Patrick McKenzie‏ @patio11 31 Oct 2017
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        Don't join your accountant's book of Cautionary Legal Tales We Tell To Scare Young Founders Into Filing Elections In A Timely Fashion.

        1 reply 0 retweets 9 likes
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      26. Patrick McKenzie‏ @patio11 31 Oct 2017
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        The situation for earning equity internationally gets complicated in a hurry, and you'll likely need advisors in every country implicated.

        1 reply 0 retweets 1 like
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      27. Patrick McKenzie‏ @patio11 31 Oct 2017
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        I got some very bad news when selling my 2 software companies in Japan, due to doing the most straightforward thing w/r/t structure + sale.

        1 reply 0 retweets 3 likes
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      28. Patrick McKenzie‏ @patio11 31 Oct 2017
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        And while I don't begrudge the Japanese tax authorities their ~60% marginal rates on those transactions, I'd encourage you to get advice.

        2 replies 0 retweets 2 likes
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      29. Patrick McKenzie‏ @patio11 31 Oct 2017
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        On another note: software startups in particular are generally sticklers for making very, very sure that the company owns its IP.

        1 reply 0 retweets 4 likes
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      30. Patrick McKenzie‏ @patio11 31 Oct 2017
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        The body of practice has evolved towards gating equity ownership on successful execution of IP assignments to the company.

        1 reply 0 retweets 1 like
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      31. Patrick McKenzie‏ @patio11 31 Oct 2017
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        Why? Because otherwise the people who create the IP (founders, engineers, writers, etc) default to owning it. Fast forward to a later date.

        1 reply 0 retweets 3 likes
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      32. 8 more replies

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