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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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    1. Patrick McKenzie‏ @patio11 31 Oct 2017
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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:

      2 replies 25 retweets 151 likes
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    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
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      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.

      3:49 PM - 31 Oct 2017
      • 1 Retweet
      • 6 Likes
      • Guilherme de Maio Eli Courtwright James Burns Vaibhav Mallya ‏pix yburyug Michael Langford
      1 reply 1 retweet 6 likes
        1. New conversation
        2. 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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        3. 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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        4. 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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        5. 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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        6. 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
        7. 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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        8. 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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        9. 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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        10. 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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        11. 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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        12. 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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        13. 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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        14. 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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        15. 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
        16. 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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        17. 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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        18. 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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        19. 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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        20. 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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        21. 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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        22. 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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        23. 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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        24. 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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        25. 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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        26. 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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        27. 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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        28. 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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        29. 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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        30. Patrick McKenzie‏ @patio11 31 Oct 2017
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          When the company is sold, someone tells acquirer "Oh you can sure by that corporate entity but my intellectual property will cost you extra"

          1 reply 0 retweets 2 likes
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        31. Patrick McKenzie‏ @patio11 31 Oct 2017
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          This can cause acquirers, who have seen this movie before, to nope nope nope out of the deal.

          1 reply 0 retweets 1 like
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        32. 6 more replies

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