In a private company, there's no "real" public valuation of a share, so an employee who has some kind of stake really only has two real options to dump their shares, either through a company buying it (cognition) or the company going public. Without either of these events, it's really difficult, even if there's no contract about it, to sell the shares.

So the value of the company took a nose dive in the private market through the hiring of windsurfs principals, and the employee either kept his shares and went with the company, or took a job with google. So the two values are:

1. Stay with Cognition and retain the private market shares of Windsurf and salary

2. Leave cognition, forfeit(?) the shares, get whatever salary google offered

So those are the payouts being compared.

That's just called "hiring". In order to "acquire-hire" employees of the target company, one must first "acquire" the company and the "hiring" part just comes along with the deal. In this case, Google skipped the "acquire" part.

Google put a ton of money into the company which then repurchased select people's stock while leaving everyone else high and dry.

Surely it needs to be called something else, because acquihire means "hire some employees by means of acquiring the company they currently work for" (it's in the name). Since Google did not acquire the company, it can't be an acquihire event. "bribehire" or something?

[1] https://medium.com/@villispeaks/the-blitzhire-acquisition-e3...

> Had the employee taken employement with Google, it's likely their shares in windsurf would have been voided, or otherwise not vested.

That doesn't make any sense. The shares are already vested, they legally own them. How could they have been voided?

The idea of joining Google resulting in a "1% payout" doesn't seem to make any sense? Why would there even be any payout at all? And is it mandatory? How could it be?

And then it also doesn't even seem obviously terrible. If the valuation of Windsurf tanked, then is keeping the shares (now presumably converted to Cognition shares at a rate determined by the purchase?) even a better financial outcome?

I agree that Google acquiring the talent rather than buying the company seems shady. But the "1% payout" still isn't making much sense here and needs a lot more details. Because it's still not even clear if the payout is from Google (huh?) or Cognition (why?), or how it could be a mandatory condition of employment at Google.

Options vest, but you have to exercise them to purchase the underlying shares. This is nominally cheap, but from the IRS’ perspective you have just spent $1 to purchase a share worth $100, so that’s $99 of income. Multiply by a large number of options and you can easily have a real multimillion dollar tax bill even though you have no way to sell the shares to recoup their value.

Worse, if the company loses its value before you can sell, you’re still out those taxes with zero recourse. It’s an enormous risk.

If you leave a company with vested but unexercised shares, you generally forfeit them.

- Jan 2021: 3M seed round

- Jan 2024: Series B valuing the company at 500M

That's 3 years of vesting below a 1B company valuation, and 75% of a typical vesting schedule. There was plenty of opportunity to buy when valuations were low.

There's also 83(b) election that allows one to prepay tax liabilities on stock options before they vest.

Not buying stock options or doing a 83(b) election is also a bet that can place a cap on losses if the company goes downhill, but the risk flips if everything goes right.

Yes, there is plenty of opportunity to exercise when valuations were low. But that also means you're buying before there's clear evidence that the company will be successful. It also still means you're out the cash to exercise the options before there's a market for those options and before you know that the company will actually go public and not crater for whatever reason. You also have no idea how much your shares will be diluted.

Yes, exercising on day 1 optimizes your outcome in the case of a successful exit. But it is absolutely comically a poor choice for the 95% of cases where your equity ends up being worth next to nothing.

In other cases, you may be later but have a higher strike price (expensive-ish to exercise), but its at least close to the valued price and in that case you can exercise without a major tax hit. But again usually people learn this after the valuation goes up and there's no way to go in reverse. So best we can do is share information here I guess, and perhaps advocate for some kind of regulation.

Waiting until the company is worth billions of dollars before buying its stock is one of several options available, and each has its own risk/reward profile.

Yes, the option technically exists. But without perfect foresight it’s not a good option. It’s not even an okay one. It’s an exceedingly bad one in most cases.

Acting like this employee was silly for not dumping a huge sum of money into company shares before it was in a position to succeed is flatly ridiculous.

Stock options are—as they currently stand—a lottery ticket that startups dangle in front of people’s faces that allow candidates to believe they will get fairly compensated for their labor, but with so much wiggle room that the company rarely has to ever make good on it. And I also say this from personal experience as employee. I was an employee ~#600 of a unicorn that went public. I ended up in something of the sweet spot of equity: most of the people who joined before me left before me and got less than I did in the end. Most people who joined after me got less equity at a worse strike price than I did.

I did pretty good. And this was a rare raging success story. Most people did worse than me.

Once again we’re talking about employee #2, exercising early would not have been that expensive! They had access to a strike price and low tax liability that the vast majority of later employees would ever see. You are correct in that most shares in startups are worthless, but that’s orthogonal to exercise price and tax consequences.

The calculus changes if/when the company becomes a unicorn, but by then the risk profile is much more favorable than when it was a scrappy startup, and returns are lower.

> I also say this from personal experience as employee. I was an employee ~#600 of a unicorn that went public. I ended up in something of the sweet spot of equity: most of the people who joined before me left before me and got less than I did in the end. Most people who joined after me got less equity at a worse strike price than I did.

Well one has to stay long enough to vest in order to keep the equity, being early isn’t enough.

I don’t know your specifics so maybe you did make it out better than earlier employees, but some tricks companies use once they hit unicorn status (and have hundreds of employees) is stock splits. They want to pad their share grants for newer employees to make it seem more attractive and make the strike price lower. Of course earlier employees that exercised and left get their shares multiplied too.

Exercising early almost certainly would have cost hundreds of thousands of dollars. For employee #2 of a startup, you’re almost certainly already working for mostly equity and not salary.

You are high as a kite if you think it’s reasonable to dump large sums of money into a five-person company while getting paid peanuts in return.

You’re basically criticizing the guy for not having perfect foresight, when the real issue is that startup equity is trivially manipulable by upper-level management. It’s a carrot they can dangle in front of people while only rarely having to pay even a fraction of what was promised in the rare event of a profitable exit.

And he calls them vested shares though, not vested options, though maybe he's incorrect.

And it's not like you forfeit them instantly after leaving anyways. You usually have at least 90 days. And the fact that the value of the company is so much lower now is favorable, if you think the value will recover.

But again, none of this has anything to do with the "1% payout" here that is still totally unexplained.

But how could Google require that?

> If you didn’t agree then you would be left holding your shares of a company that is now gutted.

Which is what is sounds like he wound up doing anyways? Which I don't even understand why.

At the executive level they may not want you holding shares in a direct competitor because it presents a conflict of interest. But even then you generally have a period to divest.

Can nobody explain what the actual demand was here? What did Google offer vs. what did they demand, and why? And why would Google be buying your shares...? None of this makes any sense the way it's been presented.

At the same time, if it's an ISO option, there is no assessment of ordinary tax until the stock is disposed. If there's a merger and the proper forms are followed, you can be issued stock from the acquirer that retains the basis (the strike price) of the original shares. If the forms are not followed, the acquisition is a taxable disposition.

There's a credit for the difference between AMT tax and ordinary tax on ISOs, but it can take many years for that to fully work out, and you have to have paid the AMT in the meantime.

Early exercise with 83(b) at time of grant (or while the value hasn't changed) or exercise-and-sell make the taxes make the taxes simplest, but tax simplicity isn't always the best strategy.

Probably indicates that there is a non-disparagement agreement as part of this deal. And usually they include a clause which prevents them from publicly acknowledging the existence of the non-disparagement agreement. So we have to read between the lines regarding how he actually feels.