This article highlights the need for two changes in the startup world:
1) We need a different term for the "post-money valuation" that VCs place on a company after fundraising. It is not a valuation in the same way that a public company is valued, due in large part to the preferred stock liquidation preference. Employees hear about a $1B valuation and assume that the IPO or acquisition price will be some multiple of that "valuation".
2) We need some tax reform that prevents employees from needing to pay a tax bill with cash for illiquid shares in a privately held company. It makes perfect sense for an employee of a publicly traded company to need to allocate some of their stock grants to tax obligations, seeing as though they can sell those shares at any time. But employees of privately held companies can't sell their stock (usually), and needing to take real dollars to pay a tax bill on those shares is just not the spirit of the law.
I'm not sure we need #2 - we need companies to be better about not forcing their employees to exercise options when they leave the company and we need employees not to exercise options early to minimize the taxes they may have to pay in a windfall. This can simply be executed by every company without any government tax code reform needed.
we need both what you suggest and tax reform around options. It is crazy that you have to pay tax on stock you cant sell. It would be incredibly easy for the IRS to just say when you execute an option that stock will always be treated as regular income and can never get benefit of capital gains tax no matter how long you hold it before selling. There are obviously many drawbacks to this but at least you cant get screwed paying taxes on money you never earn. This will never happen because the people lobbying for the current tax codes are not the people getting hurt by these ridiculous AMT rules. AMT was created to prevent people like steve jobs from collecting their entire salary in the form of options and not paying any taxes but the people most effected are clearly not rich CEOs like steve jobs
If i buy a plot of land work hard to build a house on that land i dont have to pay tax on the increased value of the property until i sell it yet if i work at a company and buy options as it grows i am taxed immediately before i can realize a gain
1) We need a different term for the "post-money valuation" that VCs place on a company after fundraising. It is not a valuation in the same way that a public company is valued, due in large part to the preferred stock liquidation preference. Employees hear about a $1B valuation and assume that the IPO or acquisition price will be some multiple of that "valuation".
2) We need some tax reform that prevents employees from needing to pay a tax bill with cash for illiquid shares in a privately held company. It makes perfect sense for an employee of a publicly traded company to need to allocate some of their stock grants to tax obligations, seeing as though they can sell those shares at any time. But employees of privately held companies can't sell their stock (usually), and needing to take real dollars to pay a tax bill on those shares is just not the spirit of the law.