I did a bit of research, but couldn’t figure out what sort of tax laws are at play here? Why is Stripe looking at such an enormous bill, and hypothetically what could happen if they can’t raise all the money?
[1] https://www.theinformation.com/articles/inside-stripes-55-billion-pitch-to-investors
> In the case of payments group Stripe, RSUs worth millions of dollars will start expiring from 2024 and risk being forfeited unless the company buys them out, changes the terms of the awards or launches an IPO.
> Employees face a personal tax liability when RSUs vest. But staff are unable to sell any of these shares without the company launching a flotation. To get around the problem, Stripe wants to withhold a portion of the stock equivalent to the tax liability from employees’ awards. Separately, it plans to sell stock to investors, using the money raised to pay the employees’ tax bills and buy up any stock they wish to sell.
> Stripe intends to raise enough to cover the tax bill associated with the RSUs handed out to many of its 8,000 employees since 2017, and will hold back some of the value of employees’ shares as compensation, according to a person familiar with the matter.
> “Stripe has realised they have to help the employees out,” said Glen Kernick, Silicon Valley leader at valuations provider Kroll. “When they [RSUs] vest, that’s a taxable event. As an employee, you now own the shares and owe tax but you don’t have the ability to pay your tax bill by selling shares. That’s obviously viewed as a hardship.”
TLDR stripe needs cash to pay taxes to provide employee liquidity if they don’t IPO, and this ain’t a great macro to IPO
Tangentially, private equity in the tech startup space on the secondary market is currently transacting at a ~40% discount.
If you can IPO at a ~100x sales multiple, what more do you really need? Hard to feel sorry for those that chose to stay private for a decade+ while the getting was good
It’s called greed. And also private money was incredibly cheap so why bother with reporting requirements that come with an IPO
They weren't old enough by 2020/early 2021. Series A was 2012. It's usually 10 years after that you need to IPO.
So the expected IPO would be 2022. Bad timing/luck.
Similar for those option plans. Planned IPO +2 years should OK. Unless it hits you like the last 2 years.
This sounds like stripe does not actually have the cash to cover the withholding even then, and if they can't I think that means the employees are getting $X of "income" being taxed on that, and then having to put some significant % of that value aside, from their own assets, to cover that tax burden. Because stripe insisted on equity compensation with no method for equity compensation to have a non zero real world value despite its non zero tax value? "cool" I really hope stripe's equity compensation is a significant multiple of other companies to make up for this ... if they ever actually go public. Otherwise the "equity" remains fictitious zero value BS.
Since Stripe wants employees to cherish their vested interest in the company, the corporation goes ahead of law here and facilitates. This also means that employees are less likely to either forfeit and sell the stock to third parties.
Legislators promoting entrepreneurship may in future encourage this behaviour to strengthen employee ownership of companies, when RSUs become commonplace for most employees, not just executive officers.
This seems like an over simplification which ignores people’s abilities to still draw cash on their illiquid stock. It’s not hard to imagine that early employees with millions in stock can take a loan against them, or they can sell their shares on the secondary markets too. This is especially true for Stripe.
The idea of taxing only realized gains is why we have problems like prop 13 in California with two neighbors paying radically different property taxes on the same valued homes.
