[HN Gopher] DataRobot employee resigns over stock sales
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DataRobot employee resigns over stock sales
Author : Ozzie_osman
Score : 147 points
Date : 2022-07-17 14:12 UTC (8 hours ago)
(HTM) web link (twitter.com)
(TXT) w3m dump (twitter.com)
| cs702 wrote:
| DataRobot executives should be ashamed for cashing out at the
| expense of all employees, many of whom apparently borrowed to buy
| shares at prices far above current ones.
|
| The risk of an exodus looks significant -- and _that_ would be a
| death knell for the business. A company that bills itself as
| having _depth of expertise in AI & ML_ cannot afford to lose the
| employees who actually have that depth of expertise.
| darth_avocado wrote:
| It's a grift. The execs are not incentivized to act in the best
| interests of the company they work for. So most of them try to
| optimize for their own gains.
|
| For example, execs who are incentivized to "improve operational
| efficiency" can fire a bunch of people, make the others work
| longer and collect their bonuses. Eventually when the burnout
| hits, the morale drops and people leave, a different exec (and
| in a lot of cases the same one) will be tasked with "meeting
| growth targets". They will hire more people, collect their
| checks and the grift goes on.
| ska wrote:
| In this particular case, it the sentiment in the tweet is
| true it's arguable the board screwed up. I'm assuming of
| course the sale plan was approved there (otherwise deeper
| problems).
| [deleted]
| jwilber wrote:
| Imagine working 10 years and having someone come in for less than
| 1 year, completely fail in their role by all metrics, yet have
| the ability make millions of your work, at the direct expense of
| your compensation.
|
| Should be criminal.
| mavelikara wrote:
| Most startups, at the cusp of IPO, go through this.
| aurelius83 wrote:
| I'm a bit ignorant to RSU's and secondary markets. Why were the
| executives able to sell but not regular employees? What stopped
| regular employees from selling ?
| Elof wrote:
| It just comes down to who the board allows to sell stock and at
| what time. Most option contracts don't allow sale of stock to
| secondary markets without approval and rank and file employees
| have much more restricted stock. Often founders and key
| executives will also get some liquidity and stock top up during
| funding rounds while no one else at the company has that
| option. By the time a company goes public most founders and key
| execs have already made quite a bit of money on the side.
| lbotos wrote:
| If a company is private then you cannot sell/purchase shares on
| public markets.
|
| So, execs can go fundraise, which is selling shares to new
| investors. But what shares are they gonna sell? Newly minted
| ones, or shares someone already own?
|
| The execs get to decide. In theory, there is no reason that
| "regular" vested employees couldn't also sell shares if execs
| designed it that way, beyond some complexity in management
| overhead (think figuring out information for 1000 people vs 10)
| as well as "turnover risk" where employees can cash out and
| leave.
|
| Now you are saying, well, seems like employees are gonna leave
| now without cashing out, and you are right. That's why it's
| dumb. Poor decision making by execs. I'm sure there are a lot
| of people at datarobot that didn't even know this, and are just
| learning this now.
|
| (Unless execs _want_ both to make a lot of money and re-form
| the company, if that 's the case, well then, great decision
| making by the execs)
| hedora wrote:
| Is there a public list of startup execs / VCs that have screwed
| over employees in the past? (The 11th-hour Skype dilution event
| also comes to mind.)
|
| It'd help to have such a thing for future job searches.
| immigrantheart wrote:
| We should put it in list in a Github markdown file.
| [deleted]
| eyeball wrote:
| How much better is their tooling vs what you can get right out if
| aws GCP azure?
| lostdog wrote:
| The compensation model for pre-RSU startups is broken right now.
| The combination of late exits, short exercise windows, and heavy
| taxes on illiquid gains, means you can wind up deeply in the red
| as often as in the black.
|
| In my last job search all the startup founders whined about not
| being able to keep up with big company comp, but I can't justify
| giving up X00,000 RSU's for the real possibility of going deeply
| into debt. The reward structure needs to change so there's good
| chances of being rewarded.
|
| It's a shame. I love working in these tiny startups, but I can no
| longer justify it.
| tschellenbach wrote:
| Why would you go into debt? Unless you borrow to exercise your
| stock options or get hit with the alternative minimum tax?
| davedx wrote:
| Work at tiny startups as a contractor, I highly recommend it!
| All the motivation and autonomy and sense of achievement and
| none of the messy complicated risky stock option stuff :)
| [deleted]
| altdataseller wrote:
| Dont you have to constantly find new gigs because these tiny
| startups keep going out of biz?
| capableweb wrote:
| I'm kind of doing the same thing, usual stint at each of
| them range between 1-2 years, I'm fine jumping at that
| point as the company already grew too big for me to be
| comfortable. All of them are still ongoing, runways have
| been 6-12 months each time I joined.
| bombcar wrote:
| Same as if you were working for the startup directly, and
| as a contractor nobody will complain if you line up
| additional gigs on the side.
| foobiekr wrote:
| I wish someone would explain the rise of the the "everyone is
| an insider" trading windows thing. There's really no legitimate
| reason that I can come up with for the lack of proper controls
| that creates and perpetuates this situation. I imagine
| executive insiders like it for the stability it brings the
| stock, but still.
| ghaff wrote:
| The theory at least, especially at a smaller public company,
| is that a fair number of people potentially have access to
| information about things, including some feel for where
| financial results are ending up. Therefore, rather than shrug
| and tell people to use their own best judgment about their
| trading on material non-public information, you put a trading
| window in place that takes a fair bit of judgment out of it.
| R0b0t1 wrote:
| solardev wrote:
| Why would it be insane for the execs to suffer the same
| consequences as their employees? So what if they take a
| loss? They'll live.
| arcticfox wrote:
| > A good example is a telecom CEO who refused warrantless
| monitoring. He consequently sold before he lost a major
| government contract. Sadly in a case like this the only
| chance you have is shooting the people who try to arrest
| you and hoping you survive.
|
| Um, the other choice rather than murder is to just hold the
| stock until the news is public and be a slightly less rich
| telecom CEO
| N_A_T_E wrote:
| Is there a reason these companies can't award stock and have to
| stick with options?
| ska wrote:
| This actually works pretty well at the very beginning when
| the stock isn't worth anything. However, as soon as there is
| a supportable valuation, you can't just give people stock
| with a nominal value for 0.01 or whatever, which means either
| they have to buy it at "market" or you are giving them a
| taxable benefit of same. This latter is terrible because you
| are getting taxed as income with an illiquid and risky,
| locked in, asset...
|
| (All this depends on jurisdiction of course)
| phxrsg wrote:
| No reason the company cant do that, usually, but it's not
| advantageous for (most) employees. RSU comp is taxable on
| vest, but if the stock is not liquid the employee must pay
| out of pocket at each vesting event to cover the taxes.
| pjot wrote:
| Using the 83(b) election, when you're granted RSUs you are
| able to pay tax on the value at the time of grant. This can
| mitigate a lot of the pitfalls mention in the thread.
|
| Disclaimer: this is not financial advice.
|
| https://www.investopedia.com/terms/1/83b-election.asp
| nrmitchi wrote:
| By the time a company is issuing RSUs instead of options,
| the cost to pay those taxes at time of grant is likely
| out of reach for all but the most already-well-off
| employees.
| pjot wrote:
| Not necessarily - I've worked for two startups now that
| issued RSUs to early employees first, and later switched
| to an option based package.
| nrmitchi wrote:
| Your experiene may be different, but I've only even heard
| of this (RSUs before options) at the very early, pre-
| fundraising, stage. And this only works because the
| taxable value of these RSUs at grant is basically $0.
|
| I'm not sure if this approach would make sense after any
| sort of traction/fundraising.
| cgb223 wrote:
| > RSU comp is taxable on vest
|
| I'm in the job interview process right now
|
| Looking at a pre-IPO company with RSUs
|
| Does this mean that I pay taxes on those RSUs when I get
| them, _even_ if I don't sell them?
| phxrsg wrote:
| Depends on if they are set up with a double trigger. Here
| is a decent explainer, but you can research more about
| RSU double triggers that can help avoid taxes for large-
| but-private companies:
| https://www.parkworth.com/blogs/pre-ipo-tech-giants-
| using-do...
|
| What this does mean, though, is that until the second
| trigger is hit you haven't technically vested the RSUs.
| So you get around the taxation but there may be
| additional conditions on your equity.
|
| Basically - make sure you read the stock plan
| yardstick wrote:
| > So you get around the taxation
|
| And pay a lot more tax in the process, than if you were
| able to exercise early. IRS always has to have its cake
| and eat it.
| [deleted]
| jfim wrote:
| You have to pay taxes on RSU when they vest, regardless
| of whether you sell or not. It's basically considered
| cash compensation, but instead of cash you receive
| shares.
|
| Since your company is pre IPO, they _may_ have a dual
| trigger vesting schedule, where shares vest over time but
| require an actual liquidity event for you to actually
| receive the shares, giving you no tax liability while the
| company isn 't public. However, this means that once the
| company goes public, you'll have to pay all of that
| liability at once, at ordinary income tax rates.
|
| Disclaimer: not an accountant, much less your accountant,
| this is not financial advice, seek proper advice from a
| qualified professional.
| [deleted]
| hedora wrote:
| The tax rates will probably not be what most people
| consider "ordinary". In CA, the top marginal bracket is
| about 52%.
|
| If you're getting N years of windfall-level income in one
| year, some of the income is likely to be in that top
| bracket. This means that all sorts of tax stragegies you
| probably are not familiar with will kick in.
|
| For instance, it might make sense to move charitable
| contributions into that year, since the IRS will
| effectively be matching them.
|
| Also, AMT will probably kick in, so consider hiring an
| accountant.
| ambrood wrote:
| pre-IPO RSUs usually come with a double trigger. meaning
| you vest them monthly or quarterly etc but a liquidity
| event such as an IPO, is needed to actually "vest" them
| in a taxable sense.
| zaroth wrote:
| Taxed as "wages" according to the IRS even though it actually
| has no present value because it's not liquid / has no market
| / has no arms length value.
|
| "Earned income" is the absolute worst way to receive an asset
| with tax rates over 50% in some cases.
|
| The only thing worse than wages is getting an
| illiquid/unsellable and highly risky asset that _counts as
| wages_ based on a made-up valuation which the company is
| incentivized to inflate.
| ska wrote:
| I've been on both sides of that negotiating table. It's ok to
| say the role won't match a bigco compensation package, and if
| that's you priority you should probably take the bigco offer.
| An early stage startup is a fundamentally different experience,
| with pluses and minuses relative to big co's. If the +'s
| outweigh the minuses, take the job.
|
| No whining need be involved, on either side :)
|
| (Fwiw, I do think it is important for early stage startups to
| be even handed and fair on pay, but that doesn't mean you
| necessarily have to go toe to toe with the biggest offers)
| mavelikara wrote:
| > that doesn't mean you necessarily have to go toe to toe
| with the biggest offers
|
| Most startups insist that their world changing idea can be
| built only by engineers from MIT or Stanford. That is where
| the whining on both sides come from.
| MathYouF wrote:
| My philosophy is if you think they're wrong and you don't
| need those people, then they have poor judgement, and
| you're better off not working with them in that case, and
| in fact could beat them by pursuing similar goals while not
| using that strategy.
|
| And if they're right, well then what's there to be upset
| about?
| lostdog wrote:
| The problem is that the expected value of the equity itself
| is negative in the current environment.
|
| If the tradeoff were to give up some guaranteed money for a
| low shot at a big payoff, then that would be a reasonable
| tradeoff! But right now it's prohibitively expensive to
| exercise.
|
| I'm surprised that YC doesn't lobby to fix the tax code so
| startup's can attract experienced people, but maybe YC is
| just about supporting founders, and there still enough
| employees willing to take a bad deal and work at an early
| stage startup.
| ska wrote:
| I should have been clearer. I'm saying it is ok that the
| expected comp is lower. If the other things add up for you,
| it's not necessarily a bad deal. (But it can be, you have
| to evaluate with clear eyes)
|
| Another way of thinking about this: developers aren't
| really fungible , neither are roles.
| mobileexpert wrote:
| Secondary sales and secondary sales rights generally impoverish
| the common engineer versus founders and exec management. It is
| extremely rare to find a scale-up that has had secondaries that
| put non-founder non-execs on equal footing. So sadly it is just
| business as usual in our industry.
| gigatexal wrote:
| I'd be livid, too. Torch the founders and the mgmt team.
| kitanata wrote:
| I recently left DataRobot to join another company. I was there a
| little over a year so I don't have much stake in this
| controversy. There are a lot of good people at DataRobot but I've
| seen quite a bit of turmoil in my short tenure there. I hope they
| are able to get through it and survive.
| jwsteigerwalt wrote:
| Don't be a sucker. Either get paid or get real assets that have a
| real likelihood of ending up liquid and worth something.
|
| Corporate governance matters, startup/vc arrangements are
| inherently tilted toward the execs, founders and external
| financiers, but there is a burden on the employee to understand
| what your getting into. If your smart enough to work for one of
| these, your smart enough to learn the basics of corporate equity
| law.
| hengestone wrote:
| Data point fwiw: the company I work for SOLD me some of their
| shares when I joined. I.e. not a grant. The company owns options
| to buy back the shares on the usual schedule of a cliff after one
| year, then monthly for 4 years. So no tax consequences until I
| sell the shares and pay capital gains. The caveat is that the
| valuation that they sold the shares at must be well below their
| last raise for it to make sense for me to buy the shares. So it
| only really works for early stage companies. After this early
| stage is over, selling me actual options works better.
| FreakLegion wrote:
| It was most likely a grant with early exercise:
| https://www.cooleygo.com/early-exercisable-stock-options-wha...
|
| Any company claiming to be employee-friendly should offer this
| while its 409A valuation is low. 10-year exercise windows take
| care of the people who come later and should also be standard
| at this point.
| lbotos wrote:
| So, they had 1000 shares, and said "if you pay $1000 (1/share)
| that these shares are now yours?
|
| If so, and there is a gap between what you paid, and what your
| 409a says the value of the shares at purchase time, you owe tax
| on the difference, now.
|
| And you are saying that the company also has an options
| contract to buy back those shares? why?
|
| It feels like either this company is trying some advanced
| scenario with a bit of risk, or doesn't actually understand the
| value of options.
|
| Why go through all of that when they could just give you
| options?
| hellcow wrote:
| This is what's typically done for founders--it's called
| reverse vesting where the company gradually loses the right
| to repurchase them over time. Generally this is done when the
| company is new, pre-409a.
|
| There's nice tax advantages to this approach if you make an
| 83b election since the shares start counting toward long-term
| capital gains immediately.
| lbotos wrote:
| Thanks! That does make a lot of sense for founders, but OP
| mentioned "the company sold him shares" which leads me to
| some sort of weird pseudo options thing. Hoping they can
| clear that up so I can understand more.
|
| Reverse vesting seems way more straightforward: you sign,
| you get equity immediately, company can take back any at
| agreed upon price at whatever intervals defined in the
| contract.
| ska wrote:
| Right, and it avoids some tax issues later as you have
| owned and held them since you started (jurisdiction
| dependent).
|
| Reverse vesting is pretty common for founding employees,
| or near then, also, ime. The only problem is if the share
| value isn't justifiable very low, it can be too
| expensive.
|
| The moment you raise any significant amount , the implied
| valuation may make this impractical.
| ChrisMarshallNY wrote:
| Here's a fairly good Boston Globe article on the company:
| https://www.bostonglobe.com/2022/07/13/business/once-heralde...
| mavelikara wrote:
| https://archive.ph/DrYES
| hash872 wrote:
| Can I ask two dumb questions though? If DataRobot is doing so
| poorly- why did investors want to purchase the executives'
| shares? Presumably they are sophisticated investors and had a
| look at the company books, etc.
|
| So let's say they liked what they say, and it made sense for them
| to purchase a certain amount of DataRobot shares. If that's the
| case- why not let the employees sell to the investors too? If
| there's a pool of investors who are willing to purchase X number
| of shares at Y value, presumably either they or other investors
| would like to purchase 3X number of shares.... Wouldn't this be
| win-win, the employees can sell if they like, and the investors
| can buy if they'd like? Why not allow that too?
| phphphphp wrote:
| Executives are incentivised to liquidate as soon as possible
| because unrealised gains in a startup are very risky.
| Executives are disincentivised from allowing employees to
| liquidate because the illiquid nature of the stock is a large
| part of what keeps the employees working at the company.
|
| This happened in 2021, anyone will buy anything when the market
| is doing well. DataRobot is doing badly by 2022 standards, by
| 2021 standards it was a great investment simply by virtue of
| being an investment -- it's hard to overstate how absolutely
| batshit the private market was in 20/21.
| ska wrote:
| It may have been smarter to do this.
|
| In general letting any earlier equity holders into a round
| effectively reduces the amount of cash you end up with, so
| there is no reason to do it except keeping those equity holders
| happy. It's also a bit harder to manage with a bunch of smaller
| blocks, but you can pool this easily enough.
|
| It's always going to be a balance, but it might have been
| better to allow anyone to include a small percent of vested
| stock in the round (to the same total amount ) rather than just
| let execs cash out.
| adrr wrote:
| Employees can sell to the investor. I don't think investors
| want to manage 100+ stock sales including sending in tax forms
| etc. There are active secondary market to sell shares in
| private companies.
| marcinzm wrote:
| >There are active secondary market to sell shares in private
| companies.
|
| Some startups make is harder by having a clause of first
| refusal for selling stock.
| adrr wrote:
| First right refusal just gives the company/current
| investors first dibs at any potential stock sale.
| marcinzm wrote:
| Sure and that means investors are much less likely to buy
| the stock. They go through all the effort and then if
| it's a good deal someone else buys it instead. Some
| secondary markets will outright refuse to deal with
| shares that have such clauses.
| ska wrote:
| Some have no secondary sale clauses too. Depending where
| you are they may not be enforceable. Or you any have got
| RSU's that aren't saleable the way anyhow.
|
| For very small/early startups, there may not be an
| effective secondary market at all, let alone permission
| to participate in a raise.
| nathanvanfleet wrote:
| This is a real "why did the scorpion sting me?" sort of
| question
| atwood22 wrote:
| Because this was a decision made by the executive team to cash
| out their own shares? If they let employees sell, then the
| executives could sell fewer shares. Isn't that obvious?
| 11101010001100 wrote:
| Loyalty is near akin to naivety in the game 'Capitalism 2.0'.
| anewpersonality wrote:
| Can someone tldr what happened
|
| I dont have sympathy for someone who took out huge loans
| expecting to make bank but didn't.
| rl1987 wrote:
| Common wisdom is that startup equity is merely a bunch of
| lottery tickets due to odds being systematically against
| employees becoming rich from that, despite founders and upper
| management talking otherwise. Unsurprisingly, some people lost
| the lottery.
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