We started Compound after seeing way too many of our friends get screwed over by startup equity.
You hear the story often: wide-eyed engineer accepts an offer and 100,000 options from an exciting startup. Woohoo! Suddenly you must make what may turn out to be the most important financial decision of your life, whether you know it yet or not: should you exercise your options?
The answer to this question depends upon many nuanced factors. Does the company allow for early exercising? If not, how long should you wait to exercise your options? When will you owe taxes? What is the Alternative Minimum Tax? How long is the exercise window if you cease employment? Will you ever qualify for the QSBS tax exemption? Will this be a qualifying disposition? Does your...wait...could you have negotiated for more equity? Do you really believe in the company? Should you even be working at an early-stage startup that you do not believe in?
Equity is really confusing. There is no one-size-fits-all solution. However, your equity is a crucial part of your compensation and is worth being scrutinized as such. Many people miss out on significant upside because they fail to familiarize themselves with key terms before it is too late.
There are 300-page books written on options but _nothing_ is personalized. Large financial institutions won’t talk to you unless you have millions of dollars in liquid assets. To make things worse, most companies do a terrible job of helping their candidates and employees understand the value of their equity. What does 100,000 options even mean? HR teams are frequently asked about equity-and tax-related matters from their employees and are forbidden from sharing useful, true things.
Jacob and I got really interested in these problems during our final year of university. We read books, consumed the entire tax code, and talked with dozens of experts. We became the de facto equity resource in our circles and helped hundreds of people with everything from negotiating offers to exercising options. This led to the start of Compound.
Over the years, there have been many proposals to fix equity compensation. There is no obvious simple answer. What is clear is that today’s system will eventually break. We are hoping Compound plays a role in the solution.
Compound is entirely focused on helping you—the employee—understand and manage your equity. We provide forecasting tools that show you how much your equity is worth, display tax implications (AMT exposure, capital gains), and model exit scenarios. We help you understand the value of your equity to make more informed exercise decisions. For the HN community, we are offering free informational consultations at (https://withcompound.com/?ref=hn)
We also encourage companies to adopt more employee-friendly equity procedures and policies. We build tools, like fair offer-letter templates and internal equity dashboards, to promote transparency within companies. If your team is interested, please send me an email to [email protected].
In the future, Compound will earn revenue by offering financial products. We are still hammering out these details—our mission is to help employees maximize their upsides by democratizing access to financial services currently reserved for the super-rich (tax planning, advisory, bespoke investment offerings, concierge services, etc.).
We will be releasing more guides around this topic in the near future and would really appreciate your feedback and requests. Eager to hear about HN users’ experiences, ideas, and know there is a ton of expertise among the community to learn from. Happy to answer any questions in the comments or via email [email protected]. Thanks!
by Andrey
Azimov