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Understanding your options, with your stock options

(originally posted on here)

Who should read this?

I wrote this for anyone who finds themselves confused by the thought of trying to understand their stock options. Generally, this is for the Silicon Valley startup employee granted ISO’s (Incentive Stock Options)as part of their compensation package and who smiles and nods uncomfortably when someone asks them if they’ve got “stock”. Hello there.

Written by your average Software Engineer, in plain English, I’ll try to cover the very basics and terminology that I believe every startup employee should know. This will not cover tax preparation, specific tax scenarios, nor will it include any specific planning or investment advice. As a necessary disclaimer:

I am not a tax professional, I just find this stuff fascinating. This is merely a brain dump of my personal experience / research on the topic over the last 5-6 years. Take everything I say here with a huge block of Himalayan Salt. I highly encourage the reader to seek professional tax advice in addition to doing their own extensive research.

The Basic Strategy

Best case scenario: You were GRANTED stock options after joining a hot new tech startup, congrats! The grant itself is the long jargony paperwork you signed shortly after joining, which details everything you were offered. The OPTIONS are a compensation agreement, between you and your company, to the rights to purchase partial ownership of the company in the form of SHARES/STOCK. It’s worth understanding that you don’t own anything yet, an option (taken literally) is nothing more than the opportunity to own in the future. As time goes on, you will VEST your options, meaning more and more of your total grant will be available to act upon over time. Vesting, and vesting schedules, are generally an incentive for you to stay at a company for a long time. At some point, you may choose to EXERCISE your options, more specifically purchase some shares. The act of “exercising your options” means that you are agreeing to purchase a portion of the stock your company reserved for you. You hand over some money to your company and are now in possession of company stock. Congrats, you are a shareholder! Some time passes and you decide to SELL the shares you own. You find a buyer, they give you money, and the shares no longer belong to you. The general life cycle looks like this:

Grant ⇨ Vest ⇨ Exercise ⇨ Sell

What exactly do I have?

It is impossible to start talking about your options unless you know certain critical pieces of information. This is information that you should have probably known before joining a company, but if you don’t, that is OK. This information is available in your stock plan and from your company. This is information you should have seen when you signed your initial grant paperwork. If you haven’t seen/signed it, then you don’t have any options yet.

  • Option Type*: ISO vs NSO vs RSU
  • Vesting Start Date: Often the day you join
  • Vesting Schedule: Commonly 4 year vest, 1 year minimum (aka “cliff”)
  • Option Shares: How many options were you given?
  • Strike Price: What is your exercise price per share?
  • FMV: Fair market value, how much is the stock worth right now?

*Incentive Stock Options, Non-(statutory/qualified) Stock Options, Restricted Stock Units

You are entitled to, and should know all of the above bits of information. If you are missing even one of those bullets, something is wrong, go ask your employer to clarify. Go now, I’ll wait.

What are my options… with my options?

Many people don’t appreciate the value of having Incentive Stock Options. A lot of people join a company, find out they have stock options and say: “Great! … so what?” (Heck, I’ve been guilty of doing this twice!). ISO’s can only be granted to employees of the company and have some wonderful preferential tax treatment. You are given the access to a very scarce resource, namely the option for shares in a private company. Once given these options it is your responsibility to do something with them, and no one else’s. I’ve heard many people vent frustration that their employer/coworker/boss didn’t tell them more, but it is not their responsibility to do so – in fact an employer can face significant legal problems if they were to give you unsound tax advice, or even sound advice that just didn’t work out favorably for you. A smart employer will give you the minimum legal amount of information possible. It is up to you (hopefully with the aid of a tax person) to take appropriate actions with your options.

Generally speaking, the things you can do with your options include: do nothing, exercise, sell, forfeit

Do nothing

Many people do absolutely nothing with their stock options. Sometimes it’s because it’s part of their investment strategy, though usually this happens because people aren’t entirely sure what they can do. It is perfectly within your rights to do nothing at all. Your stock options will remain yours as long as you are employed at the company. Doing nothing (with ISOs) will not create a new tax liability, however it could significantly complicate your taxes and the flexibility with your options in the future. Specifically, acting too late could make it financially difficult to leave your company without giving up your options (due to the potentially large tax burden). On the other hand, doing nothing minimizes any personal financial risk in the more common case when a startup fails. Since, on average, most startups do not achieve financial success, doing nothing actually works out to be the most “profitable” choice.


At some point you purchase some of your options. You can freely exercise any amount of stock that you’ve vested to date, even if your company is not public yet. You can actually exercise before vesting, but that’s a more advanced topic to be researched elsewhere. After exercising, you could leave your company and take your shares with you. You could hold onto these shares for as long as you want and do what you please with them (in accordance with your shareholder’s agreement). You could purchase some of your shares and happily stay with your company. I personally exercised, printed a copy of my stock certificate and put it on my wall, *shrug*. Holding onto your shares is an investment. By doing so you are hoping that the value increases so that you can sell at some future date and hopefully make a profit.

Exercising ISO’s will not create a regular income tax liability HOWEVER! *record scratch + KILL BILL siren* it may (and likely will) create an AMT liability. AMT: the alternative minimum tax. Learn that acronym, hate that acronym, love that acronym – please talk to your tax person about that acronym. If you aren’t familiar with AMT, familiarize yourself with it elsewhere. One of the most common and dangerous mistakes people make is exercising their ISO’s and assuming they don’t owe any taxes. Exercising options creates some personal financial risk on the employee, but opens the door to much favorable tax implications down the road if the startup is successful.


At some point you choose to sell some of your stock. Remember, you can only sell what you’ve previously exercised. Perhaps you don’t like the idea of long term investments. Perhaps you need/want some cash immediately. Some people do what is known as a “same day sale”, in which they exercise and immediately sell their stock to another buyer. Selling shares requires you to exercise some vested options (previously or as part of the transaction), then find a buyer willing to pay a hopefully favorable price to take them off your hands. Specific details of the liquidity of your stock prior to your company going public will be documented in your shareholder’s agreement.

If you are selling your exercised stock options, you will again have a potential tax liability. Depending on how long you’ve held your exercised options before the sale, any profit made from the sale will be taxed as either regular income (if held for less than a year) or as long term capital gains (if held for over a year, and 2 years after grant). This last point (in profitable situations) is where one employee could potentially save thousands on taxes compared to their coworker who didn’t plan for this event.


Surprisingly, this happens more often than not. If you leave a company before you are fully vested, you will be giving up those unvested options. Additionally, when you leave, you will be giving up any un-exercised options, recall that you don’t own stock until you actually exercise your options. Many people don’t even realize they’ll be forfeiting their options when they leave a company. Again, this is completely on the employee to realize, understand and act upon. In accordance with your stock option plan, you will probably have around 90 days from leaving your company to exercise options before they disappear. It isn’t uncommon to electively forfeit options because of the significant financial risk it could place on the employee. An ISO exercise requires the option holder to pay out of pocket for their options and also suffer a potentially large AMT tax liability.


Startup stock options can be a very lucrative and profitable bet if you fully understand what you are getting yourself into. If you were granted incentive stock options, the ball is now in your court to educate yourself further on what it all means, and how to act on your options. Once again, it is not the responsibility of your employer to tell you what to do. I do believe that every person who possesses stock options should fully understand what their choices are and have a surface level understanding of the tax implications behind each choice. I hope the reader is now comfortable enough with the basic terms/process so they can learn more, talk with their friends/coworkers/tax professionals confidently, as they make their own preparations on how they want to play the game.

Choose wisely, and good luck!


The simplest design principles can go a long, long way. Start small, then grow from there. Let’s not over complicate things, or forget what we are really trying to build. I took a quick look at some of my favourite companies from around the web, and saw a whole lotta CRUD.

Which is your favourite crud, which did I miss?


I’ve been experimenting recently with a bunch of cool photosharing apps on my iPhone including: Path, With, Twitter, Facebook, Denwen, Color, Dailybooth… (takes breath). As much as I enjoy each one in their own unique way, none of them (yet) are able to capture the true feeling or ambiance of a particular situation, though Path is probably the closest. To be fair, most of these apps were not designed to do such. I’ve always found that regular photos (camera phone for instance) can decently capture a moment, but they often come off as rather 1-dimensional (figuratively speaking). So as an experiment, I documented ~72hours of my life by taking panoramic photos along the way. Below are shots of where I found myself wandering to over the last 3 days. For me, these wider photos do justice to some of the lovely views I get to see on a daily basis.

I am not a photographer, these are far from perfect, but I think they do a great job of giving the viewer a sense of where I was and what I experiencing. I recall reading that the switch for TV’s from 4:3 to 16:9 ratio was to make a more natural aspect ratio for the human eye. Well, even at 16:9 (which might approximate my eye’s static view), I often tend to move my head left/right, so hopefully these wide/POV shots are more emmersive. Lastly, I have to tip my hat to the team who made PanoApp, a great $2 iPhone app that does all the stitching work for you. Go download it and post stuff.

Anyway, here is 72 hours exploring in SF. This is not realtime, this is not broad casted/narrow casted, this is not person tagged nor is it geo tagged. Just some simple photos I thought some people might enjoy.

SOMA: The view from my desk at work, I have never used the monitor on the right

SOMA: Every Friday at TwitterHQ, teatime with drinks, live music and serious QA... I'm holding 2 beers.

SOMA: Walking over Howard St on the Yerba Buena bridge. I'm listening to Metric.

Embarcadero: My Thursday poker game with some of the nicest guys in town, though I'm about to lose a big pot

Union Square: The Powell BART station, heading out for food. I'm craving Chinese food

SOMA: Chatting with my coworker @alan about my panorama experiment. The pano is so meta.

Nob Hill: The top of the hill, just a few blocks from my apartment. Choice: Russian Hill ahead, China town the the right

Russian Hill: One of the steepest/funniest hills in the city. I'm thinking about tipping a car over (Broadway/Jones)

Russian Hill: Relaxing at one of my favorite "hidden" spots in the city. A random dog sits down beside me to enjoy the view

Dolores Park: Tons of people enjoying the nice weather. I'm wearing my pink sunglasses to fit in

Mission: The Summit cafe, a new but prototypical cool/geeky tech hangout with great coffee. I'm holding a fancy Cappuccino

The Marina: You can see the Golden Gate to the left, and Alcatraz to the right. It is really windy

Union Square: Tons of tourists lining up for the Cable Car and enjoying some local street performers

Mission: 16th St. BART, a shot of me going home after a long day of wandering. photo by @moizsyed

We see thousands if not millions of moments just like these on a day to day basis. Hopefully I’ll remember to stop and capture a few of them for me to revisit and share in the future. On a closing note:

I am always interested in looking at large sets of data. Earlier today, LinkedIn released InMaps which provide a simple tool for visualizing one’s network on LinkedIn.  After a few seconds of processing, I was presented with this colorful and interactive visualization of the ~200 connections I have on LinkedIn. Now I don’t have quite as many connections as others, but I was still very impressed with the powerful bits of information I was able to quickly get out of this graph. The plotting algorithm did a pretty good job, as I see 3 major clusters which are composed of my University of Toronto connections, the connections I made at my previous startup Thoora, and the connections I have made (mostly coworkers) since I moved to San Francisco for Twitter.

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I recently received a Wacom tablet+stylus as a gift and could think of no one else to draw for my first sketch but Alan Turing. This is a 4 layer Photoshop trace atop a famous photo of one of my favorite historical scientists. I figured it could be a late tribute to one of the guys who started it all. On this day (November 28) in 1942, Alan Turing was sending a report from Washington, D.C. describing his 2 week tour of America and their code breaking efforts for WW2. I’ve always appreciated his subtle humor and lingering disappointment in his writing/dialogues, this report is no exception. Always up for a challenge, and (seemingly) rarely impressed or satisfied; breaking German encryption codes and theorizing the modern computer wasn’t bad for a 30 year old math geek from West London.

“I’d say we have come a long way since Zygalski sheets and Hut 8 in Blechley Park, Alan.  Don’t forget to thank Welchman for that diagonal board.  R.I.P.”

Above is an overlay of every (CrunchBase listed) startup in San Francisco.  In an afternoon hack, me, @alan and @thetylerhayes scrapped the crunchbase API then mashed it into Google Maps to get an interesting view of the city.  I am always amazed at the amount of startup culture in this city (hence I moved here), but never had a chance to really see it from this perspective.  My office and apartment are somewhere buried underneath one of those pins.  I’ll try to put up a more interactive version of this chart sooner than later.

As a summary, this post outlines some good-to-know things for any Canadian software developer thinking about moving to the US to work.

Pretty bizarre tutorial no?  But after going through this experience (just shy of 2 months ago) I realized that there are a lot of things I wish I had done / known before.  A recent visit from a friend from Toronto had me thinking that others may benefit from a post like this.  This info is specific to San Francisco, however I am sure it applies to many other cities.  I have to thank @bentlegen and @shazow for the advice I got while moving in, I intend to pass the baton.  For a great post on how to decide where to work (if you are fortunate enough to have options), checkout @shazow’s post on: A check list while considering offers.  This post outlines all sorts of issues I ran into, feel free to skip ahead to the parts you might find useful.  I will cover things like: getting a visa, finding a place to live, and how to efficiently spend your first week in the city.  As a disclaimer for all the immigration advice, this is just through my experience.  I am not an immigration lawyer and if you have specific questions, I suggest you consult one.

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The infamous TN1-VISA: Its like Willy Wonka’s golden ticket, except this one lets me legally work in the US.  I took this photo 5 minutes after walking out of the US customs office in YYZ

(for tips on what to do/expect when making the move yourself, checkout my other post here)

I recently moved from my home town of Toronto, Canada to downtown San Francisco.  A lot of people have asked me why I moved (other than the job) so I thought I’d write a quick post about my move.  Over the next few months I will also be publishing weekly (hopefully) updates about my journey into the heart of the tech world.
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I always feel uncomfortable taking photos in airports

I often (wrongfully) ignore great examples of UI design outside the computer world.  While making a connecting flight in Vancouver, I stopped to take a picture of this (in my opinion) great “User Interface”.  It reminded me of Tufte’s Envisioning Information, although I’m sure there are many other books which better exemplify this point, maybe this one.

I am always reminded of an interview question a friend had a few years ago while interviewing for a PM position at Microsoft: “Design a information kiosk assuming that your target demographic is illiterate.” That’s a cool problem that I think a lot of people freeze on.  It opens up so many ways of exploring perceptual psychology and visual affordances, and generally brings up some great design questions.

The above sign is printed in English and French (Canada’s official languages), Chinese (likely due to the large amount of Chinese visitors and immigrants going through Vancouver) and some visual queues for everyone else.  But realistically, the visual queues are the main focus, and the labels are just supplementary information.  An arrow showing which direction to walk, the picture of a man traveling, the Canadian flag, signifying domestic, and a green light… which to be honest Im not sure what means, but lets me know that going this way is good.

Does your application’s or website’s UI communicate well to your users?  Do you rely too heavily on English labels?  Do you rely too heavily on icons?  Does your website pass the blur test (now that green circle makes sense)?  I won’t open the debate of icons vs. labels, or even the discussion about Realism in UI design, I am just thinking aloud.

An interesting thought, which stuck me while passing by this lonely sign in the Vancouver airport .

Update: For a very interesting and thorough breakdown of this idea in field, check out this great article on SmashingMagazine:

I love the color pink/purple - I change my syntax highlighting colors so that I comment more...

One day, a software developer was walking down the street and came across a large pill of dog shit.  He bent down to get a closer look and said to himself “yep, that looks like shit”.  He then gave it a sniff, and said “Yep, that smells like shit”.  He then put his finger in it, and said “Yep, this feels like shit”.  Finally he did the unthinkable and tasted his finger and happily said: “Oh yeah, that tastes like shit…”.  He then walked away satisfied, and said out loud:

“That was definitely dog shit.  Good thing I didn’t step in it!”

An old joke which I managed to re-arrange and fit into my experiences with software.  Sometimes you have to taste the shit to avoid stepping in it. Don’t look too deeply into the metaphor.  Testing is hard, not everyone wants to do it, but it is your duty to prepare for and handle the worst, so your customers don’t need to.  I guess there is a hidden message about thoroughness too.