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Comment by ChuckMcM | Hacker News Reader

They had a pretty large participating contribution (50M shares as I recall) so that is a bunch of money that paid off some folks who might have been skittish.

I was surprised to see as large a bounce as there was. And it has no doubt realigned the world view of a bunch of Snapchat employees[1].

To your last point I can't imagine they are going to talk earnings in a GAAP context unless they are generating lots of free cash flow as Google does.

[1] If you're an employee and reading this and thinking "I'm rich! Quick go buy a Lamborghini!" I caution you to wait until you've not only exercised the shares and paid tax on them, but you have sold the shares and that sale has 'settled' and you have the money in your brokerage account.

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Yup, solid advice re: waiting. Generally, I've heard it as "don't do anything drastic with the money for a year". That gives enough time to let the emotions cool down.

It's not even just the emotions. The money isn't real until it settles.

And you owe taxes on it, regardless. I heard some sob stories from the brokers at Charles Schwab after Enron went under - energy traders who had borrowed heavily (on margin) against positions that were now worthless. Oy.

Yes, "wait a year" fixes most of these problems.

Well no, it depends on what you are waiting on.

Some of the worst horror stories are from people that exercised their options and then waited a year to sell the stock to qualify for long term capital gains. Then the stock subsequently crashed so they owed a massive AMT tax for the difference between strike price and price on exercise and got almost nothing from the actual stock sale.

Better to have a huge AMT tax bill than a huge AMT tax bill and a $2000/month Lamborghini payment.

You are talking past hueving. The huge AMT tax bill could literally follow you around the rest of your life. It is a much higher order problem than blowing money on a car. The last several years I have had 7-figure tax bills due to AMT calculations on options. Good problem, right? Maybe, maybe not. If I had exercised and held, I would be bankrupt. Instead I exercised, sold enough to pay taxes right then, and didn't get hosed when the stock dropped steadily just before every open trading window. I also didn't buy a Lamborghini, but that's beside the point.

I guess I'm trying to say "wait a year... after actually having the cash in hand". But yeah, AMT sucks.

US tax law is bonkers

A consumption tax solves it. Someone buys a Lamborghini, they pay tax on it. They save the money, they pay nothing. But taxation is power, government can play favorites by using tax laws to reward contributors.

Consumption taxes are regressive and disproportionately hit the poor (who spend all their money) much more than the rich (who save most of it).

exactly this.

> They had a pretty large participating contribution (50M shares as I recall) so that is a bunch of money that paid off some folks who might have been skittish.

Could you explain what this means a little more? What is a participating contribution in this context? Are these shares employees were able to sell in the IPO?

The s1 listed 50m shares as coming from existing share holders but they did not break it out. Usually that is employees with vested shares and occasionally other investors. Was more common in the dot com IPO's but Zynga did that too as I recall

Ah ok, so the company makes an exception to the lockup period for IPO participation? How do they typically decide who gets to participate?

Its a negotiation that happens with the bank that is taking the company public. They are trading off the 'optics' of a bunch of people selling their stake at the IPO vs value. The lockup period for executive (officers) and non-officers is also negotiated.

The bankers want to strike a balance between employees (especially officers) who have concerns about being whipsawed with the stock price and the perception that they feel the company will grow in value over time so holding the stock is a "good" investment.

It's not an exception to the lockup, they are sold as part of the IPO. It's like taking money off the table in a VC round. Broadly speaking shares can come from three places when they are sold: new, which causes dilution, allocated but not granted, which is where the majority of employee grants come from, and finally vested ownership that is held by individuals. An IPO will have some mix of the latter two almost always. The relative proportion signals how bullish the insiders are to future prospects for the stock.

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