{ "media_type": "text", "post_content": "What’s ISO? Recruiter says it’s better than RSU but I’m trying to do my own research.", "post_id": "614e0e40570041001dc1808e", "reply_count": 7, "vote_count": 1, "bowl_id": "55375ce690f5eebe1d2a0f88", "bowl_name": "Tech" }

What’s ISO? Recruiter says it’s better than RSU but I’m trying to do my own research.

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You have to pay for ISOs, but it’s discounted from the trading price when the option to buy the ISO is granted. Pre-IPO is dangerous territory. As far as offers go, private equity generally is worthless until it’s public, either via IPO or acquisition. Generally speaking I don’t consider the of private equity when considering an offer. In terms of acquisitions, typically there is an agreed ratio of old company equity to new company equity when the company is acquired. Again as an example, company A, who has stock trading at $10 acquired company B, who, at last valuation, had their private equity valued at $2/share. If you own 5 shares at the time of acquisition, you’ll automatically be given 1 share of company A in return for your 5 shares of company B. As an aside, this typically bends in favor of company B stock - someone with only 4 shares of B stock ($8) might get 1 A stock ($10). In my own experience, as well as friends experiences, I’ve never heard a story of trading private stock for an acquirers stock and losing money.

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Thank you! This is soooo helpful. fbThanks!

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Incentive stock options. They are exempt from a lot of withholding

ISOs are better than RSUs tax-wise. Let’s say the stock is trading at $10 now, and $12 at year end. When you exercise the ISO, you’ll pay $8, and your $4 profit will be taxed at the (lower) capital gains rate (assuming you immediately sell). With an RSU, you’ll be granted 4 shares now ($40) and 1 share vests each year. In year 1, you’ll get 1 share, get taxed at the (higher) ordinary income rate for the grant price ($10), and the (lower) capital gains rate for the profit ($2), again, assuming you sell immediately. Simply put, ISOs are much more tax advantageous, but typically the amount of RSUs companies offer is so much greater than the amount of ISOs offered, it makes the tax incentives negligible in comparison.

Ok. This is for a pre-IPO startup that just came off stealth. Let’s see what the number is. Would I have to buy these stocks or are they granted? (I’ll ask the recruiter this naturally) what happens if the company is acquired?

They're better than RSUs but still pretty much worthless during the pre-IPO stage. They COULD become worth something. They could also not become worth something... It's always such a gamble.

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