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Speaker 1: Afro Tech San Francisco, California. Eric Moore, managing direct Draft

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Speaker 1: based Ventures, is in an afro tech founder and investors

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Speaker 1: line was taking questions about how to successfully pitch a

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Speaker 1: VC and he offers some words of wisdom for new

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Speaker 1: founders looking to raise an early seed round. Don't come

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Speaker 1: to an investor without some sort of product. I mean,

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Speaker 1: these days, it doesn't take that much money to build

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Speaker 1: a product. And if you don't have the money, you

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Speaker 1: can probably find or theoretically you should be able to

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Speaker 1: find an engineer that can help you build a product. Uh.

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Speaker 1: And then so even if it's an m v P uh,

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Speaker 1: you know, a minimum viable product or the alpha version

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Speaker 1: of what you're building. Uh, it's gonna be a lot

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Speaker 1: more helpful and you will stand out that much more

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Speaker 1: if you have that already built before approaching a potential investor.

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Speaker 1: I'm well, Luke, it's Mrs Black Tech, Green Money. I

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Speaker 1: wanta introduce you to some of the biggest names, some

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Speaker 1: of the brightest minds and brilliant ideas. If you're black

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Speaker 1: in building or simply using tech to secure your back,

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Speaker 1: this podcast is for you. Malcolm meth Bridge is a

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Speaker 1: certified financial planner, speaker and bloggers in these areas of

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Speaker 1: expertise and glue retirement planning, investment, portfolio development, tax planning

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Speaker 1: and insurance, stock options, and other executive benefense. He leverages

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Speaker 1: that expertise to help senior managers and tach workers make

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Speaker 1: sense of some of the most complex financial situations that

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Speaker 1: working professionals tend to face. On a recent lunch table

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Speaker 1: live discussion, what You're about to Hear, I asked Malcolm

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Speaker 1: about what exactly equity is and if there are any

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Speaker 1: unique traits of equity when you work for a tech startup. Yes. So,

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Speaker 1: so equity camp used to be unique to the tech industry.

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Speaker 1: I'm I'm learning as time goes on that millennial specifically, right,

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Speaker 1: we got folks who are twenty eight, thirty thirty, two

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Speaker 1: thirty five, let's say twenty to thirty five. I'll give

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Speaker 1: us the window who are working for companies right now

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Speaker 1: who maybe aren't in tech, but they have uh friends

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Speaker 1: who are, and they're seeing the money that their friends

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Speaker 1: are making and the fortunes that are being created from

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Speaker 1: owning equity in the company that they work for, and

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Speaker 1: so they're starting to demand themselves regardless of what the

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Speaker 1: shop is that the company pay them in equity. So

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Speaker 1: a lot of companies outside of the text Fear are

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Speaker 1: also jumping on the bandwagon now and offering that, but

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Speaker 1: in Silicon Valley, right, I'll use Silicon Valley as the

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Speaker 1: general broad right, uh grouping, even though folks in tech

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Speaker 1: are working in Texas and Florida and god knows where

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Speaker 1: else at this point. But like it used to be

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Speaker 1: that that was something that was reserved for those people

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Speaker 1: in Silicon Valley in tech companies, and they refused to

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Speaker 1: work for a company they didn't offer them a piece

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Speaker 1: of the pie, right, And so I want to own

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Speaker 1: a piece of the work product that I am hoping

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Speaker 1: to create. I saw and all these agreements when I

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Speaker 1: come in the door. Let's say I can't take any

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Speaker 1: of the work product with me, right, if I create

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Speaker 1: some service or some features some app. Google lets you

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Speaker 1: do your ten percent time. Right, if I create Google

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Speaker 1: Maps or Gmail during my ten percent time, I can't

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Speaker 1: take that with me. Google owns it. But at least

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Speaker 1: I get to participate in the upside and the value

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Speaker 1: creation that that add on I created happens to generate

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Speaker 1: over time. By owning equity in the shop, and so

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Speaker 1: it's kind of you know, everybody's happy right on both sides.

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Speaker 1: When when you say, let's say I created a feature

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Speaker 1: in email and I work for Google, and let's not

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Speaker 1: just leave its Google. Let's say any startle I create

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Speaker 1: a feature that becomes a thing. How valuable could that be?

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Speaker 1: You know, both to the company and to me as

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Speaker 1: an individual who's on the payroll here, Like, how talk?

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Speaker 1: Can you talk about some instances where that could actually

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Speaker 1: provide a serious windfall? Oh my god? Yeah, So I'll

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Speaker 1: give you a real specific, if example. I won't give

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Speaker 1: too many details to to not tell anybody's life story

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Speaker 1: for them, But I happen to have a client who

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Speaker 1: worked for a coin base for a while, right we

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Speaker 1: all know coin based iPod recently and uh two big

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Speaker 1: acclaim right on on day one. I can't remember what

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Speaker 1: the starting price was supposed to be, something like forty bucks,

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Speaker 1: and it shot all the way up to like close

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Speaker 1: to three hundred on on this first day of trading.

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Speaker 1: So this particular person, his net worth was about a

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Speaker 1: hundred thousand dollars before coin based I p O coin

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Speaker 1: based I p O s and he's now an eight

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Speaker 1: millionaire so like, just think about like how life changing

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Speaker 1: that money is for somebody in their thirties who like,

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Speaker 1: had student loans, Suddenly they don't, didn't own a home,

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Speaker 1: suddenly they do. Didn't even have the word legacy anywhere

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Speaker 1: close to the tip of their tongue, and now they do. Right. So, like,

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Speaker 1: those kind of things are what happens from being that

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Speaker 1: close to value creation. So the rule, I won't call

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Speaker 1: it a rule, but one of the things I always

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Speaker 1: tell people who are like, you know, I want to

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Speaker 1: get rich, right, I want to work and get rich.

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Speaker 1: You can save your way to about two to three

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Speaker 1: million dollars over the course of a thirty five or

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Speaker 1: so year career by diligently saving, not spending anything crazy.

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Speaker 1: Like I've seen it happen to have clients that are

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Speaker 1: in their sixties now, they've been working really hard, they

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Speaker 1: command a high salary, they don't spend anything crazy, and

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Speaker 1: they have about two and a half to three million

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Speaker 1: dollars that they've saved over time doing it. The quote

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Speaker 1: unquote right way you want to go beyond that three

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Speaker 1: million dollar threshold, you're either gonna have to be attached

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Speaker 1: to some sort of value creation, right. So you're one

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Speaker 1: of the first employees at a company that ends up

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Speaker 1: doing something big, or you're gonna have to do it

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Speaker 1: in real estate by holding onto assets for a very

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Speaker 1: long time and allowing them to appreciate until one day

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Speaker 1: you look up and on paper you're worth a time

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Speaker 1: and you start liquidating that stuff. Those are the two

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Speaker 1: ways that I personally have seen where clients have like

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Speaker 1: significant life changing lineage changing money that happens. And more

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Speaker 1: to the point you were making when we first started,

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Speaker 1: one of the ways that that that allows you to

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Speaker 1: be attached to that value creation that it's happening is

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Speaker 1: you own uh an interest in the company that you're

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Speaker 1: working for. So if I'm at you know, Microsoft, I'll

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Speaker 1: use as an example because it's a popular enough company

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Speaker 1: and I own shares of Microsoft. I worked there for

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Speaker 1: five years. I accumulate you know, half million dollars worth

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Speaker 1: of shares in the five years that I'm there. I leave,

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Speaker 1: but I don't sell them. I hang on to them.

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Speaker 1: And then we all have seen what the fang stocks Facebook, Amazon, Netflix,

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Speaker 1: and Google have have done. Microsoft included in that bucket.

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Speaker 1: They've you know, quadrupled over like that that tenure span

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Speaker 1: that the NASDAC has been on this run. That's life

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Speaker 1: changing money for some people. Right, your five hundred thousand

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Speaker 1: dollars worth of equity you had as part of your

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Speaker 1: total comp package that came to you when you came

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Speaker 1: on board is now two million dollars by you going

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Speaker 1: along for the ride. That's life changing money. Versus you

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Speaker 1: work as a software engineer. I pay you a hundred

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Speaker 1: and eighty thousand dollars, the I r S takes half

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Speaker 1: of it, depending on what state you live in. Right,

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Speaker 1: and your hundred and eighty turns into ninety thousand, and

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Speaker 1: it's up to you to decide how to spend that

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Speaker 1: ninety thousand and make sure you keep a piece of it.

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Speaker 1: But it's really not likely to continue to grow at

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Speaker 1: the ridiculously outsized rate as you owning equity and something

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Speaker 1: where constantly new products are being created, new ideas are

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Speaker 1: being kicked around. All that is happening while you're sleep

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Speaker 1: frankly like you're not contributing anymore. You left the company,

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Speaker 1: but the value creation is still happening without you, but

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Speaker 1: because you were tied to it at one point, you

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Speaker 1: still get to reap the benefits. That's how the game

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Speaker 1: is one. So who I'm gonna ask two questions and

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Speaker 1: one which I hate to do but I think you

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Speaker 1: can handle. This is who has leverage to ask for

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Speaker 1: equity when working out a startup? And do I have

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Speaker 1: to be an engineer? Awesome questions, So you don't have

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Speaker 1: to be an engineer. I'm gonna ask the answer the

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Speaker 1: last one first because it's easier. You don't have to

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Speaker 1: be an engineer. I have seen administrative assistance who administrative

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Speaker 1: assistant early enough on that they got a piece of

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Speaker 1: the pie, and they even are attached to that that

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Speaker 1: wealth creation at at the end of the day and

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Speaker 1: are walking away with some decent cheers. So no, you

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Speaker 1: can be you know, I won't say you can be

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Speaker 1: the staff who works in the cafe as an example,

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Speaker 1: because those people are usually contractors. But if you're one

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Speaker 1: of those people and you can work your way into

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Speaker 1: write a conversation about it, by all means do it.

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Speaker 1: But you know, the average employee from the lower part

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Speaker 1: of the totem poll to the very top can actually

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Speaker 1: participate in the equity pool at almost any company at

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Speaker 1: this point, So you don't have to be an engineer

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Speaker 1: to participate. The second part you said, how do I

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Speaker 1: get equity as part of the conversation, Um, you gotta

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Speaker 1: ask for it. That's really, that's really it. So one

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Speaker 1: of the things that I always encourage people to focus

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Speaker 1: on when they negotiate this compensation package is not just

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Speaker 1: how much can I get in salary? Right, that's important,

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Speaker 1: but there comes a point when enough is enough, and

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Speaker 1: every incremental dollar you have them pay you has a

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Speaker 1: diminishing rate of return. Right, So you hit you know,

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Speaker 1: two hundred thousand dollars, let's say, and you live in

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Speaker 1: a place like you know, New York or California, where

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Speaker 1: after taxes, again, fift of that's going out the out

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Speaker 1: the window. Where if I were to to ask instead

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Speaker 1: for shares in the company, as long as I hold

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Speaker 1: onto those shares for an extra twelve months after you

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Speaker 1: know they vested and been issued to me, I'm paying

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Speaker 1: that long term capital gains. So long term capital gains

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Speaker 1: tax rates. My ordinary income tax rate I just told

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Speaker 1: you is fifty after state and federal get done with me. Right,

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Speaker 1: that's at delta that you've now been able to find

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Speaker 1: just by getting paid in that equity versus having them

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Speaker 1: pay it to you in in actual cash money. So

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Speaker 1: just having a longer vision to be able to see

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Speaker 1: the way the game is played in one will help

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Speaker 1: to keep you know, a few people at least from

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Speaker 1: asking for the wrong thing at the wrong time. Do

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Speaker 1: you find that younger folks beginning their careers working at

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Speaker 1: startups and tech companies are more and more sophisticated and

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Speaker 1: know to ask for equity versus the larger paycheck? And

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Speaker 1: or if you find those who aren't who just said

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Speaker 1: they want the bag today, how do you have that

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Speaker 1: conversation with them to convince and that look, the better

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Speaker 1: play here potentially is to take less up from capital

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Speaker 1: and to go for equity. Yes, So one of the

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Speaker 1: challenges that I have as a financial planner is helping

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Speaker 1: people figure out there enough point. That's one of the

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Speaker 1: things that I really like about this work is that

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Speaker 1: there's a book that I read and I always recommend

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Speaker 1: to people called Your Money or Your Life. It's the

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Speaker 1: book that's credited with helping to to launch the fire movement,

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Speaker 1: the financial independence retire early movement um. But essentially the

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Speaker 1: key tenant of the book is figuring out your enough point,

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Speaker 1: Like how much house is enough? How much car is enough?

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Speaker 1: How much vacation is enough? How much you know? All

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Speaker 1: these things, we get on the treadmill and run this

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Speaker 1: race four to constantly be chasing at some point enough

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Speaker 1: is enough and you have enough luxury and you have

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Speaker 1: enough like whatever, figuring out what that enough point is

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Speaker 1: and then planning beyond that. And so I always try

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Speaker 1: and help people see the forest for the trees that yes,

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Speaker 1: you could get an extra dollars by joining company X, right,

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Speaker 1: but if if it means then that you're gonna be

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Speaker 1: working one point two times is hard right to to

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Speaker 1: to be a kind of specific what could you be

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Speaker 1: doing with that extra of your time versus the twenty

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Speaker 1: dollars that you're gonna earn because you already make enough

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Speaker 1: money to pay your mortgage, pay your kids daycare, You're

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Speaker 1: driving nice enough car, you're live in a nice enough neighborhood.

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Speaker 1: Like you're not chasing safety at this point, we're just

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Speaker 1: chasing access. And so helping people figure out like enough

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Speaker 1: is enough and the difference now is pay me an

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Speaker 1: equity instead. And one other negotiating piece that I would

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Speaker 1: encourage people to consider is companies are a lot more

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Speaker 1: willing to part with shares of equity than they are

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Speaker 1: with additional cash. If you just think of it from

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Speaker 1: the CFOs perspective, Right, if I have if I commit

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Speaker 1: to a salary that I owe you, that's every day,

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Speaker 1: every year, that's a line item that goes against the

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Speaker 1: P and L that I got to count for. Right,

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Speaker 1: I owe you two hundred thousand dollars. You're asking me

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Speaker 1: for an extra twenty That twenty grand is going against

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Speaker 1: the P and L. Every year you asked me for

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Speaker 1: dollars worth of shares. That's a totally different equation because

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Speaker 1: those shares are sitting on a spreadsheet somewhere in in

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Speaker 1: you know, in in somebody's like hard drive. They're not

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Speaker 1: an actual thing I've got a hand over to you.

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Speaker 1: So yes, they still have to be accounted for, but

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Speaker 1: we don't hold onto them and keep them as tightly

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Speaker 1: guarded as we would if you're asking for cash. Also,

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Speaker 1: if you're thinking from the HR person's perspective, I gotta

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Speaker 1: be able to to justify why I gave you to twenty.

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Speaker 1: But the software engineer who sits next to you is

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Speaker 1: getting too, And then the next person who comes in

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Speaker 1: the door is gonna want to know what they can

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Speaker 1: actually get as far as cash comp and now I've

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Speaker 1: got to do I all for that person to twenty

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Speaker 1: two because I just gave it to you. Whereas with

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Speaker 1: the shares, it's a little bit different than a little

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Speaker 1: bit more fluid. And I'm speaking broadly right, every company

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Speaker 1: is different the way they treat this. But what I've

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Speaker 1: seen and and also talking to hire uh recruit technical

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Speaker 1: recruiters personally, like they're way more willing to come up

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Speaker 1: off of additional equity shares versus cash money. So for

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Speaker 1: folks who and obviously the startup side of the table

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Speaker 1: would understand this, but I want to make sure the engineer,

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Speaker 1: the talent, the HR person, the legal person understands this side.

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Speaker 1: Legal people might give it, but let's under let's talk

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Speaker 1: about what the cliff means. So if I come in

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Speaker 1: as an engineer and I say, hey, I'm gonna give

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Speaker 1: you a hundred thousand shares with a three year cliff,

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Speaker 1: what does that mean? Perfect perfect setup? So the cliff

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Speaker 1: best that you're talking about, it's how long you have

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Speaker 1: to be at the company before you actually take ownership

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Speaker 1: of those shares. So to to keep from being too

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Speaker 1: super nerdy er super technical, the I r S and

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Speaker 1: and the company have this trade that happens, which is

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Speaker 1: called constructive receipts. So you have constructively received at the

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Speaker 1: end of a three year period those shares, which means

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Speaker 1: with it you also have taken on the tax liability

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Speaker 1: for those shares and and whatever they're worth at the time.

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Speaker 1: So a hundred thousand dollars worth of shares, you wait

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Speaker 1: the three years that you have to vest, right, you

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Speaker 1: have to be at the company three years before those

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Speaker 1: shares vest, and technically now you own them at that

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Speaker 1: point the moment they get issued to you, regardless of

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Speaker 1: whether they're restricted stock or non qualified stock options or

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Speaker 1: performance share units or whatever. Once you take ownership of

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Speaker 1: those shares, you also take ownership of the tax liability.

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Speaker 1: Prior to you taking ownership of the shares, you don't

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Speaker 1: own anything. You also don't own the hundred thousand dollars, right,

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Speaker 1: because you don't have the shares, but you don't own

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Speaker 1: the tax liability. So with that additional cash also comes

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Speaker 1: the additional tax liability. So just something to be aware

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Speaker 1: of at at the exact same time. But to answer

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Speaker 1: your question very specifically, companies as retention tool will put

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Speaker 1: a time clock on how long they have to be

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Speaker 1: able to get work product out of you before they

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Speaker 1: give you those shares. That that it kind of gives

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Speaker 1: you your walking papers to right. If I think about

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Speaker 1: it purely from the company's perspective, I know I've got

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Speaker 1: you on the hook for three years. If you've got

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Speaker 1: a three year vesting requirement. Beyond three years, you're a

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Speaker 1: free agent. Every year. I gotta constantly be doing things

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Speaker 1: and bringing things to you to make you feel good

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Speaker 1: about staying with this team and want to be here. Right,

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Speaker 1: But for that three year period you're on that that

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Speaker 1: rookie contract, if you will. If you think about it

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Speaker 1: in terms of the NFL, you're gonna play and perform

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Speaker 1: regardless of of what's happening, because you've got to hit

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Speaker 1: that three year that number before we can issue you,

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Speaker 1: you know, the shares. That's good for me to know

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Speaker 1: and playing around as the company. So that's something to

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Speaker 1: also kind of think about. They'll also issue you UH

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Speaker 1: shares not only as as investing based on tenure, but

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Speaker 1: also as a retention and tool. So you get past

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Speaker 1: that three year window. Maybe I'm worried that that somebody

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Speaker 1: is gonna compote you right. Tech companies are a bit

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Speaker 1: incestuous at this point about stealing talent from one place

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Speaker 1: to the next, and the same people kind of moving

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Speaker 1: every three years or so, and so one way that

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Speaker 1: I can keep you from making that jump is to

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Speaker 1: offer you additional shares as a retention bonus every single

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Speaker 1: year that you stay. And maybe those shares just have

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Speaker 1: to you gotta be here one year after you get

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Speaker 1: them in order for them to vest, or there's no

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Speaker 1: investing timetable on them. Those are all things you want

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Speaker 1: to know and negotiate going in the door so that

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Speaker 1: you can give yourself the most flexibility and freedom to

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Speaker 1: be able to maneuver however you want to and still

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Speaker 1: get you know, the majority of those shares, if not

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Speaker 1: all of them, before making any other moves. I do

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Speaker 1: have people watching the chat on Facebook and lunch table,

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Speaker 1: so if you do have questions, I want to make

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Speaker 1: sure I get to those, um so it makes sure

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Speaker 1: go feel free to drop your questions in the chat

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Speaker 1: and we will get as many of them as we can.

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Speaker 1: And in the meantime, going down that road of investing

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Speaker 1: periods and cliffs and etcetera. I wonder if let's say

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Speaker 1: this remarkable opportunity happens, you know, which is doesn't happen

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Speaker 1: all the time. But you give me a hundred thousand

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Speaker 1: shares on day one. I have a two year let's

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Speaker 1: just still just to get easy map, a two year

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Speaker 1: investing period, so I can't get my full amount of

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Speaker 1: shares for that two years. In that two years time,

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Speaker 1: those shares go to the moon. So these are Google numbers,

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Speaker 1: Apple numbers, Amazon numbers, Facebook numbers. So I'm on paper,

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Speaker 1: super duper wealthy on paper, but I don't have any

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Speaker 1: of that liquor cash. How does my life change in

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Speaker 1: the meantime while or how could it change in the

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Speaker 1: meantime or does it so? Uh? Two separate answers, because

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Speaker 1: that goes to separate ways. Right, So if you're talking

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Speaker 1: I work for a private company, I work for a

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Speaker 1: startup and they've made an announcement that they plan to

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Speaker 1: go public at some point. Right, I'm thinking about door

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Speaker 1: Dash as a really good example of this. Tons of

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Speaker 1: people who started at different rates COVID happens, those shares

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Speaker 1: are now gonna be to the moon, like you said,

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Speaker 1: because like all of a sudden, door Dash is posting

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Speaker 1: the best numbers they've ever posted. Nobody in the company

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Speaker 1: is doing any work anymore because everybody's imagination is flying around.

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Speaker 1: I'm gonna be like super super wealthy because I'm gonna

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Speaker 1: get those shares and I'm gonna go buy this beach

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Speaker 1: house and I'm gonna and I mean literally like can't

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Speaker 1: get anybody off Zello, can't get anybody off. Everybody is

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Speaker 1: spending that money. But there's also this thing called a

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Speaker 1: lock up where you've got to wait six depending on

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Speaker 1: where you are in the food chain right the hierarchy,

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Speaker 1: and how close you are the privileged information. There's also

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Speaker 1: this thing called a lock up where you've gotta wait

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Speaker 1: six months after the company goes public before you can

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Speaker 1: do anything, So those shares could come crashing back down

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Speaker 1: the earth in that time before you're legal allowed to

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Speaker 1: sell anything, because they don't want you moving the stock

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Speaker 1: price around, which I've seen happen unfortunately. But also to

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Speaker 1: your point, with a publicly traded company like a Facebook

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Speaker 1: or an Amazon or Google or whoever who's going on

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Speaker 1: this run, the more advantageous way to work out your

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Speaker 1: equity grants is to have them coming to you on

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Speaker 1: a monthly basis instead of annually for that reason right there.

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Speaker 1: So if I get a new uh tranches the word

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Speaker 1: that we use, or slice or whatever of shares that

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Speaker 1: come to me every single month, then as the price

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Speaker 1: is doing what it does, I can plan my own

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Speaker 1: life around what else I need to do financially and

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Speaker 1: whether I'm gonna sell this month or not. If I've

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Speaker 1: got to wait an entire year to make that cell

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Speaker 1: or whole decision, then I'm at the mercy of wherever

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Speaker 1: the company is in that moment. It may not even

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Speaker 1: make a difference with a company like Amazon, like you said,

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Speaker 1: who can't seem to go but in one direction. But

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Speaker 1: for a company who does take a very nasty dip

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Speaker 1: at some point, I'm kind of at the mercy of

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Speaker 1: whatever the market does. And so developing that plan in

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00:21:08,040 --> 00:21:11,320
Speaker 1: advance of when and how to sell is going to

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00:21:11,440 --> 00:21:14,200
Speaker 1: be super helpful to turn you from a paper millionaire,

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Speaker 1: as you're saying, into an actual millionaire, as in exchanging

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00:21:19,240 --> 00:21:22,359
Speaker 1: those certificates for actual dollars at some point, so that

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Speaker 1: you can take some chips off the table and not

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Speaker 1: just kind of follow the ticker wherever it takes you.

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Speaker 1: What typically happens in the in the tech company specificist.

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Speaker 1: But let's say just companies across the board where equities

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Speaker 1: involved and they go public or they sell or otherwise,

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Speaker 1: and early employees don't get a financial winfall what typically happened. Um,

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00:21:47,359 --> 00:21:50,600
Speaker 1: that's a tough one man. People get real stings you

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Speaker 1: around liquidity events. Um. You know, founders start trying to

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Speaker 1: renegotiate their founder shares. Uh, you have key employee that

402
00:22:00,400 --> 00:22:03,960
Speaker 1: aren't satisfied with their contract the way it was initially

403
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Speaker 1: written and where they sit on the cap table when

404
00:22:07,080 --> 00:22:10,040
Speaker 1: they look at their slice versus others. Like those kind

405
00:22:10,040 --> 00:22:12,520
Speaker 1: of things, it gets It gets kind of ugly, honestly

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Speaker 1: at some point, Um, the short answer to your question is,

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Speaker 1: if you aren't on that cap table before the liquidity

408
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Speaker 1: event happens, you're probably not gonna get on it. Um.

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Speaker 1: What does happen in some cases where you are valuable

410
00:22:27,320 --> 00:22:29,760
Speaker 1: enough to the company that they're worried about like hurting

411
00:22:29,840 --> 00:22:32,320
Speaker 1: your feelings and they're worried about losing you, is you

412
00:22:32,400 --> 00:22:35,160
Speaker 1: can get a gross up as we call it, where

413
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Speaker 1: they issue you a one time bonus allotment of shares

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Speaker 1: to make you whole, as they say, so that you

415
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Speaker 1: feel like you're included and you're participating, but those shares

416
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Speaker 1: are not going to have the same Uh. Value is

417
00:22:50,760 --> 00:22:53,000
Speaker 1: not the word that I wanna, I want to use it.

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00:22:53,000 --> 00:22:55,679
Speaker 1: It's not gonna have the same like sweetness to it

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Speaker 1: as the folks that were there on day one, two, three, ten.

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Speaker 1: Funny you know that kind of thing because even with

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Speaker 1: like incentive stock options as an example, that have a

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Speaker 1: bit of a look back kind of feature. They allow

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Speaker 1: you to look at yesterday's price and decide if you're

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Speaker 1: gonna uh sell it now and take today's price as

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00:23:12,600 --> 00:23:15,560
Speaker 1: your your exchange value. Uh. Even if I would have

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00:23:15,600 --> 00:23:18,320
Speaker 1: granted you incentive stock options at today's price, you're not

427
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Speaker 1: gonna get that super low basis that somebody got who

428
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Speaker 1: started with the company ten years ago when it was

429
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Speaker 1: literally in somebody's living room. What are what would you say?

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Speaker 1: I like the top three to five things a start

431
00:23:33,320 --> 00:23:36,920
Speaker 1: up employee should be paying attention to in their work

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Speaker 1: contracts regarding conversation. Know what happens to your shares if

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Speaker 1: and when the company has a liquidit event. That's huge. Uh.

434
00:23:44,960 --> 00:23:47,520
Speaker 1: To your point about people dancing around excited because they're

435
00:23:47,520 --> 00:23:50,560
Speaker 1: about to be a millionaire, some people don't realize that

436
00:23:50,640 --> 00:23:53,280
Speaker 1: if the company sells X happens right. There's a lot

437
00:23:53,320 --> 00:23:55,800
Speaker 1: of SPACs happening right now. The word spack is flying

438
00:23:55,800 --> 00:23:57,919
Speaker 1: around all over the place, and a lot of people's

439
00:23:57,920 --> 00:24:01,320
Speaker 1: equity agreement doesn't include language around UM, what happens if

440
00:24:01,320 --> 00:24:04,560
Speaker 1: the company changes hands, what happens if there's a change

441
00:24:04,560 --> 00:24:07,520
Speaker 1: of ownership before the I P O. So that's the

442
00:24:07,560 --> 00:24:11,040
Speaker 1: major one. But also like knowing the schedule of when

443
00:24:11,080 --> 00:24:13,399
Speaker 1: your your shares vest right, so you don't walk away

444
00:24:13,400 --> 00:24:15,960
Speaker 1: on accident and leave some chips on the table. UM.

445
00:24:16,040 --> 00:24:18,000
Speaker 1: That's what we call the forfeit value. What happens if

446
00:24:18,040 --> 00:24:21,960
Speaker 1: you forfeit those shares? UM also setting up plan for

447
00:24:22,040 --> 00:24:24,119
Speaker 1: win and how to get out of those shares because

448
00:24:24,160 --> 00:24:27,880
Speaker 1: until you actually trigger a sale, you're only a millionaire

449
00:24:27,920 --> 00:24:30,920
Speaker 1: on paper. So you know, deciding how much and when

450
00:24:31,040 --> 00:24:34,280
Speaker 1: to sell is a very big key component in there.

451
00:24:34,800 --> 00:24:39,280
Speaker 1: UM Also understanding that just because you're inside of your

452
00:24:39,400 --> 00:24:43,760
Speaker 1: vesting table, your vesting timetable, doesn't mean that other companies

453
00:24:43,800 --> 00:24:46,800
Speaker 1: won't match you to make you whole right, give you

454
00:24:46,880 --> 00:24:49,920
Speaker 1: some shares to match what you would stand to lose

455
00:24:49,960 --> 00:24:53,639
Speaker 1: from the company you're considering leaving to entice you to

456
00:24:53,680 --> 00:24:56,600
Speaker 1: move sooner. So I've seen that happen where I'm going

457
00:24:56,640 --> 00:24:59,840
Speaker 1: to use two completely made up examples. Google wants to

458
00:25:00,200 --> 00:25:03,840
Speaker 1: uh employee from Amazon. Google will say, instead of you

459
00:25:03,880 --> 00:25:06,080
Speaker 1: waiting the extra year and a half a year shares

460
00:25:06,119 --> 00:25:08,920
Speaker 1: to best, We're gonna match the shares that you would

461
00:25:08,960 --> 00:25:11,480
Speaker 1: lose and give you an extra ten percent on top

462
00:25:11,520 --> 00:25:13,880
Speaker 1: of that to get you to leave today instead. So

463
00:25:14,160 --> 00:25:16,240
Speaker 1: don't be afraid to ask. Don't be afraid to ask

464
00:25:16,320 --> 00:25:19,480
Speaker 1: questions because you'd be surprised, like what people are willing

465
00:25:19,520 --> 00:25:22,399
Speaker 1: to how flexible people are willing to get, you know,

466
00:25:22,520 --> 00:25:24,560
Speaker 1: to to make it happen. You asked me for five

467
00:25:24,600 --> 00:25:26,360
Speaker 1: I don't know if that was five three to five

468
00:25:26,480 --> 00:25:30,040
Speaker 1: three or five. You got that? You got there? Um,

469
00:25:30,080 --> 00:25:32,200
Speaker 1: you know not everybody is going to be a founder,

470
00:25:32,240 --> 00:25:36,320
Speaker 1: and UM, talk to me about some of the benefits

471
00:25:36,359 --> 00:25:40,760
Speaker 1: that could be uniquely available to senior level people at

472
00:25:40,760 --> 00:25:43,600
Speaker 1: a startup. Um, whether I'm coming on as a chief

473
00:25:43,720 --> 00:25:46,640
Speaker 1: operating officer, I'm coming like, what are some things outside

474
00:25:46,640 --> 00:25:50,880
Speaker 1: of equity as part of my benefits package? If I'm

475
00:25:50,880 --> 00:25:53,439
Speaker 1: on the career trajectory, should I be paying attention to

476
00:25:54,080 --> 00:25:56,920
Speaker 1: so one super unique thing and this is not me

477
00:25:57,200 --> 00:26:02,040
Speaker 1: like to my own horn. But we have companies as

478
00:26:02,080 --> 00:26:05,920
Speaker 1: clients who pay for financial planning on behalf of their

479
00:26:06,000 --> 00:26:09,960
Speaker 1: senior leaders. They don't give that to everybody across the board.

480
00:26:10,359 --> 00:26:13,600
Speaker 1: So you are c OO and you step into Now

481
00:26:13,720 --> 00:26:17,200
Speaker 1: the company's accountant is now your accountant. The company's financial

482
00:26:17,200 --> 00:26:20,920
Speaker 1: advisor is now your financial advisor. The company may even

483
00:26:21,000 --> 00:26:23,560
Speaker 1: comp you a car, right because I can. I can

484
00:26:23,600 --> 00:26:27,240
Speaker 1: have a corporate lease and and assign it to you. Um,

485
00:26:27,359 --> 00:26:31,359
Speaker 1: your your travel budget starts to look a little bit different. Um.

486
00:26:31,400 --> 00:26:33,879
Speaker 1: All those kind of things are are different and unique

487
00:26:33,880 --> 00:26:36,600
Speaker 1: to not even necessarily just the C suite. I've seen

488
00:26:36,640 --> 00:26:39,080
Speaker 1: it at the director level, of the senior vice president level,

489
00:26:39,119 --> 00:26:41,440
Speaker 1: that sort of thing. Um. But also real quick you

490
00:26:41,600 --> 00:26:44,560
Speaker 1: you said not just equity, but as far as equity

491
00:26:44,640 --> 00:26:47,600
Speaker 1: is concerned, your shares look different too in the C

492
00:26:47,800 --> 00:26:51,320
Speaker 1: suite or at the senior director level. So incentive stock

493
00:26:51,320 --> 00:26:54,520
Speaker 1: options are usually held just for the super top of

494
00:26:54,560 --> 00:26:59,080
Speaker 1: the organized organization chart. Everybody else gets what's called restricted

495
00:26:59,080 --> 00:27:03,000
Speaker 1: stock units, those that have two completely different tax treatments

496
00:27:03,000 --> 00:27:05,000
Speaker 1: in the way that you can actually plan around them

497
00:27:05,000 --> 00:27:08,680
Speaker 1: and ultimately what how valuable they are. So that's another

498
00:27:08,760 --> 00:27:11,480
Speaker 1: difference that that gets thrown in there between the two

499
00:27:11,520 --> 00:27:16,160
Speaker 1: tiers of employee and UM. I want to talk about

500
00:27:16,280 --> 00:27:19,159
Speaker 1: retirement accounts and how important they are too because we

501
00:27:19,240 --> 00:27:23,080
Speaker 1: we we have so many conversations around funding startups, because

502
00:27:23,119 --> 00:27:26,359
Speaker 1: we have this big disparity with you know, black minority owned,

503
00:27:26,400 --> 00:27:30,880
Speaker 1: women owned startups being funded. How can they if they can,

504
00:27:31,640 --> 00:27:36,080
Speaker 1: retirement accounts be used to put some early capital into

505
00:27:36,160 --> 00:27:38,959
Speaker 1: starting my thing. I'm really glad you asked that. So

506
00:27:39,000 --> 00:27:41,440
Speaker 1: I normally will see people take out a loan from

507
00:27:41,440 --> 00:27:43,719
Speaker 1: the company that the four one K playing the company

508
00:27:43,760 --> 00:27:46,960
Speaker 1: they work for, use that loan to to get access

509
00:27:47,000 --> 00:27:49,480
Speaker 1: to capital to start the company. When you leave the company,

510
00:27:49,520 --> 00:27:52,920
Speaker 1: that outstanding loan gets turned into a distribution, which means

511
00:27:53,040 --> 00:27:56,679
Speaker 1: ordinary income tax treatment, right, so you're paying taxes on

512
00:27:56,720 --> 00:27:59,720
Speaker 1: that distribution. Or you could just straight up say kick

513
00:27:59,800 --> 00:28:01,760
Speaker 1: me the cash, I'm gonna pay the taxes on it,

514
00:28:01,840 --> 00:28:03,359
Speaker 1: and it is what it is, and we use it

515
00:28:03,400 --> 00:28:08,200
Speaker 1: to start the company. But there's actually UH plans out

516
00:28:08,240 --> 00:28:10,920
Speaker 1: there within the tax code that allow you to convert

517
00:28:11,440 --> 00:28:13,879
Speaker 1: those shares in that you know, your investment in the

518
00:28:13,920 --> 00:28:18,959
Speaker 1: company into UH shares in the company are starting. So

519
00:28:19,040 --> 00:28:21,639
Speaker 1: instead of being invested in the SMP five index. In

520
00:28:21,640 --> 00:28:24,520
Speaker 1: your four own K plan. You now have a four

521
00:28:24,560 --> 00:28:28,520
Speaker 1: own K plan that is your new company, shares of

522
00:28:28,560 --> 00:28:31,840
Speaker 1: the company that you started that you're investing now back

523
00:28:31,840 --> 00:28:34,640
Speaker 1: into the Company's why you probably saw the article from

524
00:28:34,640 --> 00:28:37,639
Speaker 1: pro public about Peter Tile having a five billion dollar

525
00:28:38,320 --> 00:28:42,080
Speaker 1: roth ira funded from PayPal stock. It's because he had

526
00:28:42,120 --> 00:28:44,680
Speaker 1: really great lawyers twenty years ago when they started the

527
00:28:44,680 --> 00:28:47,120
Speaker 1: company that told him, don't take that money out of

528
00:28:47,120 --> 00:28:49,200
Speaker 1: your four when K plan to start, you know the shop,

529
00:28:49,840 --> 00:28:53,120
Speaker 1: sell yourself shares of PayPal. Convert your four owen k

530
00:28:53,640 --> 00:28:58,080
Speaker 1: uh dollars into shares of PayPal, and then as they grow,

531
00:28:58,240 --> 00:29:00,760
Speaker 1: they live inside this roth ira which will never pay

532
00:29:00,760 --> 00:29:04,240
Speaker 1: taxes on. So there are other ways to to to

533
00:29:04,480 --> 00:29:08,320
Speaker 1: use your four one K assets other than taking a

534
00:29:08,360 --> 00:29:13,000
Speaker 1: direct distribution and like paying the taxes today and you know,

535
00:29:13,200 --> 00:29:17,240
Speaker 1: hoping for the best going forward. Malcolm, where can people

536
00:29:17,320 --> 00:29:20,720
Speaker 1: learn more about you and your work? I'm at Malcolm

537
00:29:20,720 --> 00:29:23,600
Speaker 1: on Money on all social media platforms. I encourage them

538
00:29:23,600 --> 00:29:26,239
Speaker 1: to check out the tech Money podcast. Um we go

539
00:29:26,280 --> 00:29:29,040
Speaker 1: into a lot more detail on these kinds of topics,

540
00:29:29,080 --> 00:29:31,200
Speaker 1: you know, with with tons more times. So those are

541
00:29:31,200 --> 00:29:34,080
Speaker 1: the two main places I would say that to find me.

542
00:29:34,080 --> 00:29:36,880
Speaker 1: I'm also heavy on LinkedIn, so happy to spark up

543
00:29:36,880 --> 00:29:53,560
Speaker 1: a conversation there too. Yeah. Black Tech Green Money to

544
00:29:53,640 --> 00:29:57,440
Speaker 1: production of Blackvity, Afro Tech, The Black Effect podcast Networking

545
00:29:57,480 --> 00:30:00,040
Speaker 1: I Heart Media was produced by Morgan the Bone on

546
00:30:00,120 --> 00:30:03,800
Speaker 1: In Me Well Lucas, with additional production supported by Love

547
00:30:03,840 --> 00:30:07,920
Speaker 1: Beach and Marissa Lewis. Special thank you to Michael Davis

548
00:30:07,920 --> 00:30:10,800
Speaker 1: since the car savan ya you know, like the wine. Yes,

549
00:30:10,880 --> 00:30:14,000
Speaker 1: that's his real name. Learn more about my guests and

550
00:30:14,000 --> 00:30:16,880
Speaker 1: other tech disruptres and innovators at afro tech dot com.

551
00:30:17,200 --> 00:30:19,320
Speaker 1: The video version of this episode will drop the Black

552
00:30:19,320 --> 00:30:21,680
Speaker 1: Tech Green Money on YouTube next week, So tap in

553
00:30:23,160 --> 00:30:25,800
Speaker 1: enjoying Black Tech Green Money. Leave us a five star

554
00:30:25,960 --> 00:30:30,920
Speaker 1: rating on iTunes. Go get your money, Peace and love,