Benner on Tech: Pinterest Employees Can Cash Out

Katie Benner is a Bloomberg View columnist who writes about technology, innovation, and the cult and culture of Silicon Valley. She lives in San Francisco.
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Pinterest told employees that they’re allowed to hold onto their vested stock options for up to seven years after they leave the company.

The announcement sounds sort of technical and dry. But it’s a big deal for startup employees. It makes it easier for them to keep more of their compensation if they leave for a new job, which, consequently, gives them more job mobility.

Remember, most startup employees get relatively small cash salaries and a lot of stock options. The idea is that they forego the cash they’d get by working at Facebook or Google for the chance to own a piece of a company that could yield a big payoff later.

That works in theory, but a quick look at the “unicorn list” shows that startups are staying private for super long periods of time -- so long, in fact, that they become big, mature businesses before ever going public. Jawbone is 16 years old. Palantir is 11. Dropbox is eight. Airbnb and Cloudera are seven.

Sam Altman, the president of the startup incubator Y Combinator, wrote last year that most employees have 90 days after they leave to exercise their options. “Unfortunately, this requires money to cover the strike price and the tax bill due for the year of exercise (which is calculated on the difference between the strike and the current FMV).”

The tax bill is especially high at a fast-growing company whose share price has skyrocketed. Pinterest, for example, was valued this month at around $11 billion, up from $5 billion last May. Employees sometimes end up locked into companies so they don't have to walk away from options that they can't afford to exercise. 

“So the employee often has to choose between walking away from vested options he or she can’t afford to exercise, or being locked into staying at the company,” Altman writes. Walking away from the options means that they’ve essentially worked for far less money than their peers for years with nothing to show for it.

Adam D’Angelo, the founder of the question-and-answer website Quora, came up with a solution last year that is very similar to the plan that Pinterest just announced: Let employees exercise their options for up to 10 years from the grant date. In that amount of time, the company is likely to go public or get acquired, which gives the employee the money he or she needs to pay taxes. Or the company dies, and it’s a moot point.

I chatted with Altman last night, and he says he’s heard from other companies that are considering a Quora-type solution to the compensation problem. That’s a good thing. We think of tech workers as a vaunted group that rakes in the dough, but the reality is more varied. Most workers don’t really understand what they’re getting into when they get paid a lot of stock. And their reality ends up being far different from the dream of striking it rich in Silicon Valley. 

Cyanogen, which makes Android-based mobile operating systems that competes with Android, raised $80 million, the Wall Street Journal reports. Investors include Qualcomm and Twitter. The company has raised about $110 million.

Refinery29, which runs the eponymous online fashion website, is spending some of the $30-plus million its raised from Hearst and Lerer Ventures to build out and become a general news site, reports Capital New York.

Slack is negotiating a funding round that would value the company at more than $2 billion, reports Bloomberg.

Square’s introduced mobile payments to small businesses with Square Cash. Merchants pay 1.5 percent on transactions, which is less than the 2.75 percent that they pay when they use the Square card reader, reports Fortune.

Vessel, the subscription video startup, opens to the public today, TechCrunch reports.

The dearth of women in health-care tech companies is a phenomenon that has big, negative business implications given that women comprise the majority of the workforce and make most family health-care decisions. The health-care startup investor Rock Health takes a look at how the gender imbalance is affecting the sector.

Y Combinator kicked off its demo day, when founders pitch their startups amid a frenzy of optimism and opportunity. The Verge has a roundup of highlights from day one. The private company research firm Mattermark tracked those startups and ranked them by which ones are growing the fastest across several categories.

“We’re the Toms shoes of water bottles.” Re/code has the best demo day quotes.

People and Personnel Moves

Ruth Porat will become Google’s new chief financial officer, reports Bloomberg. Porat was previously the CFO of Morgan Stanley. 

Dan Schulman and Devin Wenig,who will become the CEOs of PayPal and eBay, respectively, after they split, will each be paid $14 million in total annual compensation after the separation, reports Bloomberg.

Companies

Amazon said Twitch user accounts had been hacked, and the company reset all passwords.

Facebook has been in talks with media companies such as the New York Times, BuzzFeed and National Geographic to host their content, reports the New York Times. The company’s messaging app is transforming into a standalone platform, according to Read/Write.

Microsoft announced a variety of global partnership with companies such as Samsung, Dell and manufacturers around the world to get its software on as many devices as possible.

Twitter is testing out auto-play videos, reports AdAge. The Verge says the company is testing a filter that lets users remove harassers from their feeds. The company is teaming up with Foursquare in a deal that gives Twitter access to Foursquare’s valuable location data, reports the Next Web.

Media Files

The NFL will distribute an upcoming Jacksonville Jaguars v. Buffalo Bills game to a digital player like YouTube or Facebook, rather than via television, the Wall Street Journal reports.

News and Notes

Net neutrality lawsuits are starting to roll in, the Washington Post reports.

The FTC will focus more on tech investigations, reports the Washington Post.

Practical jokers who want an audience are “swatting” online video gamers who broadcast live to lots of viewers, the New York Times reports. That means the pranksters call in fake reports of violence that draw police officers to an unsuspecting person’s house, and the show unfolds in real time.

(Corrects to characterize Rock Health as a startup investor.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the editor on this story:
Maria Lamagna at mlamagna@bloomberg.net