A lot of the people I respected from Heroku went there, glad they got a chance to use their skills to build something useful and profitable; glader still that they got their payout.
Sadly I echo your sentiment about the future, as someone who has heard second-hand about the quality of work at modern Redhat.
I am wondering how many more rounds of consolidation are left until there is no more space to innovate and we only have ossified rent-seeking entities in the IT space.
Yes. And many of the Heroku employees you speak of would have got RSUs that owed taxes on an $80 basis, been trading far below that for most of that time, and now have a maximum expected value of $35.
This is not a pay day for many people. Anybody who got a pay day were those that could liquidate in the IPO.
Yeah okay, if you had 0.15% stock you're still out with $ 10M.
Smaller and bigger percentages will be different but that's retirement money for hundreds and hundreds unless you pretend to live in very high CoL area. Also, most of them will likely have to keep working thereyears before cashing out some other millions likely.
First of all your percentage of ownership is unrealistic. I joined in November 2019 and got a grant of a few thousand RSUs that fully vested before I left, and that I still have most of, plus I bought some shares in a few rounds of our ESPP when that became available -- as of today I have just under 5,000 shares. HashiCorp has nearly 200 million shares issued, so I own a hair over .0025% of the company. Really early employees got relatively big blocks of options but nobody I knew well there, even employees there long enough to be in that category (and there were very few of them still around by December 2021), was looking at "fuck-you money" just from the IPO.
Second, the current price isn't the whole story for employees. I had RSUs because of when I joined so the story might have been different for earlier employees who had options, but I don't think it differs in ways that matter for this discussion. As background for others:
* On IPO day in December 2021, 10% of our vested RSUs were "unlocked" -- a bit of an unusual deal where we could sell those shares immediately (or at any later time). Note "vested" there -- if you had joined the day before the IPO and not vested any RSUs yet, nothing unlocked for you. (Most of the time, as I understand it, you don't have any unlocked shares as an employee when your company IPOs -- you get to watch the stock price do whatever it does, usually go down a lot, for six months to a year.)
* At a later date, if some criteria were met (which were both a report of quarterly earnings coming out and some specific financial metrics I forget), an additional tranche of vested shares (I think an additional 15%) unlocked -- I believe this was targeted at June 2022 and did happen on schedule.
* After 1 year, everything vested unlocked.
At the moment of the IPO the price was $80, but it initially climbed into the $90's pretty fast. At one point, during intraday trading, it actually (very briefly) broke just above $100.
So, if you were aware ahead of time that the normal trajectory of stock post-IPO is down, and if you put in the right kind and size of limit orders, and if you were lucky enough to not overestimate the limit and end up not selling anything at all, then you could sell enough shares while it was up to cover the taxes on all of it and potentially make a little money over that. I was that lucky, and managed to hit all of those conditions while selling almost all of my unlocked shares (I even managed to sell a small block of shares at $100), plus my entire first post-IPO vesting block, and ended up with enough to cover the taxes on the whole ball of already-vested shares, plus a few grand left over. Since then, I haven't sold any shares except for what was automatically sold at each of my RSU vesting events.
For RSUs not yet vested at the IPO, the IPO price didn't matter because they sold a tranche of each new vesting block at market price to cover the taxes on them when they vested -- you could end up owing additional taxes but only, as I understand it, if the share price rose between vesting and sale of the remaining shares in the block, so you would inherently have the funds to pay the taxes on the difference. (And if the price fell in that time, you could correspondingly claim a loss to reduce your taxes owed.)
There were a fair number of people who held onto all their shares till it was way down, though, and had to sell a lot to cover their tax bill in early 2022 -- I think if you waited that long you had to sell pretty much all your unlocked shares because the price was well down by tax time (it bottomed out under $30 in early March 2022, then rose for awhile till it was back up over $55 right before tax day, so again, if you were lucky and bet on the timing right, you didn't end up too bad off, but waiting till the day before April 15 was not something I bet a lot of people felt comfortable doing while they were watching the price slide below $50 in late February). I even warned one of the sales reps I worked with, while the price was still up, about the big tax bill he should prepare for, and he was certain I was wrong and that he would only be taxed when he sold, and only on the sale price. (He was of course wrong, but I tried...)
The June unlock was pretty much irrelevant for me because by that point the share price was down under $30 -- it spent the whole month of June after the first week under $35. The highest it went between June 30, 2022 and today, was $44.34. The entire last year it's only made it above $35 on three days, and only closed above $35 on one of them. I figured long-term the company was likely to eventually either become profitable, or get bought, and in either case the price would bump back up.
I was thinking about cutting my losses and cashing out entirely when it dropped below $30 after the June layoffs, and again in November when it was below $20, and then yet again when I left the company in January of this year, but the analyst consensus seemed to be around $32-34 through all of that so I held on -- kinda glad I did now instead of selling at the bottom.
> if you had 0.15% stock you're still out with $ 10M.
... Barely any employees could have that much stock. There's 2200 employees from the most recent data I see. Even if the outstanding shares were 100% employee owned, a uniform allocation would at best see a 0.045% between them all. Obviously, the shares are not uniformly distributed across employees, nor is hashicorp 100% employee owned.
You've misunderstood my point. RSUs became taxable at the $80 stock price for many. Depending on where you're based that could mean you owe(d) anywhere from from $22 - $38 per share in taxes. At the top end of that range, if you're still holding any stock, this acquisition has just permanently crystalised a capital loss for you. There's no upside that gets you above what you owe/paid in taxes.
There are many many people who made a loss on this, even before the acquisition announcement.
Also I think your ownership % is way off. There's a pretty small group of people, most of them the earliest employees + execs, who would have got out with $10M. HashiCorp currently has thousands of employees and would have churned through thousands more over the years.
I don't know how pre-public to IPO RSUs work but let's do some math assuming IPO day is "day when RSUs vest":
IPO day and you get 1000 RSUs unlocked/vested. Share price is $80. You made 80k gains. For simplicity let's say you owed 40K in taxes.
One of two things happens:
- Hasihcorp auto sells to cover and you get 500 less shares.
- You need to pay your taxes on your own and earmark 40K.
Let's pick the easy one: If Hashicorp sold for you that day you are now sitting on 500 shares with a cost basis of $80.
Let's go to today, IBM buys and the person held. 500 shares are now were $35 so the value is $17,500.
You cash out -- getting 17,500 in your account, and a capital loss of $22,500.
Sure, 17K isn't as cool as 40K, but the person still "made money" just _less_. You make it sound like this person is now "underwater" because they had a capital loss.
=====
And kids at home, this is why you sell some/all of your RSUs as you get them. No one company should be more than 15% of your portfolio. Even the one you work at.
> No one company should be more than 15% of your portfolio. Even the one you work at.
Tell that to the guy who went all-in for NVidia employee share purchase plan and is worth more than 50M USD. (I think it was a Register article posted here recently.) Sometimes the gamble is worth it. That said, for every one of those once-in-a-lifetime stories, there are many, many more about engineers who walked away from post-IPO start-ups with very little wealth gained. So many have posted here before, it just isn't worth it.
I don't need to make any assumptions about anything here, other former colleagues have gone through the specifics in other replies. Nothing is auto-sold at IPO to cover taxes, a maximum of 10% of what had vested was allowed to be sold before the 6mo lockup expired. There was a total of a few weeks before a combination of trading blackout window, lockup, and market crash conspired to have make it easy to be underwater if you hadn't elected to sell everything you could coming into the IPO.
Ok -- I need your help. I'm missing something here.
People got RSUs. They owed tax on said RSUs. The tax cannot be higher than the value of the RSU at the time of vest.
If people did not have enough cash to pay their tax bill, and did not sell enough RSUs to get cash to pay said tax bill, then yes, I can see those people "with a loss" because they had a "surprise" tax bill, RSUs price went down and a cash problem now. Is this what you mean happened?
They shouldn't have had to "sell everything" -- at most like 50%.
I'm arguing with you here because this stuff is complex, and many people shy away from trying to understand it, and that's a huge disservice for those in our industry.
For anyone reading along -- It's as simple as this: understand the tax implications of the assets you own, pay your taxes.
That's part of the surprise - I can't speak to the specifics for US citizens more than others in this post have as I'm not based there. Tax definitely wasn't determined _at time of vest_ for anybody though, it was time of liquidity.
In Australia we were granted options, which ordinarily are taxed at time of exercise. Lots of people were surprised to discover, almost a full year after the IPO, that those options were also subject to a tax deferral scheme and any tax already paid at exercise wasn't sufficient. The actual taxable amount determined by HashiCorp and the ATO was the $80 IPO price. If you sold the full amount you were entitled to (10% of your vested holdings) at the IPO you were probably fine. If you sold nothing, because you thought you had already paid the required taxes, by the time you received the tax statement the value of your stock would have been less than what you owed in taxes.
I’m pretty sure U.S. law requires companies to withhold at 22% (or optionally higher) for any bonus/non-salary payments, which includes RSU vesting. Companies can choose to either “sell to cover” or just issue a proportionally lower amount of shares (e.g. you vested 1000 shares but only 780 show up in your brokerage account).
The problem occurs when 22% isn’t enough, which is often the case.
It always amazing me how people play telephone with Red Hat and how bad the quality of life is post IBM.
When they show the service awards they don’t even cover 5 years because they don’t have all day.
If it was so bad then you wouldn’t see engineers with 10, 15, or 20 years experience staying there. They already got their money from the IBM purchase so if it were bad then they would leave.
Oh but they don’t innovate anymore.
Summit is coming. Let’s see what gets announced and then a live demo.
> If it was so bad then you wouldn’t see engineers with 10, 15, or 20 years experience staying there. They already got their money from the IBM purchase so if it were bad then they would leave.
Every big, old, stagnant company is full of lifers who won’t move on for any number of reasons. The pay is good enough, at least it’s stable, the devil you know is better than the devil you don’t, yada yada yada. There are people in my life who work in jobs like that. They will openly admit that it sucks, but they are risk averse due to a combination of personality and family circumstances, so they stick it out. Their situation sucks, and they assume everything else sucks too. And often, because they’ve only worked in one place so long, they have a hard time finding other opportunities due to a combination of overly narrow experience and ageism.
The movie Office Space is about exactly the sort of company that is filled with lifers who hate their jobs but stay on the path of least resistance.
(I know absolutely nothing about working at Red Hat, so I’m not trying to make a specific claim about them. But I’ve known people in this situation at IBM and other companies that are too big for their own good.)
> they have a hard time finding other opportunities due to a combination of overly narrow experience and ageism
I too know several lifers at IBM. One thing I've realized is that staying loyal to a company over several years won't save you from ageism.
Your best defense against ageism may be to save more than 50% of your tech income for about 20 years, then move into management and build empires until the music stops.
Red Hat Principal Consultant here, July will be 7 years at the company for me.
Before IBM purchase: travel to clients, build and/or fix their stuff, recommend improvements
After IBM purchase: travel to clients, build and/or fix their stuff, recommend improvements
At least on my side of the aisle I haven't noticed any notable changes in my day to day work for Red Hat. IBM has been very light touch on our consulting services.
our current economic model kind of depends on the idea that we can always disrupt the status quo with american free market ingenuity once it begins to stagnate but maybe we have reached the limits of what friedman's system can do or accounted for.
Sadly I echo your sentiment about the future, as someone who has heard second-hand about the quality of work at modern Redhat.
I am wondering how many more rounds of consolidation are left until there is no more space to innovate and we only have ossified rent-seeking entities in the IT space.