How Startup Founder Stock Often Triggers Unnecessary Personal Tax Hits

It feels like once or twice a day I speak with a startup that has tripped over a seemingly invisible rule applicable to founder equity: the founders and early employees/advisors in startups really need to get their stock or options BEFORE there’s a term sheet for a venture or angel funding. While not a secret, the law doesn’t come right out and expressly say this. Frankly, to know this you’d have to talk to folks who have an understanding of tax law, corporate law and startup life. That understanding, unfortunately, is in shorter supply than it should be and, for founders, seems to largely have been learned the Sharon Jones & the Dap Kings way:

“I learned the hard way, baby. Now I know about you. I learned the hard way … Not to be your fool.”  I wonder whether Sharon was singing about Section 409A?