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Uber

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Travis Kalanick

Handcuffed to Uber
Posted Apr 29, 2016 by Connie Loizos (@cookie)

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lenty of people would give everything to be an early

employee at seven-year-old Uber. But Uber employees

whove been with the ride-share company for at least a few years
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have discovered a considerable downside to their ride with the

transportation juggernaut. They cant afford to quit. Startup
employees have to exercise their options within 90 days of leaving a
company or else lose them and at Uber, that cost is simply too high.
A quick scan of LinkedIn for former employees underscores the point. Of Ubers roughly 6,700
employees, only a tiny fraction have left, and in most cases, those hires werent around long
enough to be worrying about vested options.
Employees of privately held companies have long wrestled with this issue. (We wrote about it
here last summer.) With valuations of many privately held tech companies having soared so
dramatically in recent years, the amount of capital needed to buy employee options has
escalated at an unprecedented pace for employees at a variety of places.
Uber appears to be the most extreme example, however. In a completely hypothetical example,
lets say an early, top Uber engineer was given .5 percent of the company. Now lets say this
person was awarded options in 2011, when Uber raised $11 million in Series A funding at a
reported $60 million valuation. His ownership stake at the time would have been $300,000. Yet
today, that same stake (undiluted) would now be worth $300 million at Ubers reported current
post-money valuation of $60 billion. Thats a paper gain of $299,700,000.
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Its very hard to cry about that, its true. But there is bad news: at a 40 percent tax rate for shortterm gains, if the engineer opted to leave Uber, hed confront a tax bill of $119,880,000, not
including that earlier $300,000 needed to exercise the options. And leaving Uber would start the
clock. Hed have just 90 days to come up with the $300,000, and hed have to come up with the
rest of the money for the much larger tax bill by the next April 15.
Maybe Uber will be publicly traded by then. Maybe it wont.
Some highly valued companies have tried to ease this issue for employees by allowing them to
sell some of their shares to preapproved secondary sellers at certain points. Not so Uber, which
amended its bylaws in 2013 to restrict unapproved secondary sales. Not only does it not allow
employees to sell their shares to secondary buyers, it also wont allow them to use services like
those offered by 137 Ventures, which makes loans to founders and early employees using their
stock as collateral. (Snapchat, Dropbox, and Airbnb have similar policies.)
Our sense is that the company doesnt mess around, either. Four secondary players have told us
of employees whove tried to find ways around Ubers regulations, only to be stymied. Weve
been approached by big groups of early employees, and I know a lot has been written about
loans or hypothetical products to get around its policies, says one source. But Ubers position is
that if it learns [of a sale or loan] that goes around its share-transfer restrictions, there will be
consequences.

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It may seem uncharitable on some level, but its very much by design, according to insiders, who
say Uber CEO Travis Kalanick has two primary motivations for keeping his companys shares on
lockdown.
The first dates back to Facebook, whose IPO was widely considered a bungled affair. In small part,
errors in Nasdaqs computer programming created problems. (Nasdaq later paid out tens of
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millions of dollars to both the SEC and to brokers who lost money because of those glitches.)
The bigger issue was the vibrant secondary market that sprang up around Facebook shares when
the company was still private. By the time Facebook went public in May 2012, many retail
investors had already shelled out several hundred thousand dollars for its privately held
shares. There was no pop, says one longtime Uber employee who asked not to be named.
Uber doesnt want everyone in the deal because, unlike Facebook, it wants a spike when it
finally has its public market debut.
Ubers second motivation is to retain the companys talent. Whereas some companies like
Pinterest have opted to make give employees greater flexibility when it comes to managing their
vested options, Uber has chosen instead to make it hard, if not impossible, for its employees to
move on to other companies.
If you had the ability to sell a portion of your shares to pay the tax on them, that would be one
thing, says one longtime Uber employee. But you cant. So unless youve already made a lot of
money or want to walk away from very valuable equity, you stay.
Uber management is all former Google and Facebook execs, notes this person. Theyve seen
the pitfalls of letting people exercise early, and they made sure, early on, that it wasnt going to
happen. Unfortunately, many [employees] who walked in here and received options didnt really
understand all these sophisticated systems.
Money, money, money, money . . . money!
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Money, money, money, money . . . money!

Despite employees immobility, morale inside Uber remains high, according to our sources, a
sentiment that the jobs site Glassdoor seems to confirm. Roughly 1,600 people have reviewed
Uber on the platform; the 490 whove rated CEO Travis Kalanick collectively award him a 91
percent approval rating.
As Uber investor Bill Maris of GV recently noted to us, too, a lot of [Ubers] employees are new. I
dont think theyre pounding the table saying, We need to go public because we need our
money.
Indeed, one source says the number of employees whove been with the company for more than
four years and whose options are fully vested is in the low double digits.
Nevertheless, being handcuffed to the company can mean missed opportunities, both for
employees to work for other companies (or themselves), and in their personal lives.
As one sympathetic early investor who asked not to be named tells us, Giving employees
liquidity doesnt mean they leave. Sometimes they want to buy homes or cars or whatever, and
providing ways they can improve their lives seems like a good move.
Questions about Ubers future, and how much everyone owns, is likely an ongoing distraction for
employees, too.
Though Ubers success to date has been unrivaled, a variety of on-demand apps have been
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closing down owing to their thin- to non-existent margins. Uber isnt immune to financial worries,
either. Just this week, it agreed to shell out at as much as $100 million to drivers in California and
Massachusetts to settle a class-action lawsuit. Its unlikely the case settled the prospect of other
lawsuits stemming from disagreements over how Uber should classify its drivers.
Meanwhile, the company has already raised at least $9 billion in funding from a wide variety of
capital sources. That gives it room to grow and experiment. At the same time, later-stage
rounds typically come with preferred terms that aim to protect those new investors often at a
cost to earlier backers and employee shareholders. In fact, some speculated last week that
a tirade authored by VC Bill Gurley of Benchmark against dirty terms was aimed at Uber
management. (Benchmark led Ubers Series A round.)
Gurley didnt respond to related questions last week.
Asked for this piece about employees inability to sell or transfer their shares, Uber also declined
to comment.
Given the many other initiatives that Uber is juggling on any given day, thats not surprising.
In the meantime, Uber continues to chug along with the help of many employees who feel really
good about the company. So says one Uber employee who, its worth noting, has worked for
Uber for less than a year.
At Uber, as with all startups, the big question is how long that goodwill will last.
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CrunchBase
Uber

FOUNDED
2009

OVERVIEW

Uber, a [San Francisco](/location/sanfrancisco/528f5e3c90d111115d1c2e4ff979d58e)-based

technology startup, is innovating at the intersection of
lifestyle and logistics. Uber connects riders with safe,
reliable, convenient transportation providers at a variety
of price-points in cities around the world.

LOCATION

San Francisco, CA

CATEGORIES

Public Transportation, Real Time, Automotive,

Transportation

WEBSITE

http://www.uber.com

Full profile for Uber

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21 Comments

Sort by

Add a comment...

Dan Goikhman Chief Executive Officer at Unreel entertainment

C'mon
Like Reply

4 Apr 29, 2016 9:41am

Booknes Thermidor Glades Central High

Do you tip Uber drivers? Here's why you should! rideordriveuber.com/do-you-tip-your-uber-driver/
Like Reply

5 Apr 29, 2016 1:08pm

Rebecca Dann
Booknes Thermidor Huh, I shouldn't. No one should.
Like Reply

5 Apr 29, 2016 8:11pm

Tom Werner Works at Charleston One Source, LLC

Rebecca Dann please explain why no one should tip their driver. Even Ashton Kutcher said he would tip i
driver helped deliver a baby. Is this tip / no tip threshold too low for you?
Like Reply

1 Apr 30, 2016 4:44am

Show 5 more replies in this thread

Matt Poland Huntington Beach, California

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California problems...
Like Reply

4 Apr 29, 2016 9:59am

Jeff Pickhardt

The tax code should be fixed so that you don't have to pay AMT on illiquid ISO gains. This is such an obvious solu
and I hope Silicon Valley lobbies for it.
Like Reply

26 Apr 29, 2016 10:01am

Rebecca Dann
Uber is breaking so many laws, hey - what's one more law to break!?
Just do it. Forget lobbying. Uber-MAFIA style!
Like Reply

3 Apr 29, 2016 8:12pm

Doug Wolfe
how is 29,940,000 40% of 30,000,000 again? Shouldn't that tax burden be more like 12M
Like Reply

2 Apr 29, 2016 10:26am

Constance Loizos

doug, you're right. i was playing w different number sets and screwed that up. thanks for flagging. (englis
major.)
Like Reply

1 Apr 29, 2016 11:15am

Wayne Hillis John F. Ross C.V.I

Constance Loizos I'm really confused now. Aren't we talking 300m which would make it 120m tax burden?
Like Reply

5 Apr 29, 2016 12:10pm

Phil Haslett

We at EquityZen did a similar analysis in 2014, for those that are curious: https://equityzen.com/.../uber-employee
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shareholder.../
Like Reply

4 Apr 29, 2016 11:57am

Daniel Orlowski

Did they (insiders/board/founders) really reference FB by saying "No Pop...it wants a spike"??? It's been almost 4
years since facebook IPO and FB is up 200% from it's IPO price. Are they referring to a short-term spike so they c
cash out. Do the higher ups at Uber believe there is NO long-term potential with their own product?!?
I will be staying away from Uber when it does IPO.
Like Reply

8 Apr 29, 2016 1:03pm

Rebecca Dann
I'd be buying Enron and WebVan before buying uber.
Like Reply

4 Apr 29, 2016 8:13pm

Eric Rodriguez Director of Sales at CapLinked

Spot on Daniel. I get similar (sociopathic) vibes from Uber as we observed with Zynga circa 2012. They w
engineer their IPO (and associated pop) around ensuring top execs get to cash out to sucker retail inves
and keep employees locked up during this period. By the time the employee lockup expiration rolls aroun
the stock will have plummeted from the pop peak well below IPO price.
Like Reply May 2, 2016 11:24am

Napoleon Suarez Director of Search Marketing at I76 Solutions

I guess now these employees know how it feels to be a stud athlete in his (or her) Freshman year in college. Not o
can an athlete not play professionally (and quite possibly a big payday) until three years removed from high scho
(with football, at least), they can't even make any money off of their likeness while they're in school - all while the
school makes millions off of them.
Like Reply

5 Apr 29, 2016 1:38pm

Zach Lust Tax Associate at CohnReznick LLP

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So basically if you can get a loan, refinance your house, have a lot of savings, or rich relatives to help you out, yo
can become a multi-millionaire. Otherwise, youre a slave to Uber. And just think, when most people hear of Uber
slaves, they usually think of the poor drivers!
Like Reply

5 Apr 29, 2016 2:49pm

Mick Price Canberra Grammar

No you're not a slave, you just lose a lot of money if you quit. Nobody is forcing you to work there, they're
making it harder to get something you're owed if you quit early. All it would take is a loan on the security o
the shares, which is legal as long as you can find someone to agree to it. Since the shares are worth a hu
amount it shouldn't be too hard to find someone to loan money on them.
As for the "poor drivers" stop concern trolling. The people who whine about how badly Uber drivers are
treated are the taxi drivers who will lose money, not the drivers themselves.
Like Reply Apr 30, 2016 3:08pm

Jesse Kiewiet
Mick Price, you should talk to more drivers.
Like Reply

3 May 1, 2016 2:26am

Christian Hresko

No one is a slave to Uber. The engineers get paid bank. Leave if you don't like it - sticking around because of equ
is just an excuse to not quit. Also, 99% of all startups have this exact same structure (90 days after leaving).
Like Reply

6 Apr 29, 2016 3:27pm

Jason de Nys Teacher at Tenison Woods College

Exactly. Cry me a river. They're probably paid more than the average nurse, paramedic, teacher or cop.
can cope.
Like Reply

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1 Apr 29, 2016 6:49pm

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Brad Billman Rio Salado College

They need to spread the wealth and start paying drivers more
Like Reply

1 Apr 30, 2016 5:54pm

Leo Romanovsky

That early engineer could have purchased their options with an early exercise and paid whatever the strike price
7 years ago - likely affordable and not owed any AMT. Not understanding how options taxes work is not an excuse
feel bad for folks!
Like Reply

3 Apr 29, 2016 5:21pm

Christian Hresko

Good point re: early exercise. I suspect most employees either don't know about or aren't told about this
one startup I worked at mentioned it - you basically have to teach yourself how stock options/grants work
Like Reply

4 Apr 29, 2016 7:35pm

Sol Bier San Francisco, California

First, they would need to come up with that money upfront to purchase their shares, which years ago wou
have been a much more expensive proposition. While today they could easily get a $300k loan secured b
$300M worth of stock (even if it is a startup), that would not be the case upon their inital grant, when Ube
was valued much lower. Second, they would be risking their investment and essentially becoming an inve
in the company. Hindisght is 20/20, but in most cases the employee would lose their money. Thus is the
nature of startups. A much simpler solution would be to remove the tax basis on restricted stock until the
stock became unrestricted. That would be much more employee friendly, something CA seemingly strives
Like Reply May 1, 2016 3:53pm

Jose Pablos
Travis formula for success :
Uber more Low rates = (more happy enthusiastics, dynamics,efficients mental retarders drivers) + (more cheap,
frugal, entitled, rude, libertine, disgusting, arrogant, tclassless, shameless drunks pseudo riders) + (less taxis)
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Lmao
Lmao
Pleased don't confuse exploitation with stupidity
"Stupid is the one who gives not the one who ask or get"
Simply awesome this is the shorter phrase I found all over the internet to describe the situation with the libertine
pseudo riders and the retarders driving for Travis
Is so funny to see how many people talk about slavery and ... See More
Like Reply

2 Apr 29, 2016 7:16pm

Rebecca Dann
But this is "innovation"...(rolling eyes).. it only requires you to have a very low IQ to believe in this bs.
Like Reply

1 Apr 29, 2016 8:14pm

Jose Pablos

And "disruptive technology"lol

Thanks to this stupid app all the service industry is barely tipped or not tipped at all people is turned very
frugal And cheap; we are loosing the culture to tip thanks to the so called "disruptive technology "
Lol
Like Reply Apr 29, 2016 9:35pm

Jonathan Evans Vice President, Publisher Relations at News Launcher

Don't trust LinkedIn for anything... they don't verify or remove. Plus someone who drove for Uber one day can list
them as a past or current employer. Not the best example for this story versus companies where it's tough to be a
1099 worker.
Like Reply

2 Apr 29, 2016 7:20pm

Matthew Jennings University of Virginia

Uber doesn't hire their drivers, they are independent contractors so they can not list Uber as an employe
Like Reply

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1 Apr 30, 2016 9:26am

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Ved Petkar Lead Developer at Neutun Labs

Matthew Jennings sure, tell that to the 5000+ that do on LinkedIn. Nothing is verified on LinkedIn.
Like Reply May 1, 2016 7:50am

Rebecca Dann
You don't quit MAFIA while still breathing, buddy....
Like Reply

1 Apr 29, 2016 8:10pm

Iftekhar Khan
UBER worth 60 Billion lol nice joke !
Its a hype lots of false advertising
Like Reply

1 Apr 30, 2016 3:41am

Chris Heffley Brick Township, New Jersey

I too find this hilarious. This company in seven years still hasn't turned a profit.
Oh, I've got a company for sale too. 50 billion dollars, first come, first served. It's an easy business to ope
We take investors cash and burn it... That's all we do. Sounds lucrative, no?
Like Reply

3 Apr 30, 2016 7:16am

Chris Heffley Brick Township, New Jersey

Drivers want to be employees because Uber is greedy and pays shit and employees just want to be drivers becau
Uber is greedy and wants to protect investors. What a wonderful company to deal with.
Like Reply Apr 30, 2016 7:10am

Sean Toomey
Cry me a river.
Like Reply Apr 30, 2016 9:11am

Aurelian Marius Pirosca Malden, Massachusetts

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Uber is a ponzischeme! They heir drivers with a new car , take out the money of the car. It is like you sell your car
cash give 20% to Uber then the rest is to fix the car and pay the loan!
Like Reply

1 Apr 30, 2016 5:51pm

Mike Barrette UW-Marinette

Some people just can't wait, they want there millions now, kind of can't blame them. Just knowing there's a big pay
would keep me around. That's the kind of society we live in today,everyone wants it now, even companies use tha
approach, they only want to grow by buying up other companies, not the old fashioned way,from the ground up.
Like Reply Apr 30, 2016 6:04pm

Haje Jan Kamps

San Francisco, California

Maybe this is incredibly nave, but couldn't you play this one in your favour? I feel like if you somehow sat on $300
Uber stock, you could use that as collateral for a bank loan from pretty much any high-end high-street bank. Get
loan, exercise your options, get the hell out of dodge, pay your tax bill, and sit back and pay the loan when Uber I
Yes, it's unconventional, but it's a weird situation, and there's plenty of bankers who are willing to take a wellcalculated bet and make their institution a couple of million dollars in the process. Hell, you might even be able to
a private investor who would be willing to give you the money you need in exchange for some of the Uber stock.
Like Reply

1 Apr 30, 2016 8:48pm Edited

Jack Smith San Francisco, California

The share purchase agreement may well restrict the legality of being able to use the shares as collateral
something like a loan. As that would mean that if you defaulted, the bank would get your uber stock. Whic
given the above, I doubt uber wants your bank having stock.
Like Reply

2 Apr 30, 2016 10:46pm

Haje Jan Kamps

San Francisco, California

Jack Smith You may be right about the legality, but unless I'm mistaken, once the company IPOs, it loses
say in who owns stock, so whether it's a bank or a person holding the stock becomes less relevant.
You may be right though, I'm definitely a layman here. I just think it's so curious that this problem exists.
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Like Reply

1 Apr 30, 2016 11:28pm

Eric Rodriguez Director of Sales at CapLinked

I understand you're trying to illustrate a hypothetical, but to suggest a .5% employee stake at the point Uber raise
$11M would be undiluted after $10.6B has been raised? Not remotely plausible.
Like Reply

3 Apr 30, 2016 10:39pm

Constance Loizos

hi, yes, true. i was trying to keep things simple (partly for my own sake). there could well be employees wh
had a .5 percent stake and have seen it diluted down to something far smaller, like .1 percent. in the latte
situation, the employee would still have to come up with $12.2 M pretty quickly, which isn't really possible
unless you've worked previously at google or facebook, etc. (some of them have.)
btw, i'd like to add that i didn't intend for this to come across as a hit piece. some readers have compared
travis kalanick to a slave driver, which is absurd. uber isn't alone in enacting these policies. it just happen
be the most valuable right now, which puts its early employees in a uniquely strange position.
Like Reply May 1, 2016 8:22pm

Eric Rodriguez Director of Sales at CapLinked

Constance Loizos Fair enough, you had to set some parameters for your assumption. I would've concede
more strongly the likelihood of dilution further to enhance the argument's plausibilty.

By TC standards, this may feel like a hit piece (since most coverage of heavily-financed startups is glowin
positive), but I think in 'real' terms it's reasonably neutral.

I agree many startups have similar financial/stock terms for employees, and at least in the context of his o
employees (vs. drivers), I do not regard Kalanick as a slave driver. I regard him as evil in many other way
though, to ... See More
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Andrew Olise Iwelumo Jnr Works at Rock Cafe

you can use my lyft code RULYFT next to get $50 off in ride credit on LYFT . thanks
Like Reply

1 May 1, 2016 12:47pm

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