finance talk...because we need it w/ steve alverson

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Hello, hello. Thanks for listening to Guidance Counselor 2.0. Listen, I want to give you a quick rundown of what this podcast is and what you're about to get into as you listen to these episodes. We had Guidance Counselors in middle school. We had Guidance Counselors in high school, but we didn't really have Guidance Counselors in college and now as professionals, we don't really have anybody to turn to to ask a quick question to learn something about the job search or to navigate your career. So that is what I want this podcast to be for you. I want it to be a tool for you to navigate the job search and your career.

So that being said, I hope you enjoy this episode. And if you need to reach me, Taylor at vaco, VACO.com is how to get in touch with me old fashioned email social media at T D S and T D E S S E Y N. And finally, please rate and review this in the app store because I want this to be discoverable for others so they can navigate their careers. Hope you enjoy the episode. Steve, give the people what they want. Who are you? What do you do? We'll go from there. Yeah, thanks. Yeah, Steve Alverson, I am a certified financial planner, educated, my master's in business.

I love small business. I love small business owners, and I love it when they grow to be very, very profitable. And so I've worked at this firm for almost a decade and learned a lot, have two incredibly, I've been very, very blessed to have two incredibly gifted mentors that have forgotten way more than I know. And so I'm not an expert in all areas, but I'm learning and constantly showing up every day to try to be a sponge so that I could be a resource for folks. So that's my 30 second skinny. I love it, I love it. Hey, Lucas, Lucas is watching on Instagram.

What up Lucas, it's good to see you. Oh, I love it. Samantha, it's great to see you LinkedIn users in the arena. Scott Phillips, good morning. Yes, Render Atail is gonna be a blast. It's so good to see you all this morning. Again, say hey to somebody in the DMs. Go be fearless today, as I always like to say. All right, so Steve, let's dive into it. And again, if you all have questions in the audience, please ask them. But I wanna dive in today and I'm looking at your notes. RSU's options, right? So I think that's the big thing. People are getting offers around the country.

You have RSU's, you have options. I don't even know the difference with them, to be honest with you. So let's break that down. What are the main differences between an RSU and an option? Well, before you start, I mean, I think we need to back up and to really define what a stock is. Yeah, that sounds great. Let's do that. Because, you know, in its simplest form, a stock is an ownership. It's an ownership of a company. There's many reasons to own a stock and there's many reasons for a company to issue stock. But it simply just means that you have an interest in the success or failure of a company.

Okay. And so there's a lot, this whole industry has completely changed and it's changing each year. But primarily there's two different types of ways that a company will give you stock as a form of compensation as a W2 employee, which I'm assuming most folks that you talk to our W2. Salary at a company, W2. Yes, salary at a company, W2. They also offer some for contracted folks. But the main, there's two different, two different, the two biggest differences in the two are you get the, so for restricted shares, you receive these shares. Like they will give you the stock versus option. You have an opportunity to buy at a set price.

It's true. I did not know that actually. Yeah, and so most of the time the options are pretty favorable and we like will say favorable as in in the money So you have an opportunity to buy that stock The option gives you an opportunity to buy at a substantially lower price than what the price is It's like what last year, you know, there was a lot of talk about how Elon Musk's had some options expiring. And so they were in the money substantially. And so he had an opportunity to buy more of his shares or more shares of his company at a set price based off of his compensation package.

And he was in the money. And so it was extremely profitable for him to do that. And he was he had to sell some of those to pay the tax bill. And so two different two different and that's the first difference in in defining the team. And real quick, I remember up to you a quick view. If a company's private and not on the stock market, is RS use the only way to give those options to somebody or are there other ways? Like what should people be mindful of or ask during the interview process? If a company's not public, right? What should they, like do you have RS use?

Do you have, like, what should people ask? Great question. So yeah, we need to back up everything that I just said was about large publicly traded companies. Where is there, and that is like, that's like 30% of the workforce. Most people work for smaller companies. And in the tech world, I know that, the Fangstocks, the very large companies get a lot of the, a lot of the journalism and a lot of the energy online, but most of your folks are working for smaller companies. So that space is completely different. It all depends on the company, how well the company is making money. Are they making money via investment?

Are they making money via, or are they just taking out debt in hopes of going public to the, taking their company public. And so private companies, those compensations are going to be a bit more complicated because each company is different. And so, you know, I can, if I have like individual questions, I can address, but it might not, it might not relate to other folks. Sure. Because it's very different. And not that it's the Wild West, it's just there's less restriction for companies in those phases of growth versus the larger companies. Those are pretty set and standard. Okay, so, but should, like, what should be a good question for job seekers when they're interviewing at a non-publicly traded company to figure out what they offer?

Or is it just as simple as, hey, Mr. and Mrs. Company, what do y'all offer in terms of shares, benefits outside of salary and bonus? Like just trying to get some word tracks for for individuals. Yeah. Yeah, I would ask what as part of their compensation package, is there an opportunity for ownership? So I would start, I would start there very basic. And then, and then whenever they said yes, we then they'll give you the, they'll give you the options. It gets pretty complicated from there. Again, it just depends on the company. However, you whenever you, things that you want to ask are, look at your contract.

Is your, how long is the contract that you're signing to work with the company? How long do you plan on working with the company? Because the vesting schedule is going to dictate a lot of that. Well, let's talk about that. Because I think that's where a lot of people get questions. They're like, what is vesting? What does it look like? And again, if you all have any questions that are watching, please throw them up. We'll definitely take them. I know we're We're just kind of running through some questions here. But what is vesting and what should people keep in mind when it comes to this?

Yeah. So vesting means that the shares actually become yours. And so they might say, okay, year one, you are awarded 10,000 shares of our company. And that might be high, it just depends on the value. But let's just say, keep the math simple, 10,000. So 10,000 shares of your company. awarded year one. However, it doesn't vest until year three. And so you have to keep that in mind. You might be awarded it in year one. It's technically just like a, you know, hey, if you stay here long enough, you might see these because a lot of times, and another question that you'll want to ask are, is it going to be a performance based award?

Does the company have to hit certain targets? is their individual performance that can help me boost my award. And so, you know, some of those questions are pretty important to ask, but that vesting schedule is key. Normally it's three to five years. I've seen some go as far out as seven, but those are some pretty, pretty hefty golden handcuffs. The company, and you have to think the company is investing in you, and they want you to be there for a while knowing that you're really probably not going to hit your stride with them in terms of efficiency as an employee at about two and a half years.

So that's why they start those best things to get you as a three. And so now let me ask you this. So is there is there a way? So let's say you vest 25% after three years. Let's say you get 10,000 shares. So 25% of that is what? $2,500 or $2,500 shares. Let's say you leave after the first vest is done. Do you keep? Do you forfeit the other 75? Like, how does that work? Most of the time. Yeah, you forfeit it. Now there are, I have seen clauses where you can keep those, but most of that is tenure based and it's different for each company.

Okay, Stephen, what's up, buddy? It's good to see you. Steve, our R.S. user taxed when they invest as well, right? Yeah, so when they vest, they're taxed, they're taxed as income. Now, just think of before you, before you get, we get too far into the weeds. When a company gives you something, I'm gonna try to keep you out of the weeds. Yeah, I know. Yeah, pull me back because I'll go crazy. So when a That company gives you something that is income. So say you make, again, let's keep the math simple. Say you make $100,000. If the company gives you stock that's valued at around $30,000, you're going to pay taxes on that additional 30.

It's going to be added to your income for that year, whether or not you sell it or not. Now, if it's a good, if it's a, if it's a company that is managed well financially, they will give you enough shares so that they will, that those taxes will be paid. And so they will go automatically sell as soon as it's been given to you and the rights have transferred over to you and they'll pay the taxes for you. But that's a question that you're going to want to ask. That's a great question. You're saying sometimes companies will pay the taxes on this for you? No, no, no, they'll issue you additional shares and sell and make things in the taxes for you.

That makes sense. Yeah, that makes sense. You're going to want to ask that because you don't want to get a, you know, a $15,000, $25,000 tax bill at the end of the year because you weren't, you, you didn't sell those shares, but they didn't, they didn't, they didn't give you enough to pay for the taxes. I'm going to ask you this live and you can say you don't have to answer it. Can we work together and create a cheat sheet? And could it potentially be sponsored by you or not? Yeah. Yeah, we can do that. Right. We should do that. We should do that. We should do a lunch or something with the families.

I need to come over and have your wings on your trigger. And so we can create that checklist while you're grilling. So Connor, Connor goes at a private company. Any sort of options or shares are likely worthless, unless they get bought or go public. So it's important to learn if they have an exit strategy, because without an exit event, those options are grants are worthless. However, sometimes private companies have liquidity events where they distribute money earned by the company to employee SpaceX does this. For example, I don't understand half the words on this, but Steve thoughts? Yeah, so let's pull it simple so that everybody can understand.

Let's say that Taylor, you and I, We own a laundry mat business. Yeah, we do. We own a lot of. And you know, we're going. We're going global. Yeah, we are. So we have, we've got a couple employees that are rock stars and we want them to be leaders in our company. So we're going to give them shares of our company. Now, our company really is, is worthless because we're taking on a lot of debt. And because we're trying to go global. So if you are working for a company that's trying to grow really, really fast, most likely they're taking on a little debt. And so the only time that Taylor, the only time that our employees are going to receive a payout is when either in their contract, it's awarded if they exit, that we can reevaluate and pay them for their shares so that we get it back.

Or we take on investors. And so investors will buy a portion of our company and then at that moment, we have a decision to make. We can either give some of our shares or sell some of our shares to those buyers and our percentage ownership goes down, or we can keep it there and not take the money out and reinvest back in the company. And so, now that is a very simple explanation, but those are complicated and you as an employee, unless you're the CFO have very little control about those liquidity events, because when an investment maker comes on, or a private equity firm comes on to offer the investment.

Sometimes those things take two years. And so if you're planning on, if you're banking on that, I think it goes back to what Connor said. If you're banking on that liquidity event, it might take upwards. And I've seen, I've got a close friend of mine, it's taken him almost seven years to finalize this equity event. Now it's gonna be rather large for him. Sure. But you have no control. And so essentially yes, they are worthless. But sometimes if your company is growing and it's growing profitably and you got in early, those things can be very large and have a lot of zeros behind them. I love that, I love that.

And I'm looking forward to having Connor on the show. Connor, when are you on? Like next week or two, Connor's story about how we got to Netflix is fantastic. So we're gonna talk about that on the show. So, but let me ask you this, kind of going on this a little bit more Steve, when you say like, when a private company says the shares are worthless, but if they have that in the contract and there's a vesting period and stuff like this, like they're obviously worth something because you're gonna get paid on them, right? Or not. Okay, so let's go back to our example of our laundry.

Laundromat. So shares of our Laundromat business is only, since it's private, you and I own it, it's valued nothing to the public. It means nothing until a buyer comes on. And so that's the only time that it's, so like you go in the public world like Tesla, Tesla has valuations every second even when the market's closed because it's super popular. So it has value all the time. But our little company, it's worth what the buyer says it's going to be. Sure, that makes sense. And so if you're working for a company that isn't necessarily for sale or isn't looking to take on any private equity, then yeah, I would not consider those shares as any sort of value.

you. In Case in Point, I'll give you another example. I knew I knew of several companies here in the Nashville area that that went underwater with 2020, right? We saw that a lot in you guys' industry, especially in the vent space where event, music, all that. Those companies went underwater. So, you know, February 2020, they're valued at say a company be valued at 20 million. Well, March of 2020, it's essentially nothing. It's essentially worth nothing because all of those are events are closed and all events were closed and there is no, there is no, there's, there's so much uncertainty. And so if the stakeholders needed to keep people on, they would have to take on debt.

And so it, and then it just became a just a downward spiral because needed to pay their employees. And so, you know, you're, when you are working for, and this is really the big thing that I wanted to caution your folks, when you're working for smaller companies, you got to have an idea of if they're profitable, do they have a lot of cash on hand in case of their, Those things we should be asking during the interview process. I mean, it might be inappropriate in the first, you know, little bear's round. But like if you get an offer though, absolutely. When you get an offer, you need to ask like, Hey, ask what again.

Okay. When you get an offer, you need to ask the viability of the company. What do they have a do they have a nest egg? because we just got out of 2020 and the small business world, which this isn't announced, but the small business world was devastated. Companies went belly up because they didn't have the cash reserve. They were so used to getting income next month, getting income next month. It's just like your individual household. A company has to operate the same way. And there's only a a certain amount of debt that a company can take on before the banker says, no. Yeah. And so when you're receiving stocks as part of your compensation, like I wouldn't make it a huge factor and think of it as more of like icing on the cake unless you are at the very beginning stages and you understand that the risk is really high and you probably won't get a significant payout for a decade.

Yeah. So let's talk real quick and so good, time's flying by. But talk about Series A, Series B, Series C. You know, we got companies closing those rounds. What do they mean just for the average job seeker, right? So you know, one of my clients I work with actually just got their Series B. When I started with them last year, they got their Series A. Like can you talk about what those series are what does it mean for you during the offer stages? So that completely depends on the company. Each company is different. Some of them you'll have voting rights. Some of them have different vesting schedules.

And some of them are priced differently. Some of them are, you might receive them as an option form. And some of them you might receive them as restricted share form, meaning they're going to give you the shares and then some you might have the option to buy the shares at a significant discounted price. So they're going to be. If our laundry mat got a series A of 230 million investment, does that mean now it is worth it is worth 230 now? Based off our conversation. Based off of that. Well, it's worth what that person. and what that company or firm, if they gave you a $30 billion, or a $30 billion valuation, then yeah, it's worth what that company paid for.

Now, that moment moving forward, if it's not publicly traded, you kind of have an idea that that's what it's worth, but that doesn't necessarily mean anything because it's not publicly traded. I'm still trying to wrap my head around, And I'll say this, if I have problems wrapping my head around, I know others do too. Yeah. So I'm gonna use this company, for example, Series A just got their Series B, they're offering, I think, RSUs, you know, you get 3,000 shares, it depends on the person, 3,000, 6,000, whatever, I'm just throwing out numbers. Right. But what does that mean if they're not publicly sold or, you know what I'm saying?

Like I'm still trying to wrap my head. How does that tie into compensation? If they're not publicly sold, they did get an evaluation of 230 million Series A. Like it will be. Yeah, it depends on the company. If there's like a schedule for them to go public, like to go ask a question. That's something they should ask. That's something the job seekers should ask. Yeah, you need to ask. Like how far, like, so like, a lot of companies will take initial round of funding and then they get ownership of an idea. That's basically it. And then like for like maybe five years, there's like fast growth and then they'll take on, they'll take on, you know, their first series of investors.

Well, you know, $30 million or 30 million or whatever might be poured into the company and 50 those four or five owners initially, will their shares will be depleted, maybe 50%. I don't know, it just depends on the offer letter. And so, and then that company will own the other 50%. So now you've got the company owns 50 and then you've got the original stakeholders that own 50%. Okay, so that's a liquidity event. A lot of times those four owners are like, hey, if you're gonna pay us this much, we're gonna go ahead and sell some of these shares during this time and then we're gonna decrease my ownership so that I can take some of this off the table so I can provide for my family.

And so you might not have your initial, so say there were five owners originally. So you went from owning 20% of the company, you take on investors, now you own 10% of the company. Well, you might sell 2% of your shares just so you can breathe a little bit. So that's like from in its smallest form. Now, in its big, you're going back when you're in the latter stages, you take on those series B investments, that's the second form of liquidity. It just dilutes the shares even more. Now, you might have, you know, your 10% of what was a $30 million company is now, you take on another equity investment of a hundred, that company takes on a hundred million dollars and now your company is worth a hundred.

So, you know, your shares might be worth only 30 million in year five, but at year ten they're worth a, they're worth a hundred. And so that's if you keep those. And so it just, it keeps escalating at each level, but if you sell your shares, you're diluting at every, at every section. And so you want to like, when it comes to negotiating into that, you want to see what series, what level of, I guess, equity, what level of, I guess, equity investment, are they, are they at? And then do they see themselves going down a couple of more series before they go public? Like, do they not even have a goal of going public?

They just want to grow from a $500 million business to a billion-dollar business. So that was a long ramble. But does that help? Yeah, I know that helps. That helps. So as we wrap up here, I want to kind of go back again. You sent me so much stuff. And again, I want to keep a high level. So we may have to have you on for a follow up. And I do really want to get that cheat sheet we worked on that. But what are just some pitfalls that you see? So as we wrap it up here, let's kind of back out of these questions.

What are just some issues that you see people maybe R-H, right, that 30 to 40 age group, you know, starting to, because I mean, you know, we're talking about, you know, R-H group, there's a lot of transfer of wealth that's about to happen. You know, we're, you know, we're becoming big boys and girls and we're getting these jobs. And what are just some things to be mindful of that maybe you see some people struggling with? So sometimes options, so if you work for a publicly traded company that's smaller, those stock prices tend to fluctuate. And so your option might be worthless. So yes, it's an option to buy, but they might have forecasted growth to be too high.

And so they gave you part of your contract, you negotiated at a, a, a, a, an option price or a strike price of $15. But yet, um, the value of the company at, when, when you actually have a moment to exercise those, it might be, it might be worth 10. And so you don't want to make sure that when you exercise, you're exercising in, when, when your contract's in the green, when the option is in the green. So you don't want to buy the stock for five fifteen when you it's valued at ten essentially And and you have to watch that because smaller companies those prices are going up and down like a lot It could be I mean they could fluctuate 70% in a day.

So yeah, keep in mind Keep that in mind and I think the other thing too Which the dangers of what a lot of a lot of what I see is is people get hired in their 20s, they work through their 30s, they might work there for 10 years, or they get a very nice, maybe they change companies and get a very nice equity package. Make sure that that is not a significant piece of your overall nest egg, because again, those prices tend to be pretty volatile. And if you've got all your eggs in one basket, it might be good to consider some sort of like internal selling schedule and each person's going to be different, but you'd liquidate that to invest in other things so that you're spreading, spreading your, you don't have all your eggs in one basket.

I love that. I love that. A few more comments will come in. Sabrina, this is so good. Please have Steve on for a follow up. Love it. Very valuable conversation. Accepting offers more than just a salary. It's about the total compensation package. Knowing this info helps better negotiate. Yeah. And I think, again, I'm going to work with Steve to kind of come up with some questions. I'm still trying to wrap my head around this. And so I'll definitely share that with Steve and I can actually do it on there. Yeah. And one more thing too. And I told you this right before we started. Every single company is different.

Their compensation packages are different. Your individual situation is different. So there is no cutter, there is no cookie cutter solution to this. Make sure if you have questions, reach out to people and ask questions. And you don't have to be based in Nashville to work with you, right? Steve, this is kind of a license in like 28 of the 50 States. So yeah. So if you want to work with Steve, this, I did not have him on as a sales pitch, but I believe in what Steve's doing. Steve's got a very different minds and buried down to earth. So if you like what you hear, reach out to Steve.

Um, because he works for that. That's not that wasn't expecting that, but there are other folks everywhere. Accountants, some accountants know a lot about it, but sometimes they only understand the taxable consequences. And so just if you're, I mean, you're getting ready to feed your family. And so you need to have an understanding of how you're gonna be compensated. And there's different taxes that are involved. And so know that before you say yes and sign the deal. I'm gonna read Connors here. When I worked at Evernote, I was granted options. let's say it was $20,000 in options. What was important for me to know was that $20,000 was made of.

So let's say they were valued at $1 shared at the time. Valuations aren't 100% accurate, but it's close. That would mean I have $20,000 in options, 20k options. So if during my employment, Evernote grows 10x, now there were $10 a share and decides to go public and they IPO at $10 a share on the stock market, then now I have the option to, Connor keep typing, keep typing. I wanna know. I wanna know the rest of the story Connor. No, the cliffhanger. Cliffhanger. So, all right, I'm gonna let Connor here type Connor, please turn that over. Okay, let me dive into that for a second.

Sure, yeah, absolutely. So you're valued at a dollar for share. So that means if it's worth 10, then you're gonna pay a dollar for 10. So you essentially have a nine X growth there. And so now the taxes are complicated, but, and it's a little bit different. It's taxed differently than the restriction shares. And I'm technically not supposed to talk about the taxable consequences. That's fine. But I can point you in a direction if you have an individual case. I love that. But at any rate, that's, yeah. So you pay a dollar for something that's worth 10. Now, being a stakeholder originally before it went public, there's gonna be some rules on when you can sell.

So don't just think you can sell right at the IPO. And so you might wanna get an understanding of that. But essentially that, Connor, does that help? Yeah, he said it cut him off. Ah. Yeah, it's Connor. You can zoom in me and I'll answer his question. Yeah, yeah, shoot me DM Connor or the example, and then we can post it to the follow-up here in the chat channel. But Steve, thanks, man. That was awesome. Thanks y'all for hanging out this morning. Steve, you got any last words of wisdom? I know I already asked that, but I just want to make sure, like, if you got anything else to say.

Yeah, just diversify, consider taxes. And just because a if you work for a smaller company, just because they say, we're going to give you shares that sometimes that's a nice way of saying, we don't have enough money to pay you what you're worth. Wow. Wow, that was a great way to end the show right there. That was beautiful. Boy, that was a bomb. Anyways, all right, y'all go connect with Steve. Go connect Steve on, I was about to say Instagram. You can have Steve on Instagram if you want, but go connect with him on LinkedIn. And again, check out Render. It's gonna be great. Steve, thank you so much for hanging out.

Stay on and I end it so we can chitchat for a quick second. Y'all are great. Tomorrow morning, I'll be going live just myself. I have like a morning meeting and then I'm gonna jump right into kind of a live with just me and myself and I, we're gonna kind of talk about some more stuff. And Thursday, Unicorn Finders, we have Stephen Castaneda, Stephen and his company Culturally Tech, just won an NTC Award, National Technology Council Award for diversity inclusion this year. So his company is about helping minorities, DEI in the high school space to get plugged into real world opportunities. So that's Thursday, we're gonna talk Stephen Castaneda on Unicorn Finders, And then Friday, I actually have a speaker from RenderATL on.

It's going to be fantastic. So busy week, y'all have a great one. Go connect with Steve. Ask questions. Don't be a fool when it comes to finance. See y'all. Hey, you did it. You listened to an entire episode, and I am very grateful. Because you know why? There's a lot of podcasts out there. There's a lot of episodes. And I myself rarely finished an entire episode. So I appreciate you so, so much for listening. quick reminder, please rate and review this podcast in the app store. I want this to be discoverable to others. And the only way that happens is if you take the time right now and rate and review it, please, like right now, unless you're driving, then don't do it.

So thank you again. If you need to reach out to me, Taylor at vaco.com or at T. Dessen on all social media handles. And I hope you have a fantastic day.