Ask HN: Can you secure a loan from a friend with startup options?

2 points by cs-szazz 5 years ago | 1 comment

Hi HN

I'm in the fortunate position of having a large amount of money (on paper) in startup options, and in the unfortunate position of not being able to afford the tax.

It seems that generally people recommend borrowing from family or friends, and then paying back when the stock is liquid. I have a friend willing to lend me a not insignificant amount of money ($350k), so I can exercise my remaining options.

However, my startup's option agreement says that:

Except as otherwise provided in this Agreement, this option and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process.

For anyone who's been in a similar situation, does this kind of legalese preclude me from saying "When company X is liquid, I'll pay you back the loan, otherwise I'll give you the options"?

Of course I suspect the real answer is to talk to a lawyer, if anyone has any recommendations for that I'd be all ears as well!

orbz 5 years ago |

Obviously yes, consult a lawyer. When you exercise the options they convert to shares, at which point you’re likely bound by a different set of obligations around right of first refusal by the company. At that point those shares are collateral for the loan with your friend. As far as I’m aware you can’t sell or otherwise trade options due to them being ISO’s instead of NSO’s.