Bitten by the 90 day exercise window
- August 02, 2021
- 3 min read
9 years ago our first startup, PlanForCloud, was acquired by RightScale. The acquisition was in the form of cash and stock options in RightScale, which itself was a 6 year old VC-backed company (Series D) with ~200 employees. We signed, what was at the time, a standard 4 year vesting period with a 1 year cliff and a 90 day exercise window1.
The 4 year vesting period and 1 year cliff were fine2 as we had a shared multi-year vision that we wanted to execute on: PlanForCloud would focus on multi-cloud costs whilst RightScale focused on multi-cloud infra provisioning. We didn’t fully understand the trade-offs of the 90 day exercise window though; it seemed ok at the time as post-termination, we had 90 days to pay and exercise the options, then deal with the tax implications.
Fast forward to 2016, our stock options had all vested and we left RightScale to work on a new startup idea. That’s when the trade-off became clear: should we pay a significant amount of money to exercise the options, or invest that money into our next startup?
We decided to invest that money into our next startup as that’s where we could influence the outcome vs leave it locked-in the company that we were leaving. However, something felt odd as we had already helped the company grow during our 4 years, and the stock options had already vested - yet we still had to bet on whether the company would exit in favorable terms or not3.
So yep, we were bitten by the 90 day exercise window and the experience was not great. To be clear, this is not a critique of RightScale. They were doing what was the industry norm in 2012. It’s just sad that the norm hasn’t changed much despite ~10 years passing.
For Infracost, we made a deliberate decision to have a 10 year exercise window. The rationale being that 10 years is probably long enough for a startup to either go bust, get acquired, or IPO (the long-term game we’re playing with Infracost). If you join us and contribute we want you to be able to share in our success.
Like most things in life, this does not come “free”. Longer term it means a bigger employee stock options pool and more dilution for everyone, but it’s a trade-off we took as that’s how we would have wanted to be treated if we were employees.
I wrote this blog as I’m speaking with engineers about joining our team and it’s surprising that most people still don’t know how the 90 day exercise window can bite them.
I wish Zach Holman had written https://zachholman.com/posts/fuck-your-90-day-exercise-window/ before we signed the contract 😂↩
You could argue that as founders, it would have been better had we negotiated for Restricted Stock Units instead of Stock Options, but the same issue applied for the people I was about to hire to join us on the joint PlanForCloud-RightScale vision.↩
Flexera acquired RightScale in 2018; the cloud cost aspects of the RightScale platform were a significant part of the PR messaging: https://www.flexera.com/about-us/press-center/flexera-acquires-top-multi-cloud-management-provider-rightscale.html↩