Bernie Sanders' Tax Proposal | My First Million Podcast

Speaking of presidential, did you want to talk about Bernie? Is that your first thing up here?

I have a thing up there, but I didn't research enough, but I'll talk about it just quickly. So a bunch of people on Twitter were freaking out because Bernie's proposing this tax on vested shares that you haven't actually cashed in yet.

Okay.

And tech people were like, okay, there goes the startup scene. Like, Well, you know, if you're gonna tax people on vested shares that they haven't actually received the prop— like, this company's not liquid. And so there are some nuances, like it's written here, it's taxed on non-qualified stock options of at least $100,000. You know, if you have over $100,000 in stock, uh, stock options that are vested and you're an employee who's making at least $130K. So it's not everybody and it's not all types of things. So it's not RSUs, it's ISOs, I believe.

Okay. So I'm not an expert. Expert in this stuff at all. I'm not an expert in politics. I know what I believe, but I don't know the technical details.

Well, let's agree to talk out of our ass for 2 minutes.

I'm not going to talk about that, actually. But here's what I am going to talk about is starting a company and how it worked with us. And this will— a lot, because I do know that a lot of people think like, oh, the rich are doing this. They don't understand things. So when we started The Hustle, I saved up $25,000 to start it. With that $25,000, I made $60,000 in profit in 6 weeks, which is pretty good. And the first year in business was roughly $380,000 in revenue. And most of it was profit because I paid myself, we were in, I think we were an LLC. I withdrew $2,000 a month in salary. Salary. And that's how I paid my bills. My rent was cheap, very cheap, hundreds of dollars a month. And I lived off $1,200 beyond that. Beyond that, I was very— I lived very, very, very frugally. And then we decided to raise a little bit of money. I raised, I think, $300,000 from people at a $3.5 million valuation.

And you had to change from being an LLC at this point, right?

Yep. Changed to become an S corp. I think it was an S corp, probably a C corp. I don't remember. See, this is— I'm not an expert in this. Yeah.

You want to be a C corp if you're going to take investment. That's just like if you don't have to. Study all the differences between them. But if you're gonna take like traditional investment, they're gonna want you to be a C corp.

So we converted, it cost $5 grand to do that. At this point, we probably had half a million dollars in the, hmm, $300,000 in the bank account. I don't, I don't remember between $300,000 and $500,000 by the end of our first year. And we raised money at a $3.5 million valuation. And then once we started doing stock options and stuff like that, we signed up to Carta and they gave us a, what's it called, a 409A.

Yep.

Where we got—

So that 409A just values your company at some number.

Yeah.

You guys had revenue, so they probably took some standard multiple of revenue.

Yeah, so they valued us—

And you want it to be low at this stage.

Yeah, so they valued us in the millions of dollars of range. I don't remember. It could have been 3.5, it could have been 6. I don't remember the number. Whenever these types of businesses are, that's what they value you at.

And you want it to be low because that's what your share prices get. That's what your stock options are going to be if you're an employee. You want to get in at the sort of low valuation. So when it sells at a high valuation, you get this sort of increase in value. But if they— if the 409A comes back high, then you're not going to get, you know, as much of a lift on your share price.

And so at this point, our 409A is many tens of millions, which is nice. That's cool. We have a valuable business. But when we started, it was single-digit millions, which was still a lot. I was 24. At the time. I said I started with $25,000 and I was taking $2,000 a month. I was not saving any money. Right. Okay. I'm not complaining because it worked out. But so on paper, I was a millionaire, multiple millionaire. If I had to pay, I think I forget what this— I don't want to, like, act like I know what I'm talking about. Let's say if I had to pay 20% in taxes on that multiple millions of dollars, you wouldn't have had— I literally wouldn't have had any money to do it.

Right.

Even if I wanted to withdraw money from our business account, I would have had to lay people off or—

Right.

I like— so when people say certain people are hoarding money or something like that, a lot of times it's not true. And I have a lot of founder friends that have businesses that are on paper worth hundreds of millions of dollars. Right. And they have tens of thousands of dollars saved in the bank account.

Yeah. So they're not liquid.

Yeah. I think people—

And this also happens if you're an employee. You leave a company, you usually have what they call an exercise window, which might be 30 days, 60 days, 90 days. I think the normal is 90 days. So that gives you 3 months to come up with the money to buy your options or you lose them. And a lot of people don't have that money because like, you know, they leave one company, it's a startup, and now their shares are worth $80 grand or $180 grand and they need to go. They want to go do a different job. and, um, now they need to come up with 80 or 180 grand to buy out their options. That's not still a guarantee that that money's coming back. And often people don't have that money sitting in the bank, so they'll forfeit their options, which is a, a true bummer. Some companies are being cool about it. Pinterest, uh, couple others, I don't remember, maybe Stripe. They increase their exercise window to 7 years or 6 years.

That's crazy.

So they're like, look, that's cool. We know this practice is a little bit crazy. Uh, it's hard to come up with that cash. And you worked here, you earned your shares. So we're not going to try to take those back. You have the longer window because we might be private for longer, which is kind of a cool trend.

So my company should do that. My W-2 income. So at this point, I make money in 8 or 10 different ways. I got loads of things that just— it just has added up over time. And that's great. And I still pay myself a salary. I pay myself not that much. I'm not the highest paid person here. Yeah. And I, but my W-2 salary, we're going to be 4 years old. I've been working on this as a project since 2014. We're going to be 4 years old officially in April. I— oh, next month. I— my W-2 salary in year 1, I think was $24,000. Year 2, maybe $36,000. And then year 3, then I started going higher.

Right. Because the business was established at that point.

But my W-2 income historically has been low, right? Quite low. And so when I saw this and I saw people getting mad at rich people, I'm like, I bet people thought I was rich, but I wasn't. You know what I mean? Yeah.

And you wouldn't have qualified for this cuz it says you have to be making at least $130K, but, uh, like, tax on my stock now, it would be painful.

Fucking hard.

Yeah, you'd be in a really tough spot. So you know, Bernie, I like Bernie, but this is a little bit crazy. This will really screw up, uh, the way the startup ecosystem works, but it can also adapt.

I'm not even going to take a stand if I think it's crazy or not. I just am giving a perspective of my business, and I bet, and I think I, I now, I think I have a lot more cash than even most people who have companies that are huge.