Why is early exercising options dangerous?
In 2000, I early exercised my options in Tellme Networks shortly after going to work there. At the time, Tellme was one of the hottest startups in the Valley. It had raised $250 million and we were mentioned in the news almost daily. Our CEO, Mike McCue, was on the cover of Worth and had been featured on 60 Minutes. We all thought we were going to be rich and expected an IPO in a year or so. To avoid paying short term capital gains taxes, few of us passed up the “opportunity” to exercise our options early. Some people (thankfully, not me) invested a disproportionate amount of their savings into the company to avoid what were expected to be hefty taxes. So there I was, stuck with a chunk of stock in a company that had gone from peak to trough in 18 months. Then 2001 came along. The economy got worse. Tellme went through one round of layoffs and then a second. And finally, 9/11 kicked the company in the teeth. We were just beginning to work with airlines, but that fell apart because of t
