Perhaps the only upside to the 409A panic in the start up world has been some of the urban legends that have already popped up. Jason and I aren’t your lawyers, so don’t take this as formal advice, but if your lawyers are advising you of the following, at least ask some questions. We’ve personally heard some senior partners at big-name law firms say some crazy things regarding 409A. The following are actual quotes. We will not disclose names to protect the innocent, er.. guilty.

When I woke up this morning, I decided that I wanted to see how hard it was to implement a map using the Google Map API (god only knows why I think of things like this when I wake up.) I’m no longer much of a programmer, but I can hack around with the best of them, especially if someone else does all the hard work and all I need to do is play trial and error with some HTML, CSS, and Javascript.

On Friday, Jason and I received an early Festivus / Hanumas gift from an attorney who asked to remain nameless, but we thank him nevertheless. He clued us in to a release from the IRS on December 23rd where the IRS issued some additional guidance related to prior grants. In a nutshell, the IRS said that stock option grants made before 1/1/05 are safe from 409A if they were done in accordance with the good faith valuation rules of the ISO regulations. Furthermore, grants between 1/1/05 and the effective date of final regulations just need to be done under a reasonable valuation method.

I spent a delightful few days in Aspen with Amy, my uncle Charlie, and his wife Cindy. My first computer experience was at a Frito-Lay office in Dallas when I was 10 where Charlie sat me down in front of a terminal with a green screen, fired up an APL interpreter, gave me a big book called APL: A Programming Language, and then left me alone for the next five hours. Over the years Charlie and I have worked together on a variety of things, most recently when I was a major investor in his previous company, The Feld Group (acquired by EDS in January 2004). 

I’ve been training for my next marathon (The Miami Marathon on 1/29/06). Given that it’s winter in Colorado I’ve been spending a lot of time on my treadmill to avoid the darkness, snow, and ice. However, I’d much rather run outside so when we got to Aspen last week I went looking for a pair of Yaktrax so I could run up and down the mountains. I picked up my Yaktrax (yeah – poor impulse control), but the person that sold them to me recommended I try a pair of IceBug MR Dry BUGrip’s. While the name is a little goofy, the IceBugs (which are made in Sweden) are unbelievably great. At first glance, they look like typical trail running shoes. However, when you look at the cleats carefully, you notice that some of them are made of metal. When you put enough pressure on the metal studs, the ends (the metal part) retract slightly (according to IceBug, they are “smart studs” – Amy’s favorite kind.)

I’ve been using FeedDemon 1.6 RC2 (the version that synchronizes with NewsGator Online) for the past two months as my feed reader. I monitor over 400 blogs a day and have found that FeedDemon is the only way I can handle this volume effectively. As an investor in NewsGator, I regularly use all the NewsGator products (very convenient since they almost all sync – NetNewsWire sync should be out soon for you Mac users – so I can easily switch between them.) I also play with many of the other aggregators to make sure I know what folks are up to. Nothing comes close to FeedDemon for high volume RSS feed reading / management.

An inevitable question to ask is “okay, the valuation firm came back and said the FMV of the last option grants should have been $.25 and the grant price was $.10. Now what do we do?” Good question. Unfortunately, we don’t have a good answer until the IRS gives us more guidance. But here is what we know so far. Despite the fact 409A is not a final regulation and is still subject to the comment period (more on this later), the IRS says that if you have a 409A “problem” you can fix it by December 31, 2005 (enjoy your holiday “break”) by electing one of the following:

The Internet (and the candy industry) is always good for a little sex. It was another PayDay and I was tired of Mr. Goodbar. Then, I saw Miss Hershey throwing me Kisses on the corner of Clark and 5th Avenue. In no time I pulled out my Whoppers and began feeling her Mounds with my Butterfinger. “Hey, how’d you like to Crunch on my Tootsie Rolls?”, I asked. Well, she did and it felt like pure Almond Joy. Then, I let her have my Choco Taco. She let out little Snickers and moaned,” Oh Henry it feels Good & Plenty. Even better than the 3Musketeers. Oh, those beautiful Sugar Babies!” She asked if I was into M&Ms. I said, “Why don’t you take my Whatchamacallit and slip it in your Bit-O-Honey and feel my MilkyWay?” Hey, I know men are from Mars and women are from Venus, but soon she began to get a little bit Chunky and nine months later out came Baby Ruth.

Every VC’s friendly neighborhood trade association (the NVCA – National Venture Capital Association) just submitted an extensive and comprehensive comment letter on 409A to the IRS. If you are paying attention to this issue, it’s well worth a read.