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Do the math on your stock options

• jvns 11y ago
  I'm really interested in other people's experiences with understanding how their stock options work. It seems really easy to misunderstand something serious, even if you know quite a lot about equity.
  • millstone 11y ago
    I got an offer from a late-stage (not sure if that's the right term, but they had a shipping product) non-public startup that included 10,000 stock options. That sounded like a lot, but I had problems evaluating that number without knowing the shares outstanding. I asked for that figure, and was told it was privileged and confidential. I decided to value the options at $0, and instead think of them like a non-monetary perk: "free lotto ticket Wednesday". I ended up turning down the offer. Was that experience normal? Did I have a right to know the shares outstanding?
    • rahimnathwani 11y ago
      You did the right thing. The situation is analogous to someone telling you the numerical amount of your proposed salary, but not telling you the currency and/or frequency. You don't have a right to know the details, but without the details it's hard to evaluate them as worth more than 0.
      • Lawtonfogle 11y ago
        If you are signing a contract, why don't you have the right to know? If I tried to defend the fact that I never specified paying in US currency in some contract and instead used what ever the new hyper-inflated currency is, a judge would kick me out of the court room. Only if it was explicitly stated would a judge uphold such a contract.
        • deleted 11y ago
          [deleted]
        • sokoloff 11y ago
          You don't have a right to know, because you weren't born with the right and nothing grants you that right. Your option, if you don't like not being given the information you request, is to not sign the contract.
        • olefoo 11y ago
          This is a case where you have the right if you insist on it. Your BATNA is to walk away from a deal where the counterparty refuses to give you the information needed to make a rational decision.
    • diziet 11y ago
      If they could not share the numbers when giving an offer, I would be surprised and suspicious. Did you ask the founders? At least they should be able to tell you the common strike price and ideally the fair market value of preferred shares. This would let you benchmark things fairly well. What does late stage mean? How many employees? How much funding raised?
    • hnarayanan 11y ago
      Your experience is not normal, and you did the right thing. If someone offers you stock options as part of a compensation package, they ought to give you enough information to ascertain the current and potential value of these options. The fact that they're secretive about this makes the deal feel sketchy.
    • pinkunicorn 11y ago
      I can almost guess the company from the number of stock options offered. I was in a similar situation, but I accepted the offer and these articles a bit too late :( I like the experience of working here, but now I totally realize I have lost a significant amount just by not negotiating anything.
      • dman 11y ago
        What would you have done differently if you had known at that point what you know now?
        • pinkunicorn 11y ago
          1. Would've interviewed with other companies - I interviewed with one startup, cleared it and joined it. Never knew that stock options carried so much detail. 2. Would've asked for a better base salary citing all the "ifs" stock options carried with them.
    • Gibbon1 11y ago
      If they told you that the number of outstanding shares was privileged and confidential they are crooks in nice suits. Also at this point in time there is so much shady stuff going on with options that you should always always value options at zero. Frankly if all you are offering is your labor in return for options you don't have the pull to get a particularly good deal. (Example: Friend worked three years at a startup. Friend is smart. Friend got ~$50,000... whoop dee doo dah day) Only other advice I have is, if you are considering exercising any stock options you need to talk with a tax accountant before you pull the trigger. No exceptions.
      • jackgavigan 11y ago
        > If they told you that the number of outstanding shares was privileged and confidential they are crooks in nice suits. Never attribute to malice that which is adequately explained by stupidity. Getting a seed round doesn't magically confer the founders/C*Os with an comprehensive understanding of how company equity works. Or common sense.
        • draw_down 11y ago
          If they were that dumb they would have just coughed up a number. So let's trade aphorisms: "A witty saying proves nothing." - Voltaire
        • lazaroclapp 11y ago
          In all fairness, anyone who doesn't get that the expression c/x where c is known and x is unknown can match any given rational number - or the implication that this makes c convey zero information - is pretty much definitionally unfit for running a tech company. So malice might actually be the charitable explanation here. I mean, imagine if someone followed the same practice for the salary part of compensation: "We will pay you money!" "Eh... how much?" "Some. The actual number is privileged and confidential."
          • brianwawok 11y ago
            ^^ At least in that case you would see in 2 weeks what your actual salary is ;)
    • bagels 11y ago
      You made the right choice. If they are going to hide this information from you, you have to assume they are dishonest, or the number of total shares is very large.
    • KingHodor 11y ago
      It helps to understand the company's situation and progress, and to make sure you get the "right" type of options and are aware of any vesting periods or other conditions that might apply. Try to have access to the latest balance (could be feasible, depending on the role you are joining with) and growth figures. Personally, I would not value them at zero but rather as something closer to a performance based bonus with an extra risk.
    • davidwihl 11y ago
      Even if you knew the number of shares outstanding at the time of the option grant, it would still be useless. The company can issue new shares at any time leading to dilution. Also at some future liquidity event (acquisition, IPO), a significant number of new shares can be issued leading to more dilution. So yes, options are somewhat of a lottery ticket with ever changing odds. If the company does extraordinarily well, you will do well also. If you truly believe the company has a very good chance at financial success, you should stay irrespective of the number of options. If you are making a significant contribution to that success, a rational company will want to reward you and incent you to stay with more options. If both those things are not true, it is best to seek your fortune elsewhere.
      • rahimnathwani 11y ago
        "The company can issue new shares at any time leading to dilution." Yes, but the directors of the company are obligated to act in the best interest of shareholders, so hopefully they would do that iff it increases the value of existing shares. (OK, there are many things wrong with this, including the fact that option holders are not shareholders.) "If the company does extraordinarily well, you will do well also." Yes, but if the company does very (but not extraordinarily) well, you might end up with nothing. "If you are making a significant contribution to that success, a rational company will want to reward you and incent you to stay with more options." But your contribution may not be constant. An early engineer who took a risk (low salary, high chance of being laid off) and built the prototype may not fit in when the company grows, so there may be little rational incentive to treat her fairly.
        • puppetmaster3 11y ago
          "obligated to act in the best interest of shareholders". Obligated how specifically? Also, all shareholders, or the majority?
          • mamon 11y ago
            Obligated by law: deliberately acting against (some) shareholders interest is a criminal offense.
    • x0x0 11y ago
      While the interview was confidential, I don't think the offer was. I'm going to chicken out, but it was a top 5 YC startup, and they did that. Either options or RSUs, I can't remember which, but you have no way to value them beyond the value they tell you. I ended up turning them down which was probably stupid of me.
      • rday 11y ago
        Why was it stupid to turn down something which you couldn't value, yet had to buy (in way of lower salary or more hours or whatever it was) ?
        • x0x0 11y ago
          because (based on future performance that obv I couldn't have known at the time) it would have worked out for me
    • maaku 11y ago
      Yes, and yes.
    • matwood 11y ago
      Years ago I did this same thing for a startup that wanted me to move to another more expensive city, and take a significant pay cut. They offered a bunch of options, but would not answer any of my questions to help me value them. I told them to me they have zero value and I'll operate from that premise. We never could come to terms on pay so I passed on the offer. Less than a year later they were out of business.
    • Calamitous 11y ago
      I had pretty much the same situation. I think you handled it exactly right.
    • mpdehaan2 11y ago
      Issuing 10,000 options and not telling you how many options are outstanding is very very common for startups, unfortunately. I don't know how many times I've joined companies that listed 10,000 options and I was too dumb to question it. In many cases, it's because they don't want non-executive employees to be able to know certain financial details, including the valuation of the company. I wish this wasn't the case, but the reasons for it seem logical and in fact fair - it's just that many people assume this is a lot when it probably isn't. The downside is many people are apt to accept, thinking 10,000 in options is a "lot", and I've made that mistake in the past. In an A round startup, this number could easily be in the several millions of shares outstanding, and likely is. If it's gone through several funding rounds, it's likely even less. 10,000 in a C round is significantly less if they have divided the stock by 10x or more in the previous rounds. Executives could be pulling in whole percentages of the company, or multiples thereof, and one of the first few members of technical staff could basically be looking at a year's salary or less in payout if the company would sell in 5-8 years. The percentage of the companys that make it is also a factor. While the article focused on needing to stay at a company, it's fair to consider that the great majority of startups are going to fail or be very small acquisitions (asset deals, acqui-hiring, etc). In these positions, the VCs will get paid first, and there may not be much if anything left. Another possibility is the company is sold for small prices but the CEO could secure a very very nice deal to join the new company (plus bonuses), which has happened on more than one occasion. A VC only needs a small fraction of his portfolio to do big exits, so they make lots of bets. Stock is a huge gamble. I don't recommend "no stock, just cash", but don't ever let someone underpay you on hopes the stock event will happen. Stock is being used as a retention tool, and that's the design of it, unfortunately. I'd be much more in favor of equitable profit sharing as a retention tool - suppose a company decides to give away X% of it's profits back to employees forever, and this is done in a way where it isn't the CEO/leaders making all the money. Instead say in a 50 person company, 10% of the profits always go back to the people, and each person gets 1/50th. This also eliminates sales commission on large deals and makes everyone part of the deal (the whole company) profits - also no quarterly targets, personal bonus tiers, executive bonuses, or anything like that. As the company becomes more efficient, those numbers go up, and it keeps things simple.
      • 11y ago
  • isolate 11y ago
    I recommend hiring an independent financial advisor, they probably cost $100-200 per hour in your area. (Banks will do it for free but they will also recommend that you buy garbage.) Ask them about options up front and see what they say. And also get an accountant to do your taxes. The cost is peanuts compared to the amount of capital you're dealing with. Just because you can learn how to do something doesn't mean it's worth it.
  • rdl 11y ago
    Unfortunately, not telling people the total number of shares outstanding is more common than it should be (10% of companies? heavily weighted toward the crappy ones, but some decent ones, including at least one of the top YC investments). This is probably something which should be fixed by regulation.
  • amasad 11y ago
    I got offered a job 4 years ago at a very early stage company with really generous stock options. I didn't know what options meant, I didn't know that I had to exercise. That was pretty silly on my part but in my defense I was getting my visa, moving across the world, and working as the first employee trying to keep up with insane growth. When the time came to raise our second round, I got intrested in how it would affect my shares and sat down to understand this whole shares thing. And to my dismay it turns out I have to pay for my compensation! I was pretty disappointed, even felt a little bit of resentment that no one took the time to explain things to me. But the reality is that your employer is not obliged to explain how your compensation works -- after all it's all in the contract (except it's written in awful legalese). 2 years later when I quit my job I was broke and barely had enough money to get by until my next paying job. Anyways I hustled to borrow money and exercise my options, all the while I still haven't understood the tax implications (I still don't!). My CPA told me that I can delay paying taxes on this until a liquidation event, and my coworkers who quit at the same time got similar advice. Now and after talking to others who exercised their options, that advice seems out of place and flat out wrong. I'm now trying to figure out what to do next, most likely getting a new CPA or a tax attorney. The whole thing is really stressful and I feel like startups can do better by their employees. At the very least substantially extending the exercise time and making it a standard in SV.
    • caseysoftware 11y ago
      There are also issues around your employer offering you specific tax/legal advice. It opens them up to liability. They can say "here are how options work in general" but they'll always follow it with "but for your situation, you should talk to a CPA/attorney." I also made the mistake of not working through the implications until a year or so in. Luckily, I joined early enough that my strike price (and valuation) was still low enough that I could exercise pretty easily. Disclosure: It appears that my former employer has filed their S-1 in the last couple weeks.
    • Retric 11y ago
      Assuming you followed a professional’s advice I would really not worry about this stuff. Unless you make a lot of money or do something really strange your unlikely to get audited. Also, they don't generally go back very far even with an audit. As to stock options they are best treated as lotto tickets. Unless you think the company is very likely to get sold or go public at a high valuation you’re generally better off ignoring them.
  • deleted 11y ago
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  • dripton 11y ago
    I've had ISOs in a couple of startup employers, non-qualified options in a startup customer, and RSUs in a couple of public employers. The only book I've read on stock options is _Consider Your Options_ by Kaye Thomas, which I thought was good. I do my own taxes, and there was enough detail in that book to let me figure out the tax implications of my options. (Including AMT the one time I had to pay it.) The actual mechanics when you already have options are straightforward. You either exercise speculatively (pay real cash to turn options into shares, then hold the shares), or exercise risklessly (pay cash to turn options into shares which you sell immediately for more cash than it cost to exercise). Exercising speculatively has risks -- you pay real money for shares that then go down in value, possibly to less than the strike price, possibly leaving you with a tax bill even though you made a loss. Exercising risklessly is safe. I don't like to speculate with meaningful amounts of money. If in doubt, sell the stock and diversify. Think of the worst case (the company crashes and you lose both your job and the value you thought the stock had). Better to not have all your eggs in one basket and sleep well. I suspect this is not a popular sentiment there, though. The real question with options is when you're considering multiple job offers. Company A offers $100k and 3000 options. Company B offers $110k and 5000 options. How do you value the options? For a startup, the usual answer is that you can't, because there's no anti-dilution protection. If the founders want to hose you, they can hose you, by diluting your shares or by firing you right before a vesting date. So I value them at zero and take the job I like better, or the job that pays more actual cash. (RSUs in a healthy public company are a bit different, since they have an actual immediate cash value. I value them at 75% of the current value of the stock. The 25% discount is because of vesting periods.)
    • eridius 11y ago
      If the company isn't public, presumably you can't exercise risklessly, right?
      • wdewind 11y ago
        Mostly true but sometimes you can sell on a secondary market or through a tender offer.
• calcsam 11y ago
  This is an excellent article. Thank you. The thing that is missing from all of these articles is, unfortunately, a tool to actually do these calculations. I am building such a tool. Happy to share (privately!) an early version. If you're interested, email is in my profile.
• deleted 11y ago
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• webo 11y ago
  I have always just asked this one simple question: - What is the price per share at current valuation? I don't think it's has to be that complicated...
  • rahimnathwani 11y ago
    It's not that simple if there are multiple classes of shares, particularly if some have liquidation preferences attached.
    • mikeyouse 11y ago
      Yep, quick example -- company valued at $300M, 150M shares outstanding, options should be worth $2/share, right? Except if that company raised $100M to get that valuation, the preferred shares will certainly have at least a 1x preference. If they are fully-participating, the new math world make the shares worth ($300-$100) / 150M or $1.33/share. In round numbers, I worked for a similar company but they had to take a terrible down round post-GFC with 3x participating preferred. In that case the common options would literally be worth $0.
• peteretep 11y ago
  Even when the maths is simple, few people seem to do the maths. The number of reasonably bright friends I have who say "I've got some equity, so if it goes big I'll make great money", but haven't actually sat down and calculated that "great money" is a one-off £50k astounds me.
  • Anderkent 11y ago
    The more common problem I see is the reverse: people do the math for the optimal scenario, see big numbers, and then assume that's how much the options are worth.
    • rphlx 11y ago
      I agree. Stock options are a well-engineered exploit of employee optimism.
• diziet 11y ago
  This covers a lot of the more important things -- certainly to the individual. But one thing that you need to keep in mind in terms of predicting the actual value of the options, which is outlined in the "More ambitious questions" section is things like overhanging liquidation preferences, participation rights, downside protection for investors, etc. Ask these questions.
• nbevans 11y ago
  What protects the stock from being diluted since presumably it has no or insufficient voting rights?
  • diziet 11y ago
    Nothing. Stock will get diluted. Typically every 'Series' fundraise will add 10-20% option pool and dilute the company by another 10-20% of preferred shares. The 'idea' is you have a smaller piece of a larger pie. Very incredible companies will raise at better terms and valuations and dilute more. This is very rare.
    • nbevans 11y ago
      Indeed. In other, perhaps less "SV" companies, I've seen it happen where the CEO wants to bring in an associate as perhaps the COO, CTO, CFO or some other high level position. Obviously such a person won't just leave their "megacorp" job without some shares being offered to join the riskier venture. So they end up diluting the company just so that a certain % can be given to this new "super experienced and respected head". It is sold to the rest of the company that he will bring in new customers. What actually happens is almost nothing. No real value is created. Just expectations are created. This can be the same with "fund raising". Just because the company has diluted itself and now has a few million in the bank... it still has to spend that money wisely and correctly in order to realise a genuine "the pie is now bigger than before" that the shareholders were expecting.
    • peter303 11y ago
      The Social Network movie shows some classic screwings in this case.
  • gibybo 11y ago
    In theory, the company has a legal fiduciary duty to act in the best interest of the shareholders. If they try to rob the shareholders by unreasonably diluting, you could sue for breach of that responsibility. In practice, nothing really prevents it completely. However, the founders will generally be getting diluted the same amount as you so their interests are somewhat aligned with yours to negotiate a reasonable dilution amount. If they make some deal in which other shareholders get diluted much worse than themselves, it's often strong grounds for a legal suit.
• chubot 11y ago
  It definitely seems like a bug that it's so difficult to realize any benefit until the company goes public, and when that happens -- if it happens at all -- is under the sole discretion of management. I guess there is a reason they're called golden handcuffs. This problem was described well here: http://blog.samaltman.com/employee-equity http://blog.samaltman.com/employee-equity and there are some interesting solutions. I wonder if any companies have taken this advice in the 20 months since it was given.
• Anderkent 11y ago
  You don't have to hold the stock until IPO. If the company is doing good, finding a private buyer through a stock broker shouldn't be that hard. Sure, you won't get the best deal, but it lets you cash out. Also, if a private company grants you options and never gives you any options for liquidity (like buying the stock back when taking new investment etc) you should be really careful about overvaluing the options. Clearly the company wants to chain you down, not reward you.
  • jvns 11y ago
    Have you found a private buyer for stock? What was the experience like?
    • Anderkent 11y ago
      I haven't, but a coworker has. I'm not sure what the brokers cut was - but as far as I know it was pretty straightforward, with the broker handling all legalese/paperwork.
    • mavelikara 11y ago
      I have sold stock (exercised options) to a private buyer. I found them via sharespost. The experience was good. I paid 5% of the proceeds to sharespost.
• slyall 11y ago
  I've currently got around 60 days to exercise some options with a company. But I have not been told how many shares there are out there or anything about the company finances so I have no way to judge how much they might be worth even in the best case. In the end though the amount that I can buy is so low that even if they are worth 10x what I'm paying for them it is not worth the paperwork and trouble.
  • ewindisch 11y ago
    The easiest thing to do is find out what the current strike price is and compare it to the strike price of your options. This will tell you ONE key metric for determining the stock's value and will help assist in estimating your tax liability. The same is true at time of negotiation. You don't really need to know how many shares are outstanding if you have the strike price and an estimate for the company's growth. That is, you're investing $X dollars and expect it to raise by a multiple of Y.
• xiaoma 11y ago
  Another variable I once saw was options (subject to board approval) in the offer letter and then several months later an approval of the options grant that had to be signed. In this second document, there was a clause saying they could fire the employee and take back the options à la Zynga, Skype, etc. In that case, immediately discounting the value of my options by a quarter is reasonable since those kinds of terms being used for clawbacks is getting more common.
• jakozaur 11y ago
  It would be so much easier for everyone, if companies would IPO earlier. Evaluation of your option value would be straightforward, there is liquid market, no need to worry about investors preferences, ratchets, etc. Also the whole market gains a lot of efficiency if basic financials are public. Not so long ago, companies used to IPO way earlier... Microsoft, Apple, Amazon...
  • x0x0 11y ago
    Unfortunately, it appears that many startups have gotten their valuation ahead of their economics, so IPOing isn't an easy option for them because it would be a large down round. IIRC, most of the large tech ipos in the last year went public below their final private valuations. Though to be fair, the last investors often got ratchets. This is a good read too http://thomasgr.tumblr.com/post/135710601255/the-pre-ipo-dip-the-opposite-of-the-burst-of http://thomasgr.tumblr.com/post/135710601255/the-pre-ipo-dip...
    • maneesh 11y ago
      Yea not to mention the sarbanes oxley act, post-enron, that makes public company regulations obscenely difficult.
• Smaug123 11y ago
  I have a single peeve with this otherwise excellent article: "My after-tax salary is less than $100,000 USD/year, so by definition it is impossible for me to exercise my options without borrowing money." This fact isn't true "by definition". It's true "by arithmetic". We say a fact is true "by definition" if it isn't true for any other reason. [1] [1]: http://lesswrong.com/lw/nz/arguing_by_definition/ http://lesswrong.com/lw/nz/arguing_by_definition/
  • Rapzid 11y ago
    Last I had options there were companies(etrade in my case IIRC) that will do the whole buy/sell for you; they flip them instantly and give you the cash. I suppose that depends on the type of options and how the company has it setup?
  • isolate 11y ago
    It's not even a fact - she can exercise the options more slowly than she is given them and still exercise all of them.
• stats_lly 11y ago
  This is very useful! I accepted an offer with few options and low salary at a start up after I graduated from my masters, and only realised what I have missed out on a couple of years later. I left with fewer options than people who joined years after me. Wish I knew a bit more about startups and their options earlier.
• discordianfish 11y ago
  Is it really that hard to find a buyer for private shares in a "good looking" startup? It almost sounds impossible, yet I talked to some people who said it's not that hard. I guess I have to find out..
  • vidarh 11y ago
    There are tons of brokers that makes their living doing this. It's not necessarily hard, depending on how good price you want to hold out for, but it can take a lot of time and be unpredictable, because the buyers are not necessarily sitting around waiting and so it can depend on finding a broker that have the right kind of potential buyer on the books that they can contact. I've sold shares same day in an unlisted company, and then a few weeks later called the broker to sell more and ended up taking several months to find a buyer, but on my end it wasn't "hard" - it was just a matter of waiting it out.
    • mavelikara 11y ago
      I also had the same experience. Because there is no real market making entity, finding the two parties needed to make a trade can take unpredictable amount of time.
• zurn 11y ago
  Why is it so hard to convert these to cash the same instant you exercise them? If there are some special terms attached to your share of the company that prevent you selling the shares directly, you could just make a (transferrable) derivatives contract with interested investor(s) where you pay them the dividends from the stock?
  • x0x0 11y ago
    Every private company I've gotten an offer from includes, at minimum, a right of first refusal on selling shares. Some allow the company to prevent you from selling period. This isn't, afaik, entirely evil -- there are SEC regulations controlling the allowable number of shareholders for a company to stay private. I've also seen it mentioned that Etsy, amongst others, has fucked employees trying to leave by preventing them from selling shares.
• Teodolfo 11y ago
  I'm surprised people don't take the time to figure out what the options actually mean and negotiate some of the terms. When I have negotiated with startups I have paid for legal advice to help me figure out what language I needed in the option agreement (for example, a pinterest-style clause that prevents me from having to exercise within 3 months of leaving) and negotiated for the terms I felt were important. Just because the agreement is written to give you ISOs doesn't mean they will qualify for ISO tax treatment when you eventually exercise, so it is better to let you give up ISO treatment and convert to NSOs in order to avoid having to effectively forfeit vested options upon departure from the firm or face massive tax consequences. The pinterest-style structure should be standard.
  • ap22213 11y ago
    Just curious, how difficult was it for you to find a qualified attorney, and how much did you spend? (I tried this approach once, but the legal advice was low quality and very basic.)
    • gkop 11y ago
      A friend referred me to an attorney at a well-known SV firm. She gave me a free consultation back and forth over email. By my own judgement as well as that of the founders and attorneys of my new company, the advice was good. It covered both my negotiation with the company as well as my personal tax planning and accounted for various possible outcomes. Following the advice, I learned more of the nitty gritty financial details of the company, got a calculated split of ISOs and NSOs (to early exercise), and also a decent cash bonus.
• JumpCrisscross 11y ago
  Always ask for: 1. TRANSFERABILITY. If you are given options to buy privately-held common stock in lieu of compensation, you must demand transferability. Rights of first refusal (ROFRs) are fine. "Board approval" is not. "Board approval" means "you may not sell your shares until we go public, except to us, if and when we feel like it, and at a price we get to unilaterally decide". 2. CASHLESS EXERCISABILITY. Always ask for cashless exercisability. In the public market, if you ask your broker to "cashlessly exercise" in-the-money options, here is what happens. First, your broker lends you the money to exercise the options. Then, the broker sells some of the resulting stock. Finally, the broker pays herself back, plus a pre-disclosed fee, and returns the rest to you. This also works with private stock. (Unless you forgot Rule No. 1; if your shares aren't transferable you've already been screwed.) But you may not require a broker. Some companies allow for direct cashless exercise. Suppose you hold options for 100 shares struck at $100 per share. You need $10,000 to exercise. The company figures its stock's "fair market value" is $110. You check with outside sources, e.g. a private-stock broker, and conclude this is not much less than what you could sell your stock for in the market. Your stock is worth $11,000 to the company; it is $1,000 in the money. After cashlessly exercising with the company you would get $1,000 of stock, i.e. 9 shares. (Fractions of shares are usually lopped off in these calculations.) Plus: you got shares without putting up capital. Minus: you lost the upside (and downside) on ninety-one shares. That said, 9 shares is better than 0 because you had no capital to exercise upon termination.
  • rahimnathwani 11y ago
    Is it common for engineers to be granted these terms if requested, even if they're not already baked into the company's existing documentation? If the company hadn't done this before, they'd need to think through the implications for their processes, and probably get a legal stamp of approval. They might not be willing to do this, and instead pass on even a potentially great employee.
    • JumpCrisscross 11y ago
      With an early-stage company, i.e one having not yet raised its Series B, a high-value employee should be able to negotiate almost everything. The earlier-stage and higher-valued the employee, the likelier the company is to budge. I wouldn't encourage anyone to turn down an offer for its lack of cashless exercisability. The lack thereof, however, causes pain. That should be compensated for. On transferability, I would mark down non-transferable stock to zero in any salary-or-equity trade-off calculation.
• lifeisstillgood 11y ago
  Is this a sensible approach: You have offered me X ordinary shares which is y % of total outstanding. I want a contract that guarantees me the same % of this class of shares, and the same % of any other more privileged class of shares, and I am given an opportunity to participate in every liquidation event pre public offering Seems to cover many of the horrors people have hit?
  • sokoloff 11y ago
    Unless you're an irreplaceable employee, you won't get that. In particular, it's unreasonable to take the initial percentage and demand the same percentage of preferred shares (or venture debt convertible into shares at the lender option). Many of these "horrors" are a reality of the angels and VCs protections that enable and are essential to the company financing. IOW, attempting to tunnel under those protections for employee benefit runs counter to the investor interests, sometimes to a degree that it would preclude investments entirely. Even the liquidity provision is problematic. Suppose investor A wants to sell their stake to investor N in a private negotiated deal. Maybe fund A is collapsing. Are they obligated to tell you the terms of their negotiations? Obligated to also purchase some of your shares at your sole discretion? How would they even know that you have such a provision?
    • lifeisstillgood 11y ago
      VCs get dilution protection, why can't other "investors" who invest time and effort. If that dilution protection is some other form than stated, well I need to read up on it. But my general approach is that just because you are an employee not a capital investor does not mean you should just take whatever shit is doled out. Especially not these days. That whole thread is about finding better terms and protection to take options on. "They won't let you" is close to "shut up and take it". (Not the same but a bit too close for my ckmfort
      • sokoloff 11y ago
        I don't view it as "shut up and take it", but rather "here's what we're offering; would you like to take it?" The most common form of dilution protection is the right to invest more cash in future rounds pro-rata. (So you can pay to stop being diluted.) That you might be able to get if you hold shares, but you're going to need to pay cash at each round to avoid dilution. You won't realistically be able to get it as an option holder in the employee option pool, and as a non-accredited person (by the meaning of CFR Title 17.II§230.501), I'm not sure of the legality of investing cash to protect existing holdings from dilution. (I'm not saying it's not legal; I'm just not sure as I meet at least one of those tests.) As both an employee of startups (in the past) and an angel investor (dabbler/dilettante), I can see both sides, but when I contemplate writing a check to "2 founders, an idea, and a powerpoint deck", you can imagine that many provisions of convertible/venture debt exist to make that make a tiny bit more sense and provide some limited downside protection for the "indefinitely horizontal" company trajectory. Once I invest, I have very limited input into how the CEO runs the company, but I'd advise a CEO to pass on a mid or late stage employee who is too much of a troublemaker about their options terms. Realistically, the company should not be negotiating and drafting custom options terms per employee and an employee who demands such is probably a better fit for someplace else. Quite literally, the terms of the company option plan are (often) set and modifying them is nowhere near the same as giving a signing bonus, flexible hours, a few extra vacation days, work from home on Wednesdays, or a different salary/bonus amount.
• fiachamp 11y ago
  There actually IS a way to exercise after you leave without laying out cash + tax dollars today. Consider esofund.com, its a fund that will pay your exercise price and tax liability for a proportion of your upside in a good financial outcome. If it doesn't work out, well at least you didn't throw away your own cash. They're basically a vc that takes common stock in companies by getting rights to employee shares.
  • rpedela 11y ago
    Only possible if you are able to sell your private shares without a liquidation event (IPO, acquisition) which is often not the case.
    • nulltype 11y ago
      This doesn't seem to be a requirement with esofund
    • steven2012 11y ago
      Not true. They don't own the shares, but you owe them a percentage of the upside, plus the money you borrowed to exercise and pay taxes. Not a bad deal if you're talking about a huge amount of money, and if you were in a questionable company like Square, etc.
• shubhamjain 11y ago
  One thing I wish to know is whether it is possible to negotiate the terms so you have preference of liquidating some of your shares when company raises a round. Surely, the possibility of an IPO or an acquisition might be uncertain but another funding round seems a very plausible event. One company, Atlassian, did raise one round solely to allow employees to vest their shares but I am not sure how common this is in Silicon Valley's Tech Culture.
• drglitch 11y ago
  I am considering an offer from an early stage startup. Salary is being dragged down ~40% under market due to stock options. The role is being a 'first key engineer' hire after the three co-founders. What kind of common-stock equity offer is 'average' in this case? 1%? 2%? 5%?
  • ap22213 11y ago
    Are they offering options for stock, or stock? Make sure it's real equity. If it was me, I would start at 5-6% and negotiate from there. Assuming that this opportunity could turn into something huge, I highly recommend taking some negotiating training, if you have the time. Back when I was an executive, I was given a week-long negotiating training session. It was seriously the best, most useful training that I'd ever had in my career.
    • mettamage 11y ago
      What kind of training was this, can I look it up? Or perhaps the training isn't available, but it's derived from somekind of methodology. In that case, what methodology was it?
      • ap22213 11y ago
        I tried to look up the team that they brought in to give the training, but I couldn't find them. It was several years ago, but I remember that the main guy was one of the more popular authors. He had a series of books written that ranged from basic to advanced skills. I wish I could remember his name. The books are probably useful (there are a ton of them), but the live sessions are likely much more effective because you get to practice the techniques, see the subtleties, and experience the results directly. For me, seeing the results really helped train my brain. Honestly, I went into the training dragging my feet and expecting the worst, but it's given me a huge edge. The results have been amazing - especially when negotiating with unskilled negotiators. I've gone into negotiations expecting X and consistently getting 2X, sometimes even 10X.
  • ryanSrich 11y ago
• retube 11y ago
  Why do firms offer options as opposed to actual equity? The way these options are structured plus US tax law basically means a lose - lose scenario for the employee.
  • pgwhalen 11y ago
    I have an extraordinarily limited understanding of these things, but I always thought it was because if you were gifted equity you had to pay taxes on it immediately, based on the current valuation, which is a major bummer.
  • rpedela 11y ago
    The employee has to pay for the shares and any taxes up front. In the very early stages, this is ideal because the shares are worth nothing. Eventually the shares are valued high enough that the upfront costs are prohibitive.
  • brianwawok 11y ago
    I think some of it has to do with giving you either X stock or 2-4x Options... If your company is growing every year, and the stock is liquid, Options are great. I know a fortune 1000 company that used to give people a bunch of options at bonus time, people loved it - bought houses, etc. Then the stock turned sideways, so they switched to 50% options, 50% shares (with the actual share count being option count / 4, to approximately take into account that shares are worth a lot more than options). The next year they flipped to 100% shares. No one would get mega rich with a small pile of shares, but everyone would have some money in the bank...
• inthewoods 11y ago
  Great thread here and the original article has some excellent points. I recently left a company and explored executing my options via a vehicle called ESO Fund (www.esofund.com). In the end I did not use them for different reasons, but their offer was reasonable. Two general comments on stock options: - Remember that bad things happen in companies in raising money. Your company could raise another round after you've executed your shares, and in addition to the dilution, you could also have an onerous term in that round - like a 2 or 3x liquidation preference - that will mean you are very, very unlikely to see any money. - Remember that companies don't have to have a liquidation event. I executed shares in a company I worked for in 2006. That tied up money in the company - and then nothing happened with the company for the last 9 years until this year I got a buy out offer on my shares at about 50% higher than I paid. Sounds great, except if you consider time. 50% return over a period of 9 years is certainly not a fail, but it also isn't a big win over putting that money into the general stock market.
  • finance-geek 11y ago
    Seems like almost a total fail for me...50% over 9 years is about 5.5% return a year for a VERY risky asset. Something that risky warrants more. Also curious if that 50% return considers the upfront outlay, taxes upon grant, capital gains taxes, and the works...
    • inthewoods 11y ago
      It's 50% on top of initial investment and net of capital gains. But you're right - it's more or less a total fail. It was a small amount of stock, but right after I sold it I realized I probably should have just held it to see if they went public.
• tylercubell 11y ago
  What's are the pros and cons of setting the strike price as $1? Is it intentional to inhibit employees from exercising their options?
  • mrmcd 11y ago
    In the US at least, the strike price for options in a private company is set at whatever price the last 409A valuation was. How this is done is a bit technical, and typically something done by a specialized professional accountant type. At any rate, the younger and riskier a company is, the lower the 409A usually is, and the more legal wiggle room they have to keep it low so common stock option grants are worth more later on. For public companies it's whatever the stock price is on the date the option grant is made. If it goes up, the options are worth money. In general, for public companies options are vastly more easy to understand and actually cash out.
• DanielShir 11y ago
  As a founder who's been through a liquidation event, I have to say that stock options are a terrible way to reward employees. The tax issues alone (not to mention all the other stuff mentioned in this thread) are a huge pain for most ordinary people. The only reason companies use this is that there's no better alternative... Anyone ever encounter some other financial instrument that's possible to use in this situation?
  • dman 11y ago
    Perhaps issue a interest bearing senior bond to the employee in return for services rendered?
  • maneesh 11y ago
    Bonuses based on how well the company does. I.e. $1,500 bonus per $MM in revenue, each year
    • yasth 11y ago
      These cause huge cyclical attrition and mess with everything every vest/payout. Also if that is written to the contract as a formula it is a huge reason to lay off old employees, because as the company grows one expects the MM to grow larger. If it isn't written into the contract it is a crappy way to reward the initial brave few as initial revenue will be negligible and their share will decrease as the company grows.
  • awinder 11y ago
    How about exceptional 401k contributions? I believe the employer / employee contribution limit is around 50K / year, as an employee I feel like it'd be much clearer cut & less arduous if an employer just dumped extra money into a retirement vehicle, it's tax deductible by the business and the tax ramifications for employees is much clearer.
  • steven2012 11y ago
    RSUs are far better, especially for a later stage company.
• jfountain2015 11y ago
  If you are considering a job that offers options/stock I think this is the most important thing to consider. 1. Do the founders have a history of successful exits? 2. If so, did all employees with stock get paid? If either is no, you should consider options/stock worth $0
  • harryh 11y ago
    Some of the most successful exits in the tech industry were started by first time founders. I don't think that's a very good criterion.
• geertj 11y ago
  In my experience and understanding, investors (almost) always get preferred shares with a liquidation preference. So unless you know what the preferences are, any such calculations are completely bogus. But even if you know them (and note that full cap tables are not commonly shared with employees in my experience) such calculations are still mostly bogus, because: * You don't know what the preferences of future rounds will be. Your founders may say that they will never go above 1x or whatever, but the company may enter difficult waters and be forced to accept less beneficial terms. * If you hold common shares in the presence of preferred shares with a liquidation preference, the payout function at acquisition/IPO will depend non-linearly on the selling price. There are steps and there will be a price below you will be 100% wiped out. So the incentives are not aligned. Preferred normally has all the voting rights, and for them 5% more or less on the acquisition price might not be a deal breaker. For for the common, 5% may be the difference between a nice down payment on a home or a 100% wipe out. Based on this I would always negotiate a market rate salary at a startup company and value the options at $0, with 4 exceptions: * You're offered to be a co-founder or one of the very first employee (< 3), with significant (~5%) equity. This is a risk that I personally might take. * You're joining a late stage company and based on your industry knowledge you expect the company will do a successful IPO within 12 months. In essence you become a late stage investor in this scenario and your investment is your time. * You're not in it for the money but instead want to change the world (and you don't mind someone else will make money based on your work if successful). For me personally a company like SpaceX could be in this category. * You "trust" the founders to have your back and make sure your efforts will be rewarded whatever happens. This is a thin justification, but I could imagine doing it if you have been in business with the same team of founders for multiple times already.
• deleted 11y ago
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• jlas 11y ago
  > which pays me a SF salary despite me living in Montreal I'm not sure what cost of living in Montreal is, but I'd be surprised that jvns is making less than 100k in SF. If Stripe were smart they'd increase her salary stat. Just based on her excellent blog posts and her insatiable curiosity, this is not an employee you want to lose.
  • jvns 11y ago
    (my after-tax salary -- I pay 40% income taxes or something? basically I'm saying my salary is less than 150k USD)
  • dougdonohoe 11y ago
    > My after-tax salary is less than $100,000 USD/year
• corford 11y ago
  If you're being offered options in an early stage startup you need to ask at a minimum (and any half decent founder should answer): 1. How many shares of the same class are in circulation 2. What is the price per share at current company valuation 3. How many shares of other classes are in circulation and whether these come with liquidation preferences 4. If you will be required to exercise your options in the event of leaving the company and, if yes, how long you have to do it 5. If you have the right to transfer your options (and later shares) to a third party. Unusual to have this right (unless you're transferring to immediate family) but good to know if you do have it. 6. Ask to see a copy of the company's articles and/or shareholder agreement (to check how voting rights work, tag along & drag along rights, entitlement to quarterly management accounts, right to first refusal, what power the board has on deciding sales/transfers etc.) That's in addition to being very clear on what the vesting terms are (assuming you are not being given all your options in one go).
• jroseattle 11y ago
  As I compete to hire engineers, I've found myself in the role of providing counsel to many younger candidates we see about alternative opportunities they're considering. Outside the large tech-cos, they're usually considering joining a startup with a lower salary and some number of options for equity. Our company is a wholly-owned subsidiary of a private holding company and does not offer equity ownership. As an alternative to equity options, we have bonus plans based on performance, both annual as well as long-term. We make estimations about overall company performance on a few metrics in order to provide what amounts to a range of values for how those plans apply to a specific candidate's role with us. But I get a lot of questions about how to compare an offer from us to an offer from a startup that includes equity options as part of compensation. It's simple to compare salary, benefits, etc. But invariably, we get into conversations where candidates ask me how to value equity options they've received from another company. First, I'm totally upfront about the fact that I'm: 1) not an expert, and 2) biased. But I am always honest with a candidate, and do everything I can to put myself in the shoes of an advisor. Without looking at any offer details they have, I point them to the equation inputs: # of outstanding shares, preferred percentages, any liquidation preferences in play (need the multiple too), and the valuation. I'm sure there are other data points that could apply, but this information seems like table stakes. Nonetheless, if they have this information, they could at least gauge the value of their own equity options with exit scenarios at different levels. But converting those scenarios to present-day value? This is the part where I always check myself, but I express that those equity options are almost certainly zero value. The outcome of a significant positive exit is always an outlier on the distribution curve, so appropriate discounting applies. That's the math part, which is as good as your assumptions and estimates allow. The hardest part of those conversations is understanding how to justify assumptions in those calculations, such as how high profile a startup may be (and how that affects those assumptions.) I've been around long enough to have friends who were employees with numbers less than 30 at some very high-profile startups who had significant public exits, yet those employees made little to nothing. And to say nothing of those companies that simply didn't make it. As creatives, our natural instincts drive us to believe we can create the value necessary for us to derive positive outcomes and ultimately benefit in these situations. The historical numbers simply don't represent that fact, and indeed show that outcome to be a rare occurrence. Good on you if that happens, but the odds are simply not in your favor. As I conclude with most candidates, I tell them their mileage may vary and that they should absolutely seek the advice of someone entirely independent. Maybe as luck would have it, we have had a few candidates join us that were strongly leaning to accepting their startup offer. Several told me their reasoning -- they trusted my honesty with them. Who knows, maybe that's the real value in equity options. :-)
• jason_s 11y ago
  I'd rather have the RSUs (https://en.wikipedia.org/wiki/Restricted_stock https://en.wikipedia.org/wiki/Restricted_stock) that my company gives us, than stock options. A chunk of them vests each quarter, they allocate an appropriate fraction of that chunk to cover taxes, and the resulting shares are ours to hold or sell. No dilemma of when to exercise or whatever, no risk of being underwater. My father once got stock options from Nortel Networks right before the dot-com bubble bust (sometime between 2000 and 2002). He exercised them, sold some to buy a car, but held onto the rest, had to pay a hefty tax bill, and then when the price nose-dived, they were worth less than what it had cost him in taxes.
• amichal 11y ago
  I've been through this before (15 years ago). As a "first engineer" as well. I was fully-vested in a fair deal. The start-up had been acquired outright by a large private co which gave a nice real world known valuation for the company and the new owners were entering a pre-IPO quiet period (we were told it would happen with few months). Exercising my options would net a 7 figure stake for at a cost of about six-months salary. I hadn't understood all the options complexities at the start but learned fast about this time thinking of selling some. Engineer #2 got a loan in order to exercise their similar options and got totally screwed as things slowly imploded. I never did exercise them thankfully. In another case my options as a early engineer (again fair enough terms) ended up actually worth actual money after a few rounds of dilution and conversions and sales ultimately to a public company. However it was a few K worth after 5 years of work on paper it had been variously valued up to high six figures. I know now that options are, as someone said elsewhere in the comments, "a variable odds lottery ticket".
• pmorici 11y ago
  Every offer I've ever gotten that included an equity/options component omitted key information that I would have needed to have even a fuzzy understanding of the offers value. When I asked for details it was like pulling teeth to get the information if they would disclose it at all and often they would only do so verbally and not in writing. I turned them all down because that sort of thing leaves a bad taste in my mouth.
• steven2012 11y ago
  There are some funds that some of my former coworkers talked to that will front all of the money to exercise your options, plus pay the taxes, in return for paying the money back for the above, plus 30% of the profits. You're basically borrowing the money to exercise and pay your taxes and then giving up 30% of the upside. It's seems like a good deal to me since you take on zero risk, especially if you're in that situation described in the blog post. I won't advertise their name, but they seem legit and know several people that took them up on their offer.
• krschultz 11y ago
  Math is good. Philosophy is better. Your salary is what you live on. Everything else is a bonus. As a salaried engineer I have received basically every 'extra' there is. Cash bonus. Equity bonus. Options. Restricted Stock Units. Overtime pay by the hour (seriously!) In all cases I do not plan to get that money. I don't use it to pay rent or a mortgage. I don't use it to buy clothes or food. You might argue that is a luxury, but honestly if you can't afford your lifestyle without the bonus, then what happens when there are bad times and you don't get the bonus? I set this up so explicitly that I have a separate bank account for that money and when a bonus comes in it gets transferred away from the day to day account. This years vacation is paid for with last years bonus.
• AndrewKemendo 11y ago
  Options are for suckers. Do you want to be an investor? No? then why would you pay for stock out of your own money? At our startup everyone gets the same stock, not options, through our Equity Incentive Plan. Here's how it works. 1. We lend new employees the amount of money it would take to buy common stock on a non-recourse promissory note the collateral in this case is the stock itself. 2. The employee then buys the shares from the company with the loan. 3. The employee then files an 83b election so that when it comes time to cash out, they only pay taxes at the strike price of when the shares were bought. 4. At a liquidity event, the promissory note goes away and they own the shares outright 5. They only pay taxes when they sell their shares not when they buy them Now there are other provisions like if they want to sell prior to a liquidity event, we get rights to buy them back first if we choose to - in which case we just write off whatever the unvested portion from the note and take those shares back. In the end it gives the employee actual rights to the same class of stock as the founders, so we can't fudge our employees out of stock benefits without hurting our own shares. This also prevents them for having to lay out any money until there is an actual no kidding liquidity event, so they take no risk of paying taxes on something which might be worthless. Even then they will only ever have to pay taxes on the shares, the promissory note goes away, so in effect looks like a equity grant at the time of sale.
  • deleted 11y ago
    [deleted]
  • harryh 11y ago
    Tax fraud is a hell of a drug.
  • relkor 11y ago
    This is exactly what I was looking for. As a first time founder at a small private business I was looking for a nicer way to compensate the employees other than sticking them with a huge tax bill as thanks for our success. Has this approach held up in court or survived an audit? Do you actually transfer the money to the employee's account? How do how do you prevent them from having a program to immediately wire the money to Zurich and run off, given that you have a non-recourse note for the stock that never got purchased? [edit] I say small business because we do not yet have the 10-15% weekly growth required to be called a startup. Until you are expanding like a airbag, you are just fooling yourself that you matter by calling your company a startup.
• primemod3 11y ago
  Evaluating the value of stock options can also be done using the Black-Scholes model. Here's a blog post that explains more as it applies to startups: http://cdixon.org/2009/08/18/options-on-early-stage-companies/ http://cdixon.org/2009/08/18/options-on-early-stage-companie... .
• encoderer 11y ago
  Stories of equity working out well are rare in these comments. I think in part this is because contentment is silent, so I'll share a bit. I joined a private company with over $100M in revenue about 3 months before IPO. They couldn't say they were in the process when I took the job, but it was hinted at strongly. I got an options grant with normal 4 year vest that amounted to an actual face value of about $50k. Being successful, I imagined they could be worth $100k, or a $25k/year bonus on top of my salary. All of my actual negotiation was of the salary component, and I was very happy with the outcome. The company went public, and the following year there were a couple events -- a nice earnings beat, some positive news, etc -- that pushed the stock up. Around that time I hit my 1 year cliff so I had 25% of my grant vested. I sold every vested share and used that as a down payment on a house in the bay area. I had a very large tax bill the following year that I paid by selling a bit more equity. But, I have a house that has appreciated since I purchased it, not to mention a nice place to live. In year 2 I started receiving add'l RSU grants, and I usually sell them as they vest. Here's the test: If they gave you a cash bonus would you BUY stock? If not, sell it. In the end, my initial option grant will end up worth $300-400k, adding almost an entire extra salary to our household income. We've been fortunate, have given back a lot to charity and especially to family. Oh, and I've truly enjoyed working there. What I've learned is that there is a probability curve. I chose an offer that had a high liklihood of buying me a down payment on a house but zero chance of buying me a whole house. In the end, this is a pattern I would repeat and I think if you can do go work for Uber, Pinterest, Airbnb, etc, where an IPO is very likely, go do it.
  • tariqr 11y ago
    thanks for sharing! :)
• deleted 11y ago
  [deleted]
• crabasa 11y ago
  One mistake I see people make quite often is failing to adequately research the reputation of a prospective employer and their executives. I've seen people accept offers because the option grant was marginally better at company A than company B. There are so many things that can effect the outcome of an employee with options (subsequent funding rounds, liquidation preference, if and how the exit happens) that it often boils down to whether or not you believe you will be treated fairly.
• swingbridge 11y ago
  Most people don't have a clue how options really work, but are thrilled to get them... until they try to excise them. Truth is companies give options to low level employees because it's cheaper than paying cash. Most employees don't do their homework to realize that in the vast majority of cases they'd probably be better off demanding cash.
• Denzel 11y ago
  What prevents a company from issuing vested stock options with an anti-dilution clause to early employees? Has any company set the precedent? Would it scare investors away? I'm very curious.
• takeda 11y ago
  This is a bit ridiculous. Why do you need to pay taxes when exercising the options? At that point one did not made any profit and in fact you made an investment (you spent money and there's still high chance you might lose to that investment). It would make much sense to be taxed when you sell the stock (and use the original option price you paid for the shares).
  • harryh 11y ago
    Just because you don't have cash doesn't mean you don't have an asset that has value. If I give you a house, you don't have cash, but you still have to pay taxes on the gift. I do agree that there is some degree of ridiculosity and there should probably be some tax reform here, but that is the reasoning behind the current rules.
    • takeda 11y ago
      Sigh... it really needs to be reformed, you essentially can lose money twice on such investment.
• superuser2 11y ago
  My first equity experience is going to be RSUs. They seem better in every way: you don't owe taxes in cash (they're withheld), you can't go upside down (zero strike price), and you don't need capital to begin with so your compensation does not depend on how wealthy you already are. Why would anyone take options if they could get RSUs?
  • jedberg 11y ago
    You have much higher leverage on options, and you don't take a tax hit until you sell them. That's assuming the price goes up significantly. That's basically the tradeoff.
• bankim 11y ago
  Elaborating on early exercise. Employee can choose to pre-exercise ISOs soon after starting job (before vesting) and file 83b. In this case, the difference between strike price and FMV is $0 and hence tax realized is also $0. This also starts ticker for capital gains sooner and if the company gets sold/IPO after 1 year from date of exercise and 2 year from date of grant then long term capital gains will apply and not short-term capital gains which is taxed as ordinary income. This obviously depends on the strike price on joining the company and how much money employee is okay to lose in case company goes bust. If not all, some ISOs can be early exercised. In my case, I early exercised around 25% of ISOs soon after joining. In hind-sight I should have early exercised more as the company did go IPO around 2 years after I started...
  • jypepin 11y ago
    "the difference between strike price and FMV is $0 and hence tax realized is also $0" well, this is assuming your company's value hasn't increased since then. But I do agree it's usually an interesting move if you believe in the company since you'll pay taxes earlier.
• sytelus 11y ago
  Silly question: Why startups insist on stock options? Why not just give out stock themselves in same quantities? I think doing that might make them more attractive if they are competing for talent.
• dghughes 11y ago
  I wonder what your company would do if you chose a short position with your options. But I guess what you're given pretty much assume a long position. The little I know of options (and how no human can never ever guess the strike price!).