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I'm really interested in other people's experiences with understanding how their stock options work. It seems really easy to misunderstand something serious, e

by 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
[deleted]
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.

by jvns 11y ago

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

[deleted]

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.