4 ms·
This is especially true in this time where even successful companies drag their feet when it comes to IPO. If you don't think you can't afford to buy the option
by hibikir 9y ago
This is especially true in this time where even successful companies drag their feet when it comes to IPO. If you don't think you can't afford to buy the options and pay the taxes (yes, there's taxes when exercising illiquid options), then you have to discount the chances of still being with the company at the time of a liquidity event.
This means you can find yourself valuing stock options very little, even in cases where you have full faith in the company making it and being very profitable. A growing company is very different year to year. What are the chances that you'll love the same company in 6 years?
My personal calculation is that I have a 50% chance of leaving a job every year, so if I am guessing that it'll take 6 years to IPO, and I don't think I can just keep large amounts of money frozen in options, I have to discount the value of said options over 95% on top of the traditional calculations. RSUs from he big four don't have that problem.
- jacquesm 9y ago> This is especially true in this time where even successful companies drag their feet when it comes to IPO. That's a very weird statement. Companies are under no obligation at all to ever offer stock to the public. An IPO comes with all kinds of downsides and many companies simply do not feel the benefits weigh heavier than the downsides. Such as: transparency, SOX, all kinds of restrictions and demands regarding communications, dealing with the SEC (or the local equivalent) and so on.
- s73ver 9y agoIf they've taken VC funding, they most likely are.
- jacquesm 9y agoThe percentage of companies that have taken VC funding and that eventually IPO is far smaller than the percentage that either become a going concern or that end up being acquired by another company or by a private equity party.
- kgwgk 9y agoDo you mean "cease to be a going concern"?
- jacquesm 9y agoNo.
- kgwgk 9y agoOk, I thought you meant "becoming a going concern" as an alternative to an IPO (an IPO will also result on becoming a going concern, if it was not one already).
- jacquesm 9y agoAh right, I see what you mean now. Yes, I could have worded that clearer. It should have been 'simply to continue to be a going concern', not as if companies that have IPO'd are no longer a going concern. Apologies!
- dllthomas 9y agoThough if they're hiring people with the enticement of stock, they're arguably under some obligation to somehow allow some liquidity ever.