3 ms·

Yes, a good way to think about the value of the offer is to take the percentage, multiply by 1/2 to 1/4 for dilution, and then figure out what you get in a good

Yes, a good way to think about the value of the offer is to take the percentage, multiply by 1/2 to 1/4 for dilution, and then figure out what you get in a good exit ($1B or more). That's probably a best-case scenario. Note that without early exercise it's likely not worth it. Also, for anything other than a good exit, the preferred stock holders will likely keep all the money from an exit.

frellus 5y ago
+1 on the point about "early exercise". The ability to exercise and file the $0 value increase with an 84(b) (assuming the company is < $50M capital) is the way the game is played in the Valley. Ex: You get 10,000 options @ strike of $1 vested over 4 years. You exercise all of them early and file 84(b) with the IRS to say "I bought this stock at $1 for cost of $1 = $0 gain". 4 years later the stock is worth $10 / share. Now you have a gain which, most likely, you will owe LTCG if ANYTHING on that. It's like printing money if you get the right company at the early time with enough shares to make it worthwhile.
- viksit 5y ago
  I believe you mean the 83(b) election.
  - sb8244 5y ago
    I'm confused here because my understanding is that 83b is specifically for shares and not options.
    - junar 5y ago
      The 83(b) is not for the option per se, but the shares you own after you exercise the option. > ... if the stock purchased pursuant to the exercise of an option is subject to a substantial risk of forfeiture, the service provider may make an IRC §83(b) election with respect to the stock received pursuant to the exercise of the option. https://www.irs.gov/businesses/corporations/equity-stock-based-compensation-audit-techniques-guide https://www.irs.gov/businesses/corporations/equity-stock-bas... Also see "Restricted Property" in Pub 525. https://www.irs.gov/publications/p525#en_US_2020_publink1000229234 https://www.irs.gov/publications/p525#en_US_2020_publink1000...
      - sb8244 5y ago
        Wow. Thanks a ton for those links. Definitely something I want to share with others in the future.

frellus 5y ago

+1 on the point about "early exercise". The ability to exercise and file the $0 value increase with an 84(b) (assuming the company is < $50M capital) is the way the game is played in the Valley. Ex: You get 10,000 options @ strike of $1 vested over 4 years. You exercise all of them early and file 84(b) with the IRS to say "I bought this stock at $1 for cost of $1 = $0 gain". 4 years later the stock is worth $10 / share. Now you have a gain which, most likely, you will owe LTCG if ANYTHING on that. It's like printing money if you get the right company at the early time with enough shares to make it worthwhile.

viksit 5y ago
I believe you mean the 83(b) election.
- sb8244 5y ago
  I'm confused here because my understanding is that 83b is specifically for shares and not options.
  - junar 5y ago
    The 83(b) is not for the option per se, but the shares you own after you exercise the option. > ... if the stock purchased pursuant to the exercise of an option is subject to a substantial risk of forfeiture, the service provider may make an IRC §83(b) election with respect to the stock received pursuant to the exercise of the option. https://www.irs.gov/businesses/corporations/equity-stock-based-compensation-audit-techniques-guide https://www.irs.gov/businesses/corporations/equity-stock-bas... Also see "Restricted Property" in Pub 525. https://www.irs.gov/publications/p525#en_US_2020_publink1000229234 https://www.irs.gov/publications/p525#en_US_2020_publink1000...
    - sb8244 5y ago
      Wow. Thanks a ton for those links. Definitely something I want to share with others in the future.