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This really shouldn't get the fundamental point wrong > When an employee exercises an option, the company must issue a new share of stock that can be publicly
by JonChesterfield 1y ago
This really shouldn't get the fundamental point wrong
> When an employee exercises an option, the company must issue a new share of stock that can be publicly traded.
No. When you exercise, you get the stock, but it's definitely not guaranteed to be publicly traded.
For example Graphcore gave people options, which if exercised became stock in graphcore. If you then found a buyer and asked GC to approve the sale, they declined. Not public. Later they revalued that stock at zero.
To a better approximation, stock options work if you trust the company to pay out.
- jdcampolargo 1y ago> stock options work if you trust the company to pay out. 100%
- cyberax 1y ago> For example Graphcore gave people options, which if exercised became stock in graphcore. If you then found a buyer and asked GC to approve the sale, they declined. Not public. Later they revalued that stock at zero. From looking at Wiki, the company is basically bankrupt with just $2.7m revenue for 450 employees. So their stock is literally worth nothing. If they do get acquired by Softbank, employees will get a portion of the sale according to the amount of shares they own. The company valuation won't make any difference.
- JonChesterfield 1y agoWiki is out of date. Softbank acquired graphcore ages ago for many million dollars. Employees got zero times however many shares they owned. For related reading, see "drag along" for why the voting rights attached to shares mean nothing. https://sifted.eu/articles/graphcore-conditional-sale-agreed-news https://sifted.eu/articles/graphcore-conditional-sale-agreed...
- cyberax 1y agoWell, it's not much different. The investors with preferred stock got some money back, taking a loss overall. So this was basically a bankruptcy with employees and founders getting nothing.
- JonChesterfield 1y ago"Founder liquidity" is worth looking up. If you're curious about this specific case, UK companies register accounts that can be read by anyone. I'm mostly calling this out as an example of why "public" is an important error in the op. Were the shares publicly tradable, the employees that chose to could have exited.
- cyberax 1y agoI'm not familiar at all with the UK law, but in the US the founders typically get common stock. They can't have it treated preferentially during acquisitions. "Founders' stock" refers to the preferential tax treatment (TLDR: almost zero taxes via QSBS).