3 ms·

I'm slightly confused on one point. If the options need not be exercised, why then, would any employee with a minority stake want to spend his own money to exer

I'm slightly confused on one point. If the options need not be exercised, why then, would any employee with a minority stake want to spend his own money to exercise them? Why not wait until the company exits and have it, as you say, be 'automatically exercised'? The other (much more probable) outcome is that the paper options are worth nothing, and the employee is out nothing either. However, if the employee exercises, and the company goes under, he's out however much he paid for those options + opportunity cost of working at a lower 'early employee' wage. Is there any real reason to exercise those stock options and hold onto common stock of a non-publicly traded company? I guess if there's enough demand, those stocks can be traded on 'secondary' private markets (like FB, pre-IPO), but I would imagine this to be the exception and not the rule, correct? Clearly the best option is to not exercise those options until absolutely necessary, or am I missing something here?

rdouble 14y ago
If you've vested some of your options and don't want to stick around, but there's a good chance there will be a liquidity event at some point in the future.
- saalweachter 13y ago
  To clarify: most stock options evaporate if you leave the company. Usually you have 30 or 90 days to exercise them or lose them after you quit or are fired. Companies like this aspect. Stock is yours forever. The other reason to exercise early is also taxes. When you exercise the option, buy stock at $0.01, and sell it at $10 milliseconds later, that is a short term capital gain. If you exercise them years before selling them, you have long term capital gains, which are taxed at a lower rate. You increase your after-tax payout by (say) 10%, with the risk that your payout will be $0. Or less than the cost to exercise your shares. Or the opportunity cost (you can't use money tied up in illiquid startup stock to buy houses or APPL at $10) is too high.

rdouble 14y ago

If you've vested some of your options and don't want to stick around, but there's a good chance there will be a liquidity event at some point in the future.

saalweachter 13y ago
To clarify: most stock options evaporate if you leave the company. Usually you have 30 or 90 days to exercise them or lose them after you quit or are fired. Companies like this aspect. Stock is yours forever. The other reason to exercise early is also taxes. When you exercise the option, buy stock at $0.01, and sell it at $10 milliseconds later, that is a short term capital gain. If you exercise them years before selling them, you have long term capital gains, which are taxed at a lower rate. You increase your after-tax payout by (say) 10%, with the risk that your payout will be $0. Or less than the cost to exercise your shares. Or the opportunity cost (you can't use money tied up in illiquid startup stock to buy houses or APPL at $10) is too high.