4 ms·

General options question: I was hired after the first round of funding and given x0,000 options along the way (three years in so far). We're just now closing ou

by emp25 13y ago

General options question: I was hired after the first round of funding and given x0,000 options along the way (three years in so far). We're just now closing our second round. I was curious about the valuation and number of options/shares issued so I could have a ballpark idea of the value of my options. When I asked at a company meeting, the founders hemmed and hawed about it and ultimately wouldn't say. The round hasn't closed yet. Are these numbers typically kept secret? Is there a reason whey they're tight-lipped? Our headcount is 20-30 and I'm just a developer.

arielweisberg 13y ago
In my experience it's not a secret to employees, although are you sure they aren't just waiting for the deal to close? Leadership (at least responsible leadership) generally has to be very careful about what they tell people. Number of shares is meaningless, you can take the number of shares and the FMV of each share (they have to give you that else you can't pay taxes) and get an idea of where you are. You can do the same pre and post financing. I do not know if they have to tell you how many shares there are or how many have been allocated. If you exercise you may gain access to additional information as a share holder, but I don't know the specifics of how that works. Options are fun and you should negotiate for them, but never compromise on cash. They can't take away cash, but they can effectively render your options worthless if they wish.
Jemaclus 13y ago
Disclaimer: I'm not super versed on this kind of thing, so this is just what I understand. It's my understanding that generally when you raise more funding, your shares are diluted. Let's say before there were 100,000 shares, and you had 500 of them. Well, now there are 120,000 shares and you still only have 500 of them, so instead of having options for 0.5% of the company, you have options for .4% of the company. They don't really want you to know that the equity you were promised up front is now worth less than it was before, so that's why they hemmed and hawed.
- arielweisberg 13y ago
  IMO dilution is not a bad thing. The company is worth more after it takes money and that money is going to fuel growth that will hopefully offset the dilution. If it doesn't well the shares weren't worth that much anyways. You can't expect blood from a stone when it comes to ISOs. As long as the dilution is fair WRT to the valuation and number of new shares issued/allocated I don't see the problem and good leadership would explain it as such. The flip side is that if employees are diluted badly enough they will leave. Employers know this and walk the line of doing the bare minimum they think they have to do to get the people they care about to stay.
  - emp25 13y ago
    "if employees are diluted badly enough they will leave" I guess in my case, I don't know how the second round dilution arrangement will affect me.
    - arielweisberg 13y ago
      Disclaimer, I am not an expert, but I did stay at a Holiday Inn Express last night. First I would suggest you bring up your concerns clearly and make sure you understand why they won't tell you. Give them a chance to explain. If the company is 30 people you should be able to drop by the CEOs office and ask. Like I said they may not be saying anything because the financing is not final. Alternatively if they are not cooperative. Go in tomorrow and ask to exercise your vested options. At this point they have no choice but to tell you the FMV of those options. Don't exercise them, or do that is a separate topic and you have to watch out for tax liability. Do it again after the financing finishes. The FMV of your shares will change. If it is significantly lower the options may not be worth your time. They can't avoid telling you the FMV of the shares you have because you need to know to calculate your tax liability for the spread between the strike price and the current FMV. Think of it like any other investment. If it isn't gaining in value it's not worth your time. If the FMV of your shares is say 4/5s of what you had before financing you did well. If it is 1/9 you got screwed or your company is doing very poorly (although why would anyone invest in it then...) In the middle it is more complicated. If your company is healthy and not taking on a large amount of money for growth the FMV of your shares might actually increase despite the dilution.

by emp25 13y ago

arielweisberg 13y ago

In my experience it's not a secret to employees, although are you sure they aren't just waiting for the deal to close? Leadership (at least responsible leadership) generally has to be very careful about what they tell people. Number of shares is meaningless, you can take the number of shares and the FMV of each share (they have to give you that else you can't pay taxes) and get an idea of where you are. You can do the same pre and post financing. I do not know if they have to tell you how many shares there are or how many have been allocated. If you exercise you may gain access to additional information as a share holder, but I don't know the specifics of how that works. Options are fun and you should negotiate for them, but never compromise on cash. They can't take away cash, but they can effectively render your options worthless if they wish.

Jemaclus 13y ago

Disclaimer: I'm not super versed on this kind of thing, so this is just what I understand. It's my understanding that generally when you raise more funding, your shares are diluted. Let's say before there were 100,000 shares, and you had 500 of them. Well, now there are 120,000 shares and you still only have 500 of them, so instead of having options for 0.5% of the company, you have options for .4% of the company. They don't really want you to know that the equity you were promised up front is now worth less than it was before, so that's why they hemmed and hawed.

arielweisberg 13y ago
IMO dilution is not a bad thing. The company is worth more after it takes money and that money is going to fuel growth that will hopefully offset the dilution. If it doesn't well the shares weren't worth that much anyways. You can't expect blood from a stone when it comes to ISOs. As long as the dilution is fair WRT to the valuation and number of new shares issued/allocated I don't see the problem and good leadership would explain it as such. The flip side is that if employees are diluted badly enough they will leave. Employers know this and walk the line of doing the bare minimum they think they have to do to get the people they care about to stay.
- emp25 13y ago
  "if employees are diluted badly enough they will leave" I guess in my case, I don't know how the second round dilution arrangement will affect me.
  - arielweisberg 13y ago
    Disclaimer, I am not an expert, but I did stay at a Holiday Inn Express last night. First I would suggest you bring up your concerns clearly and make sure you understand why they won't tell you. Give them a chance to explain. If the company is 30 people you should be able to drop by the CEOs office and ask. Like I said they may not be saying anything because the financing is not final. Alternatively if they are not cooperative. Go in tomorrow and ask to exercise your vested options. At this point they have no choice but to tell you the FMV of those options. Don't exercise them, or do that is a separate topic and you have to watch out for tax liability. Do it again after the financing finishes. The FMV of your shares will change. If it is significantly lower the options may not be worth your time. They can't avoid telling you the FMV of the shares you have because you need to know to calculate your tax liability for the spread between the strike price and the current FMV. Think of it like any other investment. If it isn't gaining in value it's not worth your time. If the FMV of your shares is say 4/5s of what you had before financing you did well. If it is 1/9 you got screwed or your company is doing very poorly (although why would anyone invest in it then...) In the middle it is more complicated. If your company is healthy and not taking on a large amount of money for growth the FMV of your shares might actually increase despite the dilution.