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Do the math on your stock options

jvns.ca

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Re: Do the math on your stock options

#71

Post by ap22213 »

Teodolfo wrote: post #37

I'm surprised people don't take the time to figure out what the options actually mean and negotiate some of the terms. When I have negotiated with startups I have paid for legal advice to help me figure out what language I needed in the option agreement (for example, a pinterest-style clause that prevents me from having to exercise within 3 months of leaving) and negotiated for the terms I felt were important. Just b…

Just curious, how difficult was it for you to find a qualified attorney, and how much did you spend? (I tried this approach once, but the legal advice was low quality and very basic.)

Re: Do the math on your stock options

#72

Post by inthewoods »

Great thread here and the original article has some excellent points.

I recently left a company and explored executing my options via a vehicle called ESO Fund (www.esofund.com). In the end I did not use them for different reasons, but their offer was reasonable.

Two general comments on stock options: - Remember that bad things happen in companies in raising money. Your company could raise another round after you've executed your shares, and in addition to the dilution, you could also have an onerous term in that round - like a 2 or 3x liquidation preference - that will mean you are very, very unlikely to see any money.

- Remember that companies don't have to have a liquidation event. I executed shares in a company I worked for in 2006. That tied up money in the company - and then nothing happened with the company for the last 9 years until this year I got a buy out offer on my shares at about 50% higher than I paid. Sounds great, except if you consider time. 50% return over a period of 9 years is certainly not a fail, but it also isn't a big win over putting that money into the general stock market.

Re: Do the math on your stock options

#74

Post by ryaniscool »

JumpCrisscross wrote: post #60
ryaniscool wrote: post #55

Earlier quoted context omitted.

Restrictions on transferability is standard for a private company. Kudos if you are able to negotiate this but I think a small company would be crazy to agree to this. It opens the door to a whole list of potential burdens for the company.

> Restrictions on transferability is standard for a private company A right of first refusal (ROFR) is a reasonable transfer restriction. So is a lock-up period, e.g. you may not sell these shares within N years of getting them. Bans, on the other hand, are not. For a common stockholder, requiring board approval is a cutesy way of saying "ban".

You're basing this on what? Not saying your wrong but what is the basis of this opinion ?

Employees usually get restricted stock until there is a liquidity event.

Re: Do the math on your stock options

#75

Post by jackgavigan »

rday wrote: post #62
jackgavigan wrote: post #21

Earlier quoted context omitted.

> If they told you that the number of outstanding shares was privileged and confidential they are crooks in nice suits. Never attribute to malice that which is adequately explained by stupidity. Getting a seed round doesn't magically confer the founders/C*Os with an comprehensive understanding of how company equity works. Or common sense.

> Never attribute to malice that which is adequately explained by stupidity. So what is the lesson here? I hear this saying over and over, always with the implication of "Give them a pass". Who cares if they are being crooked, or are too dumb to do division. Either way, the employee loses.

There's no lesson. I'm just pointing out that many founders are more focused on tech or product than they are in options and cap tables. And many startups employ staff who are also unfamiliar with such things.

Given my experience of advising early stage startup founders on equity investment, dilution, cap tables, etc., I believe that ignorance is at least as likely as malice in situations where they seem unwilling to disclose all the information the potential employee needs to fully evaluate the potential value of any equity options being offered.

Re: Do the math on your stock options

#76

Post by rpedela »

fiachamp wrote: post #50

There actually IS a way to exercise after you leave without laying out cash + tax dollars today. Consider esofund.com, its a fund that will pay your exercise price and tax liability for a proportion of your upside in a good financial outcome. If it doesn't work out, well at least you didn't throw away your own cash. They're basically a vc that takes common stock in companies by getting rights to employee shares.

Only possible if you are able to sell your private shares without a liquidation event (IPO, acquisition) which is often not the case.

Re: Do the math on your stock options

#77

Post by mavelikara »

jvns wrote: post #23
Anderkent wrote: post #15

You don't have to hold the stock until IPO. If the company is doing good, finding a private buyer through a stock broker shouldn't be that hard. Sure, you won't get the best deal, but it lets you cash out. Also, if a private company grants you options and never gives you any options for liquidity (like buying the stock back when taking new investment etc) you should be really careful about overvaluing the options. Cl…

Have you found a private buyer for stock? What was the experience like?

I have sold stock (exercised options) to a private buyer. I found them via sharespost. The experience was good. I paid 5% of the proceeds to sharespost.

Re: Do the math on your stock options

#78

Post by elmar »

gibybo wrote: post #17
nbevans wrote: post #10

What protects the stock from being diluted since presumably it has no or insufficient voting rights?

In theory, the company has a legal fiduciary duty to act in the best interest of the shareholders. If they try to rob the shareholders by unreasonably diluting, you could sue for breach of that responsibility. In practice, nothing really prevents it completely. However, the founders will generally be getting diluted the same amount as you so their interests are somewhat aligned with yours to negotiate a reasonable di…

Real life extreme dilution example:

How Mark Zuckerberg Booted His Co-Founder Out Of The Company http://www.businessinsider.com/how-mark-zuckerberg-booted-hi...

http://gawker.com/5643915/mark-zuckerberg-describes-the-dirt...

Re: Do the math on your stock options

#79

Post by mavelikara »

vidarh wrote: post #46
discordianfish wrote: post #32

Is it really that hard to find a buyer for private shares in a "good looking" startup? It almost sounds impossible, yet I talked to some people who said it's not that hard. I guess I have to find out..

There are tons of brokers that makes their living doing this. It's not necessarily hard, depending on how good price you want to hold out for, but it can take a lot of time and be unpredictable, because the buyers are not necessarily sitting around waiting and so it can depend on finding a broker that have the right kind of potential buyer on the books that they can contact. I've sold shares same day in an unlisted c…

I also had the same experience. Because there is no real market making entity, finding the two parties needed to make a trade can take unpredictable amount of time.

Re: Do the math on your stock options

#80

Post by rpedela »

retube wrote: post #63

Why do firms offer options as opposed to actual equity? The way these options are structured plus US tax law basically means a lose - lose scenario for the employee.

The employee has to pay for the shares and any taxes up front. In the very early stages, this is ideal because the shares are worth nothing. Eventually the shares are valued high enough that the upfront costs are prohibitive.
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