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Can someone comment on determining fair market value of a private company? I exercised NSO stock options of a private company after being vested for a year. Everything I read indicates I need to declare the spread of current FMV with the value of the option grant date. How do I determine the current FMV if their is no market though?
http://www.avc.com/a_vc/2010/11/employee-equity-the-option-s...
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Without some notion of how much your equity grant represents of the company (by current dilution), the actual number of options you get cannot be sensibly valued. The total number of shares at a company is totally arbitrary . Seriously, when you register one, the state just asks you to pick a number . If a company won't tell you enough to calculate the percentage, that's like you asking "What's your offer for salary?…
Please forgive my ignorance, but if you know the number and price of the options, is the problem that you don't know the current valuation? Because it seems like if you know the price of the option, how many options you're being offered, and the current valuation, it's trivial to work out the number of outstanding shares. I guess the current valuation is privileged? Or that there is no current-valuation if it's been…
~ $2,000,000 if they've only issued 500,000 shares ~ $100,000 if they've issued 13,000,000 shares ~ $2,000 if they've issued 40,000,000 shares.
And your returns would be negative for any greater number of shares.
The real problem is that you don't know the price per share from the current valuation.
Red flags (from personal experience): - "We will give you a big share of our (of-course-soon-to-be-facebook-or-google) company (15%+ in stock options) if you'll agree to work for us for close-to-nothing". - Senior officers starting leaving the company one by one. - Senior officers giving small promises that have tendency not to materialize. - Senior officers do not have any/good exit track record. Opposite would be a…
I'm not getting #1. Essentially, they're offering you a "founder grade" share of the company. Why not?
It's just a sign that it's really risky, and the other founders obviously think the odds of it succeeding are low and are asking you to put in sweat equity, as it were.
Really nice write-up explaining stock options. A few added thoughts sparked by some of the comments already made in this thread and otherwise: 1. The value of options is inextricably linked to tax and you need to understand the tax basics in evaluating the economic risks and benefits of holding and exercising any kind of option. With NQOs, you are taxed on the spread as ordinary income on the date of exercise (meanin…
When it comes to ISOs, are there any tricks/loopholes to avoid the cash commitment required for early exercise but also somehow become qualified for long term capital gain tax treatment at the time of liquidation? I understand that is having one's cake and eating it too, but figured worth asking. Thank you.
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Exactly what does the cap table have to do with your expected outcome, presuming you know the percentage of your allocation, the liquidation preferences and valuation, and the company's runway?
are companies typically forthcoming with information about liquidation preferences? At jobs I've asked and been told the percentage of allocation, valuation, and runway, but have never asked about liquidation preferences. Also, does it really matter if I know? A later round could have wildly different liquidation preferences that wipe out my gains, right? Though I guess that's true of dilution as well...
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Maybe. But just looking at expected value ignores risk. Most people are risk averse, especially at the amounts of money we're talking about here.
Expected value is not $millions. Expected value is a few hundred $k (usually, if you are realistic about the potential of the business and your tiny share as an employee) MULTIPLIED by the relatively small chance of hitting that exit, say 1%. In short, a few thousand dollars, which is approximately what you get by multiplying out the strike price. IMHO it takes risk into account in a very sobering way.
Speak for yourself.
Does anyone have any UK specific advice considering stock options? ..and how does it affect things if these are offered to a contractor and not a FT employee, is that even possible?