I have a related question: I have some non-privileged stock in a private company, and I want to sell it (I want the money and I don't care about the future of a company I don't work for anymore). Who could be an interested buyer?
An Engineer’s guide to Stock Options
151–160 of 162 posts
Re: An Engineer’s guide to Stock Options
#152So what happens when the company exits before you are vested?
Most stock plans have triggered vesting.
So it's possible to start a job on Monday, have the company acquired on Tuesday and immediately vest for all 4 years going forward.
Re: An Engineer’s guide to Stock Options
#153If I decide to leave a company in which I have partially vested stock options, would it be okay to ask my employer (or anyone else in my company) if they would be interested in buying the options off of me at the current valuation (EG, last amount of money raised)? Is something like this common, or would I get laughed out of the room? Similarly, how liquid are markets like Second Market in terms of liquidating option…
There's not really a whole lot of incentive for a company to buy your shares, since they can always print more if needed.
Liquidity highly depends on the company. SecondMarket, SharesPost and MicroVentures have online portals for buying+selling, but they also have a mailing list with people potentially interested in a secondary market transaction, so worthwhile exploring that option.
Re: An Engineer’s guide to Stock Options
#154Earlier quoted context omitted.
It is a problem that the employers force risk on their employees. No tax law fix needed, the law is correct. The employers should allow employees to sell back 35%ish of their optioned stocked, at "market" price, to cover the taxes. This is how RSUs (can) work, auto sale for taxes on the day the stock is transferred.
How is it correct its perverse for many reasons. 1 How can I owe tax on something that has no value. 2 I think we can all agree that Employee ownership is considered a good thing therefore any law which penalizes this is bad law if not actively immoral. The law should only tax you when you have an actual +ve capital gain. (the need for sensible vesting and taper relive to avoid tax avoidance is of course a given). On…
Well the answer to 1 is that you owe tax on the increase of value from 10c to $2 (your option price and the current value of the stock when your bought it at 10c a share - if you have 10k shares you might pay $1k to exercise the options and find yourself owing roughly 1/3 of 10k*$1.90 or ~$6k in tax on your paper gain.
The usual reason you are doing this is because you expect the stock to appreciate further say to $10 and you want to lock in the long term capital gains tax (25%) rather than your marginal rate (30somethingish %) when you sell it.
Now when the company goes under your stock goes to 0 you can claim back the loss ($20k) in a subsequent year's tax return, but only as an offset against some other investment income - something that might not be happening if you don;t have a job (though if you can't use this loss it might be a great time to tap your 401k/IRA and get that money out essentially tax free if you can)
Re: An Engineer’s guide to Stock Options
#155Red 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?
If you jointly owns IP - that's fine.
But if you're only an employee albeit a proud owner of large chunk of options, it's possible that real founders are just testing the market at your expense.
Re: An Engineer’s guide to Stock Options
#156Earlier quoted context omitted.
I'm not getting #1. Essentially, they're offering you a "founder grade" share of the company. Why not?
If you jointly owns IP - that's fine. But if you're only an employee albeit a proud owner of large chunk of options, it's possible that real founders are just testing the market at your expense.
With 15% you can have a seat in the board or at least some voting rights. Having that it would be more difficult to just dissolve the company without any real reason.
But generally speaking you're right, thanks.
Re: An Engineer’s guide to Stock Options
#157Earlier quoted context omitted.
Apparently I've triggered some deep seated angst... Let me try to clarify what I meant, and maybe you'll feel better? This post didn't present any new 'facts' for me. I was already aware of all the details he explained (and most, but not all, of the implications of those details). My point was simply that by framing shares as currency presented them in a way that I had never considered before, and that comparison cau…
Not at all, now that I've learned about your learning, we can all discuss how happy that makes us feel. It's a win-win. Wait, maybe if there was a higher context to share our approval of the article without distracting away from its content? Like some kind of high-level rating system that was enforced through a framework of some sort and presented as a low-friction indicator of the quality of the article? We could ev…
Seek help.
Re: An Engineer’s guide to Stock Options
#158Earlier quoted context omitted.
It's still necessary to consider the total number of shares. Let's say you've been issued 500,000 options with a $0.10 strike price, and the company is currently valued at $4 million. The approximate pretax value of exercising your options immediately would be: ~ $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 retur…
I must have misunderstood. I thought that the strike price always reflected the current price of the shares at the time the option was issued, but it seems that this is not the case. Thanks for clarifying.
I'm pretty sure the strike has to be greater than or equal (out-of-the-money) or there are tax implications. So, they would need to tell you (I AM NOT AN ACCOUNTANT)
Not that an at-the-money option has no value -- but I think for tax purposes, it's not treated as such.
Re: An Engineer’s guide to Stock Options
#159Earlier quoted context omitted.
If you jointly owns IP - that's fine. But if you're only an employee albeit a proud owner of large chunk of options, it's possible that real founders are just testing the market at your expense.
With 15% you can have a seat in the board or at least some voting rights. Having that it would be more difficult to just dissolve the company without any real reason. But generally speaking you're right, thanks.
Solid cubicle quite often is a better financial investment than a shaky board :)
Re: An Engineer’s guide to Stock Options
#160Can you talk a bit more about the dilution an employee should expect if the company completes more funding? That could have a serious impact on your shares. Who usually gets diluted first? Founders? Previous investors? Employees? If you're an employee that received options and the company is doing another round of funding, should you be worried or on the front foot about finding out what will happen to your options?
Everyone gets diluted when a company raises more money: founders, employees, and previous investors. Investors usually have ‘prorata rights’ which mean they are allowed to invest additional money at the new valuation to maintain their given percentage ownership of the company. Founders generally have the same class of stock as employees (common stock), and so are in the same boat. Investors have preferred shares. Pre…
Joe and Mary created a company, jointly invested $2, issued 2 shares and own 50% of a company each. Each share worth $1.
Bill [Gates :)] comes in and convinced Joe and Mary to sell him 50% of company for $1,000,000.
Joe and Mary issued 2 more shares (4 total shares now) and gave them to Bill in exchange for $1,000,000.
OMG, Joe and Mary just diluted themselves in half to 25% each!
But the difference is of course is that each share now cost $250,000.50, instead of previous $1.