11–18 of 18 posts
"My Advice: politely ask for the shares outstanding, or for what percentage your share offer represents (then confirm the approximate shares outstanding). If the company won't provide you with this necessary information, it's unlikely they're going to be straight with you on other issues; go work somewhere else." The number of jobs just shrunk by 90%.
Earlier quoted context omitted.
Care to elaborate? You can't say you know someone who was "fucked" by doing something, and then not tell us what fucked them-- that's teasing!
simple scenario: when you join your company gives you 1000 options valued at $1 per share (at the time of issuing), vesting in 4 years. Assuming after 2 years, you decide you want to exercise the options that are vested, so you pay your company $500 to get your 500 shares. Company start going down the tube, and folds out, or is selled at fire price. You end up with basically worthless paper on your hands. So, instead…
Assume the company does moderately well, and is sold at a premium.
There is nothing that practicably prevents the company from diluting shares at that point and distributing the new shares among current employees, to the disfavor of everyone who left.
In fact, that seems to happen regularly. Companies get sold, and non-employee non-VC stockholders get nothing because of how the deal is structured.
Earlier quoted context omitted.
simple scenario: when you join your company gives you 1000 options valued at $1 per share (at the time of issuing), vesting in 4 years. Assuming after 2 years, you decide you want to exercise the options that are vested, so you pay your company $500 to get your 500 shares. Company start going down the tube, and folds out, or is selled at fire price. You end up with basically worthless paper on your hands. So, instead…
I figured this was obvious-- if the company fails, you lose the money invested. That's the nature of equity and stocks in general. I wouldn't consider losing 5k after exercising options (and knowing the obvious risks) as being "fucked," though. Just a bad outcome. And exercising 50k worth of options on a company that has a chance of failing is just stupid.
Except it comes at the same time the company folds, which mean you lose your job and have to pay for the privilege. I agree on a hypothetical 120k salary this isn't a big deal but in many start-ups you're basically at subsistence level.
Earlier quoted context omitted.
simple scenario: when you join your company gives you 1000 options valued at $1 per share (at the time of issuing), vesting in 4 years. Assuming after 2 years, you decide you want to exercise the options that are vested, so you pay your company $500 to get your 500 shares. Company start going down the tube, and folds out, or is selled at fire price. You end up with basically worthless paper on your hands. So, instead…
Put aside the company failing, which is an obvious risk that you already knew about. Assume the company does moderately well, and is sold at a premium. There is nothing that practicably prevents the company from diluting shares at that point and distributing the new shares among current employees, to the disfavor of everyone who left. In fact, that seems to happen regularly. Companies get sold, and non-employee non-V…
Earlier quoted context omitted.
simple scenario: when you join your company gives you 1000 options valued at $1 per share (at the time of issuing), vesting in 4 years. Assuming after 2 years, you decide you want to exercise the options that are vested, so you pay your company $500 to get your 500 shares. Company start going down the tube, and folds out, or is selled at fire price. You end up with basically worthless paper on your hands. So, instead…
Put aside the company failing, which is an obvious risk that you already knew about. Assume the company does moderately well, and is sold at a premium. There is nothing that practicably prevents the company from diluting shares at that point and distributing the new shares among current employees, to the disfavor of everyone who left. In fact, that seems to happen regularly. Companies get sold, and non-employee non-V…
Very good article, but it's incorrect in some areas. "Companies raise money by selling new stock after the board of directors authorizes the sale to investors. Those new shares are created out of thin air by the company, and will dilute all of the current stockholders." These shares are not created out of "thin air" as the article states. When a corporation is formed, it requests and is granted a certain number of sh…
My point is that the company sells new shares up to the amount authorized, to raise money. In my experience, the authorized number of shares is a minor point; the board/majority shareholders will increase it if it's ever a limiting factor.
Before those shares are sold (issued), they don't really exist -- nobody votes them, they're not compensated if company is acquired, etc. Hence, the simplified "thin air" description.
This article advises employees to exercise their shares as soon as they are vested as long as they're bullish on the company. I know several people who've been fucked over doing this. The thing you need to remember is, your private-company common shares grant basically no enforceable rights.
Stated differently, I've much more people screwed by the inverse case -- they DON'T exercise, the leave the company, they have 90 days to exercise vested shares or lose the options, the fair market value has crept up, and they end up with a huge AMT tax hit to keep the stock they worked for.
Very good article, but it's incorrect in some areas. "Companies raise money by selling new stock after the board of directors authorizes the sale to investors. Those new shares are created out of thin air by the company, and will dilute all of the current stockholders." These shares are not created out of "thin air" as the article states. When a corporation is formed, it requests and is granted a certain number of sh…
I'll concede that 'thin air' is probably an oversimplification, for the purposes of this essay. My point is that the company sells new shares up to the amount authorized, to raise money. In my experience, the authorized number of shares is a minor point; the board/majority shareholders will increase it if it's ever a limiting factor. Before those shares are sold (issued), they don't really exist -- nobody votes them,…
Also, the board of directors can't exactly increase the number on their own. They have to get permission from the state to do so, since it could have an effect on ownership. If I had a 49% stake in a company, the 51% couldn't authorize and issue themselves more stock to keep me from getting control, but they could dilute my ownership by bringing stock out of treasury or issuing stock from their authorized amount.
A last note, I believe that most companies issue stock compensation directly out of their treasury stock, so if you'll be getting a good deal of ownership, it will probably be from that stock pool. Take that into account to figure out your ownership percentage.