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Ask HN: How do I gauge the value of stock options that I have been offered?

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Re: Ask HN: How do I gauge the value of stock options that I have been offered?

#21

Post by kspaans »

mdellabitta wrote: post #20
kspaans wrote: post #16

Knowing the number of options isn't nearly as useful as knowing what percentage of the company you will own. This lets you calculate the various ways the value of your equity will change as the business gets more investment, sells, or goes public. The company should tell you are offered 200 shares of, say, 2 million outstanding shares. If the valuation you say is accurate, it looks like they are giving you options fo…

> Hopefully your salary is enough to be able to afford ~$65,000 worth of option exercises every year, should you be interested in purchasing them! Just dropping a quick clairification: OP should not assume it's necessarily a good idea to buy the options as they vest, and should not assume that they'll have to put up cash to excercise them in the future. Probably covered by your link, but I wanted to point this out ex…

Good point, I was keeping my post short but should have included this! I think I was trying to highlight how expensive the options are, rather than the necessity to exercise them.

Re: Ask HN: How do I gauge the value of stock options that I have been offered?

#22

Post by patio11 »

You need to know the fully diluted count of shares. After that, calculate how much of the company you beneficially own assuming full vesting, and start wargaming out scenarios of exits at $500 million, $1 billion, $2 billion, $5 billion, $10 billion, $25 billion, $50 billion, etc. It's 4th grade math with bigger numbers: 1 bps * $10 million = $1k; 1 bps * $1 billion = $100k; etc. (bps = "basis point" = 10^-4)

You might also try asking the question "I'm trying to value my options. Do you have any financial results or model which would suggest I value them upwards?" HN readers might if surveyed pick "Options are basically witchcraft" but this is very, very not true of CFOs at billion dollar companies. The information you want exists in a spreadsheet somewhere; nobody is going to hate your guts for asking to see it. (They might not say yes but, hey, that's signal, too.)

Re: Ask HN: How do I gauge the value of stock options that I have been offered?

#23

Post by logicallee »

itake wrote: post #4

Really depends on how much risk you're willing to take. I personally don't value stock options and would look purely at compensation that can be used today.

>I personally don't value stock options

Yes you do. I'll give you $50 for all of yours. What's that? Oh that's right: you do.

Re: Ask HN: How do I gauge the value of stock options that I have been offered?

#25

Post by oroup »

$1300 is really an unusually high strike price. While in theory there is no difference between 200 options at $1300 per share and 20k options at $13 per share, the former is very unusual and I'd at least want to know the story. If the company is to IPO there will almost certainly be a stock split.

One way to force small stakeholders off your cap table is to do a reverse stock split because fractional shares are typically paid out in cash. If that were the case here, I'd call it sketchy behavior and steer clear.

Re: Ask HN: How do I gauge the value of stock options that I have been offered?

#26

Post by giis »

Keep stock options as possible bonus in future. It may or maynt happen.

If its very small company with only handful no.of employees and you see this company has bright future or may get acquired for billions - then try to understand how they arrived on number 200.

If you faith in product & planning to stay for 4+ years. - You can tell them increase options with may be increased 5 year schedule.

If you think your basic income needs to be good. Then ask them reduce options and put some money on your monthly salary.

I think 1300USD/option is very high, Google stock is $800 & I'm very doubtful you will get $1300 per stock.

Re: Ask HN: How do I gauge the value of stock options that I have been offered?

#28

Post by philjohn »

tazoo wrote: post #9
raverbashing wrote: post #3

Sorry, but unless it has some traction already and it has been IPO'd the Expected value of those options 4yrs from now is zero. Unless you are really sure about it, think of it as a bit more than a lottery ticket

Sure the expected value can be zero. I know that options are essentially a lottery ticket. I'm just not sure if these options are very little or enough or a lot.

Remember that even if they don't hit zero, if they're underwater, say, £1299.99 they are worth essentially zero as you'll not want to exercise them (and why would you want to? You'd be losing money - and you can't write it off as a tax loss in almost all circumstances).

Then, unless they're publicly traded, or there is a legitimate secondary market, you can't even do a sell to cover.

The other way of providing equity is with RSU's, restricted stock units, where the company promises to give you, at each vesting date, a portion of stock. The problem there is that this is taxed as income on the value of the stock at vesting, and once again if there is no secondary market you'll not be able to sell enough to cover your tax liability and be in for a nasty invoice from the IRS that you need to scramble to cover.

I'd recommend having a financial planner walk through the ins and outs with you.

Re: Ask HN: How do I gauge the value of stock options that I have been offered?

#29

Post by patio11 »

oroup wrote: post #25

$1300 is really an unusually high strike price. While in theory there is no difference between 200 options at $1300 per share and 20k options at $13 per share, the former is very unusual and I'd at least want to know the story. If the company is to IPO there will almost certainly be a stock split. One way to force small stakeholders off your cap table is to do a reverse stock split because fractional shares are typic…

Your scenario is the company with the $1,300+ strike price will do a reverse stock split because they want to IPO with a $6,500+ share price instead?
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