Startup option. Understanding Startup Stock Options

They can also be smoke and mirrors, or a pea under a whole bunch of walnut shells.

Because your purchase price stays the same, if the value of the stock goes up, you could make money on the difference. Restricted stock is different than stock options and is treated differently for tax purposes.

The classic stock option is an option to buy a share of stock at a specified price. Say you get to buy some number of shares for a penny each. If those shares are worth meaning they can be sold legally for more than that penny, you make money.

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In theory. Understand the basic numbers on shares in a company: charters specify how many shares there are, and if you know that number investment in bitcoins at interest reviews you can guess what a share is really worth by dividing what the company might be worth by the number of shares outstanding.

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None of this matters until a company is actually traded. Call that a liquidity event, and investors call that the exit. Meaning that it was pretty hard to sell them; usually impossible.

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Shares can also be worth money when a big company startup option a startup. If the buyer pays cash, then people with options get to cash in as long as their option price is lower than the per share price of the acquisition. These days IPOs are extremely rare, so exits are usually by acquisition.

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There are a lot of legal restrictions. Stock options have been abused for years. So the government watches them very carefully. Issuing stock options takes some legal work.

Offering employees equity in your startup: Stock options and plans - MaRS Startup Toolkit

People get fooled by stock options. I know someone who left one company to go work for another because the second one gave lots of stock options.

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It felt like a lot of ownership, but there was no chance the second company was ever going to succeed and achieve an exit. So options can end up being like shiny things to lure people, with very little value. When you get offered stock options in a startup, you have some tax choices to make.

startup option

Your share percentage can change. You might have options forshares in a company that has 10 million shares outstanding. But sometimes that same company can issue new shares and bring in new investors in a way that dilutes your option shares.

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So they decide to get investors in by giving them 10 million shares and they just issue those shares. Your 1 percent just became half a percent. Companies that give away options too easily can hurt their capital structure.

Types of startup stock options

If a lot of consultants and advisers and accountants and lawyers are getting compensated for their professional work with stock options, then investors are less likely to value the stock. A lot of startup business plans try to define how much stock ends up in the hands of founders, employees and investors.

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The best use of stock options in a startup mode is as a message. That included some people who were very low on the pay scale but had been given options early.

An option pool consists of shares of stock reserved for employees of a private company. The option pool is a way of attracting talented employees to a startup company—if the employees help the company do well enough to go public, they will be compensated with stock. Employees who get into the startup early will usually receive a greater percentage of the option pool than employees who arrive later.

Stock options are startup option vested over a period of time, rather than given all at once. Options are not really yours until they are vested.

startup option

For example, options might be vested over startup option years. Vesting makes a big difference.

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Part 1: Startup stock options 101

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