Asking for stock options in a startup

Asking for stock options in a startup

Posted: cyn Date of post: 17.06.2017

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If you are submitting your own blog content, the full body of the content must be included in the post, properly formatted for reddit. If you include a link, your post will have to be approved by the mods. Founders of the Startup Institute. Jaan Tallinn, Skype co-founder. Silicon Valley Venture Capitalist. Previous Share your Startup threads. Startup stock options, questions to ask? That's pretty much all the information I know. What are some good questions to ask and things I should consider before purchasing?

What percentage of the company does this represent? Who owns the other shares and what did they pay? How was this value derived? You should ask them the necessary questions to fill out this website: The site breaks down what the stock option grants actually means to you and gives you some ideas at what potential outcomes might look like depending on how the company does.

You mention both, but I've never heard of a startup that allowed you to purchase your options on day one. The biggest questions i would ask as you are considering joining the startup is what is the vesting schedule and what is the exercise window. If you are going to a company that has a 10 year exercise window the follow up questions are VERY different than if you the exercise window is the standard 90 day. So, what is the vesting schedule and what is the exercise period.

Those are the first two questions I would ask. The problem is if you are buying them to hold them, not sell them, you will need to pay this tax bill regardless.

How are the shares valued how many shares outstanding, who are the investors, what was the last financing round, when is the next planned financing, what metrics define if we get financing or value, what is the exit plan, what is the expected exit valuation, how is this calculated and what metrics is it based on?

As an equity holder you have the right to ask when you will see the value of this equity and understand how to help get there.

asking for stock options in a startup

Answers to all of these will varying widely but what you want to know is that your incentive is something that people are thinking about and working to build value in and have put thought into.

You also probably want to work with and for someone who is open and honest about what is going on with the business. If they will not expand on any of the details this may impact your decision. It likely doesn't apply to your options, but you're dipping into the world of equity incentives so may as well cover all your bases. Consider what is more valuable to you short and long term. There is no shame in wanting to work for cash today.

Your employer wants you to be incentivized to do your best work and if cash in the bank today does that it is reasonable to discuss.

If you are cash rich and really believe in the business you may help the company conserve cash today in exchange for a bigger piece of equity. Can I early exercise, what is the vesting structure, are there any accelerators based on a liquidity event? This will all be covered in documents you are asked to sign.

Can I have some time?

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The paperwork you are handed and answers to these questions may involve a lot of information you do not fully understand. Do your research, talk to a lawyer or accountant, friends in similar situations, etc.

I would not pay through the nose for advice but in the end it's on you to understand.

If they wanted to pay you in Euros you would probably want to know how a euro is valued, where you can deposit it, what you can buy with it, etc. Same thing goes for every incentives so do your homework.

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How many outstanding shares are there in the company? Note that this will likely change as you'll get diluted if the company receives additional rounds of funding.

Is there a cliff? In most situations, there is a 1 year cliff, so if you leave the company before 1 year, you are not entitled to purchase any shares.

What is the vesting schedule? Are you allowed to early exercise? Some companies allow you to purchase all of your options, even if they have not vested. But, if there is a liquidity event down the road, you'll pay normal income tax on the new value of the shares, rather than short-term capital gain tax which is much higher.

Why would you want to exercise early? All depends on your individual situation. As I mentioned, the earlier you exercise, the earlier you are considered to have owned the stock. This is a very important question to ask, which is frequently overlooked since a lot of people get fixated on the number of shares, which is essentially meaningless on its own. This is only half the answer since many investors have preferred shares.

Employee Stock Options

So a follow up question would be - what is the ratio of common stock to preferred stock? I doubt your employer would disclose details about the preferred to common stock conversion rates. Options usually vest over a period of time.

asking for stock options in a startup

You don't need to purchase any options until their is a need to: Normally at the point of a liquidity event, you both buy and sell your options at the same time. Where a lot of people got in trouble back in the Internet boom days is buying their options and not selling immediately. You are taxed at the value of the shares when you buy.

What happened to a lot of people is that they bought their shares, had a huge tax bill, and then the company went under making their share worthless A lot of people went broke when that happened.

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You won't be able to vote or comment. What is the CURRENT value of the option? What is an 83b election? Can I get a better or worse salary and less or more options instead? What happens in a liquidity event? Do your unvested shares accelerate to become vested? Can I have more? Can't hurt to ask: Posts are automatically archived after 6 months.

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