Do startups offer stock options?

Startups provide stock options via a Stock Option Plan, which is a legal document that details your stock option rights. Each company will have its own version of a Stock Option Plan, but the plan follows the same terminology and processes outlined previously in this article.

How are stock options offered to employees?

Employee stock options are offered by companies to their employees as equity compensation plans. These grants come in the form of regular call options and give an employee the right to buy the company’s stock at a specified price for a finite period of time.

How do you ask for stock options in a startup?

Here’s what smart people ask about their stock options:

1. Ask how much equity you’re being offered on a fully-diluted basis.
2. Ask how long the company’s “option pool” will last and how much more cash the company is likely to raise, so you know whether and when your ownership might get diluted.

How do you know when to work out stock options?

It only makes sense to exercise your options if they have value. If they do, they’re known as “in-the-money.” This happens when the strike price (or exercise price) of your stock options is lower than the market price of your company shares trading on the exchange.

How do stock options work for employees UK?

Employees can generally exercise their share options – ie buy the shares – after a specified period, known as the vesting period. When an employee exercises their share options, it’s at the price fixed at the date of grant, ie when the options were given to the employee, regardless of the prevailing market price.

When should you exercise options at startup?

Many startups allow their employees to exercise their options before they’ve vested, which is referred to as early exercising. Early exercising is a good idea when you either have high confidence that the company will have a successful exit or the total cost to exercise is affordable.

Are employee stock options worth it?

That said, employee stock options can be a key source of wealth for some households. That means that if options are part of your compensation package, it’s worth your while to get familiar with how they work generally, as well as how your company handles stock options specifically.

When should startups start issuing stock options?

“Beyond this point, it makes sense to start issuing stock options. Make sure you get a 409A valuation before issuing your first options.” Broadly put, startups should offer stock options from the first employee until they choose not to anymore.

How much does it cost to early exercise stock options?

The cost to early exercise varies drastically depending on the stage of the company. If you’re at a seed stage startup, your strike price could be $0.01. In this case, early exercising 50,000 options would cost you $500. At a Series A stage company, however, your strike price could be around $0.50.

What are stock options and how do they work?

Stock options aren’t actual shares of stock—they’re the right to buy a set number of company shares at a fixed price, usually called a grant price, strike price, or exercise price. Because your purchase price stays the same, if the value of the stock goes up, you could make money on the difference.

When can a company grant stock options to an employee?

In summary, there are three cases in which a company would grant stock options to an employee: (1) because it has to (when the company cannot pay the market salary); (2) because it wants to (when the company wants to motivate and retain the employee); or (3) a combination of both.