Here are 3 things you should do with your stock options – TechCrunch

There is a reason Start-up compensation packages typically include stocks or stock options. On the one hand, it’s a way for startups to stay competitive in the job market and attract the best talent. But it’s also a way to reward employees who join early and give them a tangible reason to stay motivated to grow the business.

The problem is, while many employees understand that their stock compensation could mean a big payday in the future – and, in 2021, that’s more likely than ever – they often don’t understand the inevitable complexities of their options. purchase of shares. This puts employees at risk of not getting the most value after an IPO or, worse yet, losing them.

If you’ve ever been confused about your equity, or haven’t given it much thought, you are not alone. That’s why I’m going to share three things every employee joining a startup should do with their own funds:

Understand how to value your equity – and when that may change

While many startups get better at proactively communicating your equity value from the start, some are still looking for the best way to do it. That’s because, unlike the simpler figure of a salary, stock options are more nuanced – they’re a living, breathing type of compensation.

The most important information to pay attention to is your 409A valuation, your exercise price, the type of options granted to you, and the price of the preferred stock.

The 409A valuation is based on the valuation of your business. This is also called the fair market value (FMV). The 409A valuation can and does change often – it must be updated at least once a year by a third-party appraiser in order to comply with tax rules. The 409A also changes during a fundraising event. Investors involved in the fundraising cycle determine how they value the business and are given options, at that valuation, in exchange for cash.

The most important information to pay attention to is your 409A valuation, your exercise price, the type of options granted to you, and the price of the preferred stock.

Since the company has now been better valued, the 409A is changing for everyone. It is also possible for the 409A to drop if for some reason the business is now valued at a lower amount. This is called a “turn down”. Airbnb saw a noticeable drop during the pandemic, though it eventually recovered and went public.

Your strike price is the price at which you can buy your stock options (also called exercise). Yes, buy. You have the option to buy them, which is why they are called stock options. But be aware that your strike price will probably never change. However, if you ever receive more stock options (perhaps as a future bonus), it will be a separate grant and the strike price could be different. Companies are legally required to issue stock options at the most recent price of 409A (or more).


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