The Problem with startup Stock Options

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If you've worked for a startup or founded one, you must have heard of employee stock options- but I have found many people, both employees and founders, that just don't get how they work. So much so that 55% of startup employees in the US never exercise their stock options- which breaks my heart as a founder.

Just like any legal startup document, this sounds like it's made deliberately complicated just to mess with you, but I promise you it's not. It's just that dealing with company shares isn't easy.

But that's what our 101 series is here for.

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Follow Caya:

[chikafujiwara]

So glad to hear you're coming to India!!! The startup scene here is on fire with so many unicorns last year and this year.

[einschlagen]

Fantastic walkthrough. Thank you for making it so simple to understand.

[levim.]

At first I thought that the 55% of unexercised shares was an appalling number, however if this is reflective of all startups keeping in mind that the majority fail then it might be too high. Curious on what the stat signifies, if it's 55% of shares that could have been acted up at IPO then it's a different story. also good to note that companies like Airbnb and others momentarly expanded the exercise window to 1-3 years and in some cases up to 10 years.

[CaptainJeoy]

I loved this episode. It made a lot of stuff clear for me. Thanks.

[SWinxyTheCat]

If I had a say in the matter, I would much prefer having ownership of a company be proportional to how much work one does. It's much more of a fair system and ensures that companies can't just lay off staff on a whim to make a quick buck, and that CEOs can't unilaterally do destructive things.

[camplethargic]

After a company goes public, a "no exercise" period can be imposed on shares held by founders and employees, preventing their sale for a specified period. This happened to me in the '90s. I had to hold my shares in a biotech startup for 12 months after the company went public. During this time my shares decreased in value from a down-payment on a house, to a new set of tires.
Also, there's a nasty trick called "reverse-split" that I learned about the hard way.

[cameronhampton]

Wish I would have known about equitybee a few years back

[rajjangate]

The startup I work for has given me 5000 stock options. I know the exercise price.
I don’t know the total outstanding shares, nor the % my shares represent.
Is this normal?
Should I be asking some specific questions?
Your help is appreciated. Thanks!

[washingtonlogrono]

Big thanks to the content you provide. I wonder if you could make a video about VC backed and incubated companies. What founders in that situation should understand, Share deals, how to navigate it, etc.
Great content!

[AnythingGodamnit]

This was very helpful, thanks. Doesn't it mean, though, that a company is motivated to cull employees holding stock options prior to going public, in the hopes that those employees don't have the cash or knowledge to do what's in their best interests?

[karthikranga]

Hey Caya! I will be flying to Bangalore from New York later this month too! Hope to meet you there! There's another YouTube Channel by name Backstage With Millionaires who talk about Startup ecosystem. I would be meeting them as well. Hope to see you all there!

[chanhiuying]

Thanks for the explanation! you've made it so simple to understand!; just one stupid math question tho, how does the 5 million money valuation come from at 2:09😅

[Cedtoron]

Thank you for this! It's very helpful. I recently joined a start-up and received just over 17, 000 in stock options (4 year quarterly, 1 cliff) at $0.07 per share. Question- can the PPS change for the shares in which I'm not yet vested over that 4-year period if there is an additional round of funding or the company goes public? OR, is that PPS locked in until I decide to exercise the options? Thanks again!

[SloshedTrack]

I wish I saw this video last week 🤣 great explanation!

[Johnwayne]

THANKYOU for the info and wish you the best

[waltersabino]

Thank you, Caya, for another ery good video!

[mayankagrawal]

If you are going to Bangalore, please connect with the Backstage with Millionaires team. I think they would be able to give a better overview of the local startup scene there. They are a youtube channel particularly dedicated to the Indian Startup Ecosystem.

[sourabhyadav]

I have 2 questions:

1. Say an employee wants to leave the company and he wants to excercise/buy his vested stocks which is worth of $80k. But he does not have enough bank balance to buy those. What shall he do in such scenario?

2. Suppose an employee have excercised stocks, what are the possible ways he can sell the stocks and cash it out? Can he sell these stocks in next round of funding? Can he sell back to the company?

[tourifique]

I am here for stock options ☺️ another topic I was researching. Thank you

[sisyphus]

Do you know of any company like Equitybee that operates in the UK?