What does stock options means
This blog post explains what stock options are about. It is a very technical topic but for the sake of this post, I am going to keep it really simple and make some over-simplifications. In essence, a stock option is a right given to an employee to purchase stock at some point in the future at a set price. When they raise money from investors, they give them a share what does stock options means the company's stock in exchange for money.
Having an option pool is very common for a venture backed startup, and fairly uncommon for most small companies. At Acquiawhich is a venture backed company, we give our full-time employees stock options on top of a competitive salary. These options come from our option pool. If you are an employee of a startup, stock options are a big deal as you are going to receive stock options as part of your compensation. It is a big deal because it means you have the option to be a shareholder and to share in the gains.
It's a big part of the startup culture, and an important reason why top engineers prefer venture backed startups. Those options are taken from the stock option pool that is set aside especially for employees.
When the company is founded, the stock is basically worthless. The founders, the employees and the investors will want what does stock options means steadily increase the value of the company, and by extension, the value of the company's stock. Granted, the value of the company might not always go up, or it might not go up that fast, but it certainly could. Hundreds of Google employees became millionaires overnight when Google went public. Hundreds of Google employees left to join Facebook -- not because they get a better salary but to get some of Facebook's pre-IPO stock options.
When a startup is growing what does stock options means successful, the price will go up over time. At the same time, if the company fails, the employee equity will be worthless. The reason startups use stock options is because it allows them to attract and retain high-quality people at reasonable salaries.
Do you want to take the reduced salary and some risk and swing for the fences, or you do you prefer predictability without the potential for a big upside? My first job out of college I worked for a venture backed startup that granted me two rounds of stock options -- both grants were rendered worthless as the company didn't survive the bubble in Even so, I never regretted the choice to go work for this startup. I still got paid a fair salary, I learned a lot and just loved the start-up culture that we had created.
I firmly believe there is an entrepreneur tucked away in many of the best people. For those people, the daily satisfaction of working with high-quality colleagues in a fast-growing company, and the ability to share in the company's success as a shareholder, is worth a lot more what does stock options means a bigger salary and predictability.
I knew that was true for me when I was 21, and I know it is still true now that I'm I have just been offered stock options in a start up and reading this makes me feel a lot better about the proposal. The only other majour issue for me than you never touched on was what risk am I now open to? It's the only thing I'm a little afraid of. The only risk you have is losing your stock option investment money and the anticipated future profits. You'll never be liable for any losses in case of bankrupcy.
Nor are the company founders for that matter well, unless they've backed company loans with personal money.
Shareholders in an incorporated company Inc might lose their investment, but do not share in the company's liabilities. As an option holder, you have only invested your time, up until the point you exercise your options.
At that time, you need to pay the exercise price to convert your options to actual shares what does stock options means the company. Stock options are just that: Only options to purchase stock with a preset price. You will not be a stock holder before you use them to purchase company stock. Don't worry, the risk with stock options is only that they might not be worth anything. This is however based on my experience with European legislation, so you what does stock options means want to double check this.
In some countries there's a risk that you pay tax on profit even though you haven't realized it yet: Check with a reliable source in your country. Although, I think Dries highlights one of the great reasons for wanting to work at a startup, aside from compensation, "the daily satisfaction of working with high-quality colleagues in what does stock options means fast-growing company", this post does seem to be tied to compensation in a major way.
There might be another liquidation event such as the sale or acquisition of the company. In that case, your shares might be sold to the acquirer and you get the moneyor they might transfer into shares of the acquirer which could be public company shares that can be sold. A company that never goes public or that doesn't get acquired might also decide to pay a dividend to its shareholders. Third, there is a pre-IPO market for shares too, and you might be able to sell your shares that way.
You forget to mention that companies like to put restrictions on when you can turn your stock options into stock. Also, if you sell your stock, it's subject to be taxed in not-entirely-fun ways. Not that stock options are all bad, but there are some more downsides than "the company might not ever be worth something" and it would be good to mention those too.
As I wrote at the top of my blog post, stock options is a very technical topic. It is impossible to cover all the details in a single blog post. In fact, there are books written on the topic of employee equity, classes thought on the subject, etc. Let me try to reply to both remarks; i stock option restrictions and ii tax implications.
These are valid remarks that might warrant a longer follow-up blog post. For now, let's kick it off with this comment to see where this might go. What does stock options means, stock option plans vary from company to company.
Every company tweaks their stock option plan relative to their situation and desired outcome. For example, in most cases, employees do not gain control over the options for a period of time.
This period is known as the vesting period. Once the options are vested, they usually can be exercised. Different companies have different vesting schemes. The vesting period could be what does stock options means a restriction, but it is an extremely common one because it protects the company, and by extension all of its employees and shareholders. Maybe I need to do a follow-up blog post on the what does stock options means of 'vesting' because this might not be clear to some? If you what does stock options means different restrictions in mind, I'd love to hear more about your thoughts.
Second, it's hard to write about the tax implications of employee equity as it depend on the tax jurisdiction the employee falls under e. Surprisingly you're better of in Belgium. Buying and selling stock is usually subject to income taxes or capital gain taxes. On top of that there might be special legislation around stock options to incentive entrepreneurship or to stimulate the economy -- the US currently what does stock options means temporary exemption of capital gain taxes in certain situations.
It's great to see people are genuinely interested in discussing this topic. As I wrote what does stock options means my blog post, many of the most talented people I know, have an entrepreneur hidden inside them.
At the same time, I wasn't sure what reactions to expect from a blog post like this. We can talk about technology all day, but sometimes it is nice to talk about our work situation, professional what does stock options means and entrepreneurship.
Sounds like I should do a couple more blog posts on startup topics. It's a fascinating world after all. Drupal stuff is awesome, but being 'open source' about your experiences with a startup—especially one as large as Acquia—always makes for an intriguing read. Back inI joined eBay and what does stock options means granted some stock options as well.
At that time, eBay employees earned a significant amount of money thanks to these stock options. Same story at Accenture. Yes, you can make a considerable amount of money 2.
Tax regulation can spoil the fun e. In some countries, you need to keep stock options for several years before vesting. Most companies require you to vest the options when you leave 5. Worst of all are the "closed windows" when quarterly results are about to be published: Stock price was often exceptionally high during these closed windows.
If you're a clever employee, you combine them with call options. Reality is that most of my former what does stock options means that were awarded stock options never gained any money from them. It really has to be the right combination of technologies, company leadership, timing, options, and so on to be worth it to a potential employee. I've worked in a few startups where I basically ignored the stock options for a number of reasons, including:.
In these cases I ended up spending some time at the company anyway, but only because I was satisfied with the salary at the time, and assumed that either the company or I wouldn't be around by the time any options were vested.
My experience is that the typical vesting period is four years using monthly vesting with a one year "cliff". Subsequent vesting happens monthly. That seems to be the industry standard in technology start-ups. Skip to main content.
So what exactly does that mean for you as an employee? Can I please have my options backdated? It's really my lucky day, thanks Dries. Your risk if the company fails is the what does stock options means you pay to exercise your options.
Hi, what if the company never goes public like Facebook: