New to options. What does 150k in stock options mean?
I got an offer recently and they mentioned 150k in stock options over text/email. I asked them for clarification if this meant $150k or 150k shares underlying those options, and they said it was $150k. The current strike price is about $2 and the preferred about $10. I don't think the preferred matters right? I know I can buy in at $2 right now, but how do I know how many shares I can buy? Thanks (edit: I got rsu's at Uber so never paid attention to options)
Just ask them. My guess is that you have 75K options with a strike price of $2. Let’s say they go IPO, and after lock-in expires the stock trades at 10 dollars. You will execute your options at$2 and sell at 10 making $8 per stock (600K). There are other nuisances to it. But that’s roughly what it is IMO.
A preferred share is a share that's first to be paid out in case the company goes down. Preferred shares have some chance of getting something back. Common shares don't have that benefit, and so are cheaper. It sounds like the recruiter is giving you the option to buy common shares and share in the risk of the company, or buy preferred shares and have a small share of the company, if you don't want high risk. Remember these are options, not shares, so you will have to pay your own money to get these shares, that $150k is your own money, if you choose to buy. Oh, also, if the company IPOs, all preferred stock become common stock. The special perks disappear upon IPO.
This is the critical part - that 150k is what you shell out of your own pocket. So don’t use the preferred share price for your calculations. You will not be getting the preferred stock when you exercise your options. You will get the common stock. Preferred stock is always costlier than common stock because it gets preferential treatment when it comes to paying off dividends or in case the company is liquidated. Ask for the latest 409A valuation. That is going to be much lower than preferred price. Use that for more “realistic” profit estimation.
It means a no-interest loan for $150k, invested in something that better be growing 100%+ Y-on-Y. The value of the loan is only about $5k/yr but the chance to get a leveraged investment in something growing that fast (how fast?) is where the value is. Today's value doesn't matter as much as the eventual growth rate. I had a friend with only a $70k option grant. Turns out the growth was ~140% for 4+ years (Qualcomm, late 90's). $2m+, but only if you did not sell.
Ask how many options you would get. I had misinformed recruiters using wrong calculation. For example, 150k here could mean option to buy 15k shares at $2. The recruiter in my case used the preferred price to calculate the grant value, this way it looks inflated even though you're paying 20% (2 strike with$10 value) just to exercise
I've had this happen to me too. It's an intentionally misleading tactic from recruiters who are trying inflate their offers. It's a big red flag for the company too. Never buy into a valuation that is more than the intrinsic value of the option (preferred - strike). I would also multiply by 0.85 as the options are for common stock and because they aren't liquid.
Yep. Also account for dilution if betting on growth
Good offer. Even if it liquidate you get something out of it at preferred price. Unless it’s either or.
From what I can understand you’ll get 150,000 / (10-2) = 18750 options. The value you get out of each option is $8 (difference between preferred and common stocks).
OP, don't rely on blind for interpreting the $150k. Ask them for the exact details, e.g. a sample employment contract. Blind can help after you have the details. Also, google a bit on startup compensation evaluation and ISO option valuation models.
That means you will get options to 75000 shares at $2 each