Exercise price and FMV Same
Hey Hi Everyone … I have just joined Startup … I Have seen something weird… I see both Exercise price and FMV value same … Is that possible… I am looking at that in Carta . #hardware #interview #intel #microsoft #startup #riskalyze #hardware #semiconductor #startupequity I always thought Exercise price for employees will be less than FMV Am I missing anything here ? The value of FMV in carta is not generally right ? TC : 225k
I will throw in one other term into the discussion, probably just adds to your confusion but maybe not - what Carta is usually showing you is the so called 409A valuation which is an independent appraisal of the value of the company (assets - liabilities) done in a way acceptable to the IRS. This is just one way to arrive at the Fair Market Valuation in the absence of a public market for the company's stock. It is in your interest that the 409A valuation stays as low as possible if you are planning on exercising your options and holding on to your stock till the company goes public or someone buys it. Buying company stock by exercising options and holding it for a year can get you a lower tax rate on the eventual gains (or you could lose everything you put into it) so best for the 409A valuation to be low.
Your exercise price is the FMV when you joined the company so this is normal. Both prices are typically lower than the market price of the common stock and preferred stock. Over time FMV will increase if the company is doing well and those who join in the future will have higher exercise price.
Oh then FMV is not the preferred stock price ?
Of course. Per Carta: Fair market value (FMV) is an asset's estimated value if it were sold today in the current market. FMV is used to determine the fair market price for shares of a company's stock and other financial assets. Per Secfi: The preferred share price is what investors paid for one company share during the latest investment round. The pref price does not directly mean anything for your employee equity, but may be interesting to you as a signal of company success or to help you value your company shares. The FMV and your exercise price will always be the same when you join. Most of these FMV are estimates created based on market data and could be different from what investors are willing to pay. Your compensation is the delta between the FMV and the real market value + any future upside as your company scales up. FMV is going to be lower than the preferred price in most cases especially if the company raised during the 20-21 bubble.