Received an offer from an early stage startup. Comp is mix of base and iso. One thing I wonder is: Strike price is deep in the money (1/3 of actual share price). Is this normal? This seems to provide very little leverage compared to say just giving shares outright For option to be considered an iso, shouldn’t the strike price be at the money?
Wait a second, just for walking through this with the numbers, let’s say they’re valued at $30 a share, you’re saying you’re getting options that permit you to sell shares at $10 per share? Are you sure they’re not options to purchase at $10 per share? I would pass this by some kind of accountant or financier who can dig into this more
Yes those are options to buy shares at a price of 10$. Options to sell would give some pretty bad incentives for employees :) I don’t know which part of my post was misleading but I’ll fix it if you point me to it.
I think I just got confused because I’m not sure if you consider this an unfair offer, too generous an offer, or whether that’s even what the post is about
To OP - when you say “Strike price is deep in the money (1/3 of actual share price)”, do you mean the price for preferred stock or for common stock? In general, preferred stock is worth more that common. Your strike price is the last 409a price and general rule of thumb is 25-30% of the preferred price. The delta is the spread that employees can benefit from in the case of a liquidity event. This delta generally becomes smaller as companies have steadier revenue streams, have more predictability and in late finding rounds it’s almost the same; earlier employees get a bigger spread for taking on more risk.
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Check if the company has gone through a 409a valuation. If the answer is no, then the numbers are made up because it's too early stage
They went through one serie of funding (series A) so I guess the 409a was done as part of that process?
Not necessarily. Most companies do it post their series a rounds. It's expensive because you have to hire a third party to do it. Coming back to your options, if you're extremely concerned, ask for the cap table.