Strike price dropped what does it mean
I heard the case that the strike price dropped( eg more than 75% after raising funds) in late round startup. Is it really a bad signal for the company ? Even it is bad for someone already exercised the option ?
Really bad. When the options are granted, strike price is set to the fair market value of the underlying common stock. So the drop in strike price means that the common share price has dropped. Which is bad news for people who exercised their options. Essentially they bought the shares at a higher strike price and now the shares are worth less. So the investment is a loss at this point.
The company as a whole however might be worth more because of the injection of new funds. The common share price in this case dropped because of dilution. But still bad news for anyone who bought the shares at a higher strike price.
but healthy successful companies dont drop their price. that is the best way to have employees leaving
This is dilution, which a frequent occurrence. Late stage rounds (D+) have historically diluted ownership by more than 50% - e.g. ownership from a D to E round can be 25% and 10%, respectively. 75% seems like someone got taken to the woodshed or this dilution is combined with a lower than previous valuation -- i.e. there was a downround with some degree of runaway valuation. The point is that there are a number of factors.
dilution happen almost with each round of funding. but companies doing well dilute with increasing stock price. drop in price is always a sign of struggle.
🤯
What was your strike price@pinterest
of course