<story><title>Do the math on your stock options</title><url>http://jvns.ca/blog/2015/12/30/do-the-math-on-your-stock-options/</url></story><parent_chain><item><author>JumpCrisscross</author><text>Always ask for:&lt;p&gt;1. TRANSFERABILITY. If you are given options to buy privately-held common stock in lieu of compensation, you must demand transferability. Rights of first refusal (ROFRs) are fine. &amp;quot;Board approval&amp;quot; is not. &amp;quot;Board approval&amp;quot; means &amp;quot;you may not sell your shares until we go public, except to us, if and when we feel like it, and at a price we get to unilaterally decide&amp;quot;.&lt;p&gt;2. CASHLESS EXERCISABILITY. Always ask for cashless exercisability. In the public market, if you ask your broker to &amp;quot;cashlessly exercise&amp;quot; in-the-money options, here is what happens. First, your broker lends you the money to exercise the options. Then, the broker sells some of the resulting stock. Finally, the broker pays herself back, plus a pre-disclosed fee, and returns the rest to you.&lt;p&gt;This also works with private stock. (Unless you forgot Rule No. 1; if your shares aren&amp;#x27;t transferable you&amp;#x27;ve already been screwed.) But you may not require a broker. Some companies allow for direct cashless exercise. Suppose you hold options for 100 shares struck at $100 per share. You need $10,000 to exercise. The company figures its stock&amp;#x27;s &amp;quot;fair market value&amp;quot; is $110. You check with outside sources, &lt;i&gt;e.g.&lt;/i&gt; a private-stock broker, and conclude this is not much less than what you could sell your stock for in the market. Your stock is worth $11,000 to the company; it is $1,000 in the money. After cashlessly exercising with the company you would get $1,000 of stock, &lt;i&gt;i.e.&lt;/i&gt; 9 shares. (Fractions of shares are usually lopped off in these calculations.)&lt;p&gt;Plus: you got shares without putting up capital. Minus: you lost the upside (and downside) on ninety-one shares. That said, 9 shares is better than 0 because you had no capital to exercise upon termination.</text></item></parent_chain><comment><author>inthewoods</author><text>I&amp;#x27;ve never seen the ability to customize these kind of things because they generally are, in my experience, part of the core options agreement for the entire company and would require BoD approval. Thus, you&amp;#x27;re asking a lot - works if your a key employee but probably not for the average employee. Would love to hear if people have been able to get these terms.</text></comment>
<story><title>Do the math on your stock options</title><url>http://jvns.ca/blog/2015/12/30/do-the-math-on-your-stock-options/</url></story><parent_chain><item><author>JumpCrisscross</author><text>Always ask for:&lt;p&gt;1. TRANSFERABILITY. If you are given options to buy privately-held common stock in lieu of compensation, you must demand transferability. Rights of first refusal (ROFRs) are fine. &amp;quot;Board approval&amp;quot; is not. &amp;quot;Board approval&amp;quot; means &amp;quot;you may not sell your shares until we go public, except to us, if and when we feel like it, and at a price we get to unilaterally decide&amp;quot;.&lt;p&gt;2. CASHLESS EXERCISABILITY. Always ask for cashless exercisability. In the public market, if you ask your broker to &amp;quot;cashlessly exercise&amp;quot; in-the-money options, here is what happens. First, your broker lends you the money to exercise the options. Then, the broker sells some of the resulting stock. Finally, the broker pays herself back, plus a pre-disclosed fee, and returns the rest to you.&lt;p&gt;This also works with private stock. (Unless you forgot Rule No. 1; if your shares aren&amp;#x27;t transferable you&amp;#x27;ve already been screwed.) But you may not require a broker. Some companies allow for direct cashless exercise. Suppose you hold options for 100 shares struck at $100 per share. You need $10,000 to exercise. The company figures its stock&amp;#x27;s &amp;quot;fair market value&amp;quot; is $110. You check with outside sources, &lt;i&gt;e.g.&lt;/i&gt; a private-stock broker, and conclude this is not much less than what you could sell your stock for in the market. Your stock is worth $11,000 to the company; it is $1,000 in the money. After cashlessly exercising with the company you would get $1,000 of stock, &lt;i&gt;i.e.&lt;/i&gt; 9 shares. (Fractions of shares are usually lopped off in these calculations.)&lt;p&gt;Plus: you got shares without putting up capital. Minus: you lost the upside (and downside) on ninety-one shares. That said, 9 shares is better than 0 because you had no capital to exercise upon termination.</text></item></parent_chain><comment><author>ryanackley</author><text>Restrictions on transferability is standard for a private company. Kudos if you are able to negotiate this but I think a small company would be crazy to agree to this. It opens the door to a whole list of potential burdens for the company.</text></comment>