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Stock Options

Public companies



  • company issues shares to employees that vest over time
  • eg: every year: get 50 shares


  • performance shares
  • usually for more senior people
  • eg: 1000 shares if earnings/share of $1 for CEO

Employee Stock Purchase Plan (ESPP)

  • employees can purchase stock at a discounted price
  • payroll deduction

Stock Options

  • right to obtain a share at a set price
  • vesting schedules

Types of stock options

US - ISO - favorable tax treatment - NSO - non qualified stock option

Canada - CCPC (Canadian Controlled Private Corporation) - favourable - capital gains exemptions - taxed as regular income when you sell - CCPC: 50% deduction on the income on the stock option

Parts of a stock option

  • num of options
  • Strike (exercise) price
    • determined annually via 409a analysis (independent 3rd party)
    • usually low strike
    • Founding member: strike price: near $0
    • Now: $1.13
      • much lower than Series B stock price
      • not market value if the company get sold
  • vesting schedule
    • 1 year cliff
    • 4 year vest
    • vesting stops the day you leave the company
  • Expiry date
    • usually 10 years
    • what happens if I stay at the company for 10 years?
      • options always need to have an expiry date
      • the company would just refresh the options
    • if you leave the company: 60 days to decide whether to exercise the option
  • options can't be transferred or sold privately
    • don't want an outside party to buy shares from employees and be a major stock holder
    • US: has liquidity platforms where you can sell

When can you exercise an option

  1. leave the company -> pay cash
    • strike price * num of options to exercise
  2. Liquidity (exit) event

    • IPO or sold to another company
    • options and stock in private companies can't be monetized
  3. Obtain actual shares

  4. most plans have a cashless exercise
  5. net proceeds = purchase price of share - strike price

What happens if you still have unvested options and - board of directors vote whether to accelerate vesting when it's sold


red herring number

Types of shares

eg - 100M raise at 1B valuation (10% stake)

Participating preferred shares (pref share)

  • get initial investment + X multiple amount

eg - 3x participating pref share - company sold for $700M

receive $100M (initial investment) - 30% of remaining $600k - 10% * 3x

Forma doesn't have preferred shares - company doesn't have to disclose whether they have pref shares

non-participating preferred shares

  • just get your money left

Forma Exit scenario: USD value / option

  • low
    • $9.39
  • Mid
    • $64.66
  • High
    • $262.03

Last update: 2023-04-24