Stock Options
Public companies¶
liquid
RSU¶
- company issues shares to employees that vest over time
- eg: every year: get 50 shares
PSU¶
- 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¶
- leave the company -> pay cash
- strike price * num of options to exercise
-
Liquidity (exit) event
- IPO or sold to another company
- options and stock in private companies can't be monetized
-
Obtain actual shares
- most plans have a cashless exercise
- 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
Valuation¶
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