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Stock options?... Huh?... What?

November 15th, 2006 at 11:17 am

Here's my situation: I've been working for a start-up company for 3 1/2 years now. The company itself is 7 years old (and still can be classified as a start-up apparently!).

Anyhow, my boss has brought up a few times the fact that I would get stock options... Someday.... Maybe. I want to sit her down, talk about it, and come up with a figure. The problem? I have no idea what I should be asking for, or what I'm worth.

I know the people with more experience (the ones who know what start-ups are all about that is!) she has hired recently have come to an agreement about stock options before even accepting the job.

So why haven't I done that? Well, I got this job when I was a student, not knowing what start-ups where, let alone stock options. I feel like I should be getting some decent number of shares, if only for the fact that I am the employee with the most seniority - we do have quite a turnover here. I am also the only one around here that knows both about how the software we build works (and that's no small task) as well as the database (ditto!). Therefore, I am valuable Smile And I can say that without feeling like I'm a complete ass who thinks the world of herself, because it is actually true.

So that where you guys come in the picture... December 31st is big step as far as me working here, and I want to have something signed by then. My boss is not going to just offer me what I'm worth (she WILL try to get me to agree on the smallest number that she can). I need your help here! If you've had experience in a similar situation, I do need feedback so I can be prepared.

6 Responses to “Stock options?... Huh?... What?”

  1. tinapbeana Says:

    don't know if i can be much help here Frown my experience with start-ups and stock options resulted with me owning 25000 shares of not a darn thing. hey, it was the tech bubble, all the cool kids were doing it!

    only thing i can suggest is to try to get in the agreement that your options are retroactive, that way you'll get compensated for having stayed with the company for as long as you have. otherwise, you could get seriously hosed.

  2. Broken Arrow Says:

    Actually, Tina brings up a very good point about owning your own stocks.

    It's a popular form of incentive for start-up companies to hang on to *drum roll* valued employees Smile without having to pay too much out. Also, when employees own their own stock, they also have a financial stake in the wellness of the company. Win-win.

    Now, the dark side of owning stock in your own company: See Tina's example. Start-up also tend to be the most tender and vulnerable in the corporate world, and if they flop, so do you.

    As a rule, speculating individual stocks is bad enough already (in fact, we just had a forum thread about that recently), but to stake it in your own company? Doubly dangerous IMHO.

    If that's all they have to offer, and the alternative is getting absolutely nothing, then yes, I'd take it. However, it's a big deal that you make your own personal finances SEPARATE from your employers. My 401k, for example, is managed by an investment firm that is completely separate from my employer, and THEY set it up that way! Smile

  3. PRICEPLUS Says:

    As BA has poited out there are downsides and upsides to owning stock in a startup. It is a coin toss whther they'll be worth anything down the road as Tina's experience suggests!

  4. Broken Arrow Says:

    As a general rule, I would not care to own individual stocks, and I most definitely don't care to own stocks in the company I work for. That's because I don't believe my money should be tied to anyone I work for. Rather, it should be freed and protected against any potential collapses. If my company offered me stocks, and I'd probably try to sell them as soon as possible.

    However, that's just the opinions of an ordinary guy out there. Stick Out Tongue

  5. Lau Says:

    What I'm talking about are stock options, not stocks. The company is not publicly traded. What we hope for is that it'll be sold for a good chunck of change, and we (the employees) will get the benefits.

    Definition from Investopedia.com: A privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date.

  6. baselle Says:

    You'll have to research this like you would buying a stock.

    I'm guessing that you'll want to know the agreed-upon price of your options and how long it will take for your options to mature. You have to ask about those two parameters.

    The next thing is to figure out the value of your company. If your company was being bought, what would it be worth? And the next thing is to figure out how many total options are out there. So an estimated price for your stock would be total value of company/total number of stocks, to get a price per share. If your strike price is lower than that, fantastic.

    And the final thing is to figure out that day that your mythical ship will come in -- either when company's IPO is going to occur, or when company's going to get bought out. Shorter, rather than later, I'm guessing, because you want the flexibility to sell.

    In other words, you've got a real crap shoot going on here. If its not going to cost you anything, fine.

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