The Problem with startup Stock Options
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- Опубликовано: 7 мар 2022
- EquityBee helps you get funding from investors to exercise your employee stock options without having to pay anything out of pocket. Learn more about becoming a shareholder in the startup you helped build, and get your free funding offer by visiting this link ► youtube.slidebean.com/EquityBee-
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If you've worked for a startup or founded one, you must have heard of employee stock options- but I have found many people, both employees and founders, that just don't get how they work. So much so that 55% of startup employees in the US never exercise their stock options- which breaks my heart as a founder.
Just like any legal startup document, this sounds like it's made deliberately complicated just to mess with you, but I promise you it's not. It's just that dealing with company shares isn't easy.
But that's what our 101 series is here for.
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Recommended videos:
► Stock Options explained: basics for startup employees and founders ► • Startup Stock Options ...
► Startup Funding Explained - Incorporation and First Investor (Part I) ► • Startup Funding Explai...
► Startup Funding Explained - Seed Round and Stock Option Pool (Part II) ► • Startup Funding Explai...
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So glad to hear you're coming to India!!! The startup scene here is on fire with so many unicorns last year and this year.
Fantastic walkthrough. Thank you for making it so simple to understand.
I loved this episode. It made a lot of stuff clear for me. Thanks.
THANKYOU for the info and wish you the best
At first I thought that the 55% of unexercised shares was an appalling number, however if this is reflective of all startups keeping in mind that the majority fail then it might be too high. Curious on what the stat signifies, if it's 55% of shares that could have been acted up at IPO then it's a different story. also good to note that companies like Airbnb and others momentarly expanded the exercise window to 1-3 years and in some cases up to 10 years.
Thank you, Caya, for another ery good video!
Great informative video!
Great video bro!
I wish I saw this video last week 🤣 great explanation!
Wish I would have known about equitybee a few years back
The startup I work for has given me 5000 stock options. I know the exercise price.
I don’t know the total outstanding shares, nor the % my shares represent.
Is this normal?
Should I be asking some specific questions?
Your help is appreciated. Thanks!
May I ask/can anyone answer what camera and lens Slidebean uses for these videos?! Thanks in advance
Big thanks to the content you provide. I wonder if you could make a video about VC backed and incubated companies. What founders in that situation should understand, Share deals, how to navigate it, etc.
Great content!
Thanks for the explanation! you've made it so simple to understand!; just one stupid math question tho, how does the 5 million money valuation come from at 2:09😅
I am here for stock options ☺️ another topic I was researching. Thank you
What time is the office hours?
What gear you use for this recording
Thank you Caya, very insightful video.
If I had a say in the matter, I would much prefer having ownership of a company be proportional to how much work one does. It's much more of a fair system and ensures that companies can't just lay off staff on a whim to make a quick buck, and that CEOs can't unilaterally do destructive things.
How would you measure "how much work one does"?
This was very helpful, thanks. Doesn't it mean, though, that a company is motivated to cull employees holding stock options prior to going public, in the hopes that those employees don't have the cash or knowledge to do what's in their best interests?
Thank you for this! It's very helpful. I recently joined a start-up and received just over 17,000 in stock options (4 year quarterly, 1 cliff) at $0.07 per share. Question- can the PPS change for the shares in which I'm not yet vested over that 4-year period if there is an additional round of funding or the company goes public? OR, is that PPS locked in until I decide to exercise the options? Thanks again!
That means nothing. It is just a retention bullshit. Private company stock options means nothing and they don’t turn into the stock price of a public company when acquired
Do you know of any company like Equitybee that operates in the UK?
After a company goes public, a "no exercise" period can be imposed on shares held by founders and employees, preventing their sale for a specified period. This happened to me in the '90s. I had to hold my shares in a biotech startup for 12 months after the company went public. During this time my shares decreased in value from a down-payment on a house, to a new set of tires.
Also, there's a nasty trick called "reverse-split" that I learned about the hard way.
What's the "reverse-split"?
What happened to you?
Lol at him saying its a sacrifice the company makes for the employee. Its the company artificially inflating their stocks and paying you lower bc they are pretending they give you some huge side benefit. My higher ups are harassing me all the time for me to get into the plan, and they sound exactly like my high school friends trying to sell me fit herbalife
Office time
Where can I find the cap table in the video?☺️
Hey Caya! I will be flying to Bangalore from New York later this month too! Hope to meet you there! There's another RUclips Channel by name Backstage With Millionaires who talk about Startup ecosystem. I would be meeting them as well. Hope to see you all there!
Can you not exercise some of the options? (As much as you can afford)
Awesome
Sheeesh man great content, hi from Costa Rica ;)
I already have an mvp up and running and my goal in the next few weeks is to get some clients, I'll cover all the expenses for the first two months and see if I can go to an angel investor once I have projections. Do you think this is a good approach?
share that excel youre using
Please let me know if you found a similar excel
If you are going to Bangalore, please connect with the Backstage with Millionaires team. I think they would be able to give a better overview of the local startup scene there. They are a youtube channel particularly dedicated to the Indian Startup Ecosystem.
Hey, just saw this comment - thank you for spreading the word Mayank! 🙂 -Caleb
@@backstagewithmillionaires wow! Thanks for replying to my comment and no worries! Good work always deserve to be appreciated.
A whole RUclips collab might happen thanks to @Mayank 🕺🏽
@@slidebean ohh wow! Thank you Slidebean team for spreading the word about Indian startups! Excited to see both you together in one frame😇.
In your example in the beginning of the video, when the stocks of the comoany were worth nothing... but then when the company raised 1 million dollars in funding in their first round, which causes the stocks to have value, why was the company worth 5 million dollars?
That's because the investor valued the company at X in order to invest money. When the investor is saying that they'll invest $1M for 20% of the company, then automatically all of the shares gain value. So 1 Million dollars divided by 20% nets out $5M of the shares total worth. It's good to note that typically for a Delware C Corp the amount of shares issued is something in the range of 6 Million to 10 Million shares.
an independent valuation is exactly like an appraisal for a house. if there's no independent valuation, then the company is worth whatever value the investors and founders agree upon in order to close the deal.
That 55% figure isn’t all that surprising considering those employees have insider information (they have a decent idea how well or poorly the business is doing). They may make the very good decision not to exercise because the company is a dumpster fire they have no faith in.
it's more about startups failing than anything else.
😂 true
Thanks. Couple of questions :
1. How are the shares issues to the founders with vesting schedule? I mean do they get all the shares when incorporating and then the shareholders agreement is where the vesting is indicated so if they don't vest they have to sell them back to the company? Because when you incorporate you do have to issue shares?
2. What about the option pool for employees? Are these shares already issued by the company and are reserved stock? Coz until they are exercised they are just options but the option pool is created much prior?
Hi @nomstube.
1. You do reversed vesting to the founders. You basically issue all of the shares, but the company has the legal right to buy the shares that haven't vested back if the founder leaves the company.
2. Yes, the shares for the stock option pool must be issued and are reserved stock.
@@relyio thanks. Where do you put the vesting schedule and conditions for buyback? In the shareholder agreement tailored for each founder?
@@nomsTube in Delaware C-Corps (don’t know about the other entity types) you put that in the RSPA (Restricted Stock Purchase Agreement). This is the agreement where you issue shares to the founders
amazing video as awlays!
Nice video, I'm sharing with my team
hello team slidebean, I'm from India how can i join you for the Banglore documentry.
Shoot Caya a tweet! twitter.com/cayahere
Right on time... 😀
This is good!
Without stock options most highly sought after employees would go world for a big company.
I quit my job and my former employer promised to give me lots of shares if I stayed. I asked what valuation? $600M valuation on $22M revenue with no yoy growth.. I guess he thought I was an idiot lmao
i am a startup cofounder here in bangalore, would love to meet you for sure. Looking forward to having you here
5:35 % of stock mistake. I forgot where we tell you about mistakes hope this is the right place
I have 2 questions:
1. Say an employee wants to leave the company and he wants to excercise/buy his vested stocks which is worth of $80k. But he does not have enough bank balance to buy those. What shall he do in such scenario?
2. Suppose an employee have excercised stocks, what are the possible ways he can sell the stocks and cash it out? Can he sell these stocks in next round of funding? Can he sell back to the company?
I wonder about this too!
1 there are companies providing you temp loans for that.
2 sometimes you can sell them in a secondary to other investors or on a marketplace. But sometimes you have to wait until an “event” happens so IPO or acquisition
both were answered in the video
Make sure you get that 83(b).
this!
EquityBee concept of "not increasing value of share" is not understood. are they holding until there is a new funding round ?, because they pay the option amount upfront ?, ie. tax directly implied in same Financial Year ?
Friend: who's that on video?
Me: Caya
Friend: cala caya caya caya caya, caya caya caya...
Me: no, not that indian song 😐
So what's the problem? Stock Options are awesome!
I’m guessing the problem that the title refers to is when you want to exercise before a liquidation event? With EquityBee being the proposed solution?
55% of people don’t exercise their stock options. I think that’s the problem
He looks super sleepy in this video
Monopoly money, basically why you won't work for startup to get rich these days. Call me after you go public. With the exit preference in exchange for ridiculous valuation in the later rounds, basically no exits are worth exactly what the last round of funding was valued at. The options may worth nothing in the end.
First 5 or 10 comments?
Big bing bong
Finally made it early in the comments 😅. Cant wait for my office time
First
Amazing Idea to break the incentives to stock but there is a caveat to it. If a company like 'Equity Bee' starts endorsing in employee's stock of the company s/he works for, and if that company goes its own IPO, it can lead to a never ending loop with money making money, more like russian doll effect or just like banking systems. Here instead of equity, people hoard on employee's credibility to a growing company. This can lead to severe bad practice like toxic office politics, KPI misconduct and so much more if unregulated.
Ultimately make company director s to loose faith in their employees and might encourage them to replace human labor with automation.
I think we need to think it through before making something like this exist.
plase make a video on snapdeal
Earlyyy
lol
Why do you move so much while talking..
My man look like he's high asffd