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Stock Option advice

Discussion in 'Business, Careers & Education' started by antirabbit, Jun 6, 2011.

  1. antirabbit

    antirabbit Well-Known Member

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    SO, today I was laid off.
    I have approx. 30,000 options of my company shares at around $1.00 a share.
    We are still Pre-IPO, but IPO is very likely in the next 6-9 months.
    It is a Health Care/Med Device company (CEO and design team did the DaVinci surgical robot) and will likely do pretty well on the market.
    I will have 30 days to purchase these share options.
    It will be a huge, if not over stretch on our finances (unless by a miracle I find a job before then).
    My question is, should I attempt to acquire all of these or some fraction?
    Should I offer friends or family members this opportunity?
    HELP?
     
  2. thekunk07

    thekunk07 Well-Known Member

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    $1 a share is a lousy strike price for a privately held co. IMO
     
  3. ter1413

    ter1413 Well-Known Member

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  4. thekunk07

    thekunk07 Well-Known Member

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    if you played the popcorn card every time I taked out of my ass you'd be one of orv ille redenbacher's shits
     
  5. Dbear

    Dbear Well-Known Member

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    Don't do it.
     
  6. tj100

    tj100 Well-Known Member

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    SO, today I was laid off.
    I have approx. 30,000 options of my company shares at around $1.00 a share.
    We are still Pre-IPO, but IPO is very likely in the next 6-9 months.
    It is a Health Care/Med Device company (CEO and design team did the DaVinci surgical robot) and will likely do pretty well on the market.
    I will have 30 days to purchase these share options.
    It will be a huge, if not over stretch on our finances (unless by a miracle I find a job before then).
    My question is, should I attempt to acquire all of these or some fraction?
    Should I offer friends or family members this opportunity?
    HELP?


    Having a layoff is not a situation that many near-term pre-IPO candidates find themselves in. The market generally likes success stories, and layoffs don't usually fit into that mold.

    That said, it's outright impossible to know whether this is a good deal or not without more information (total # of fully diluted shares outstanding, etc.).
     
  7. antirabbit

    antirabbit Well-Known Member

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    Having a layoff is not a situation that many near-term pre-IPO candidates find themselves in. The market generally likes success stories, and layoffs don't usually fit into that mold.

    That said, it's outright impossible to know whether this is a good deal or not without more information (total # of fully diluted shares outstanding, etc.).


    There are a total of 90 Million shares thus far, the VC's have the lions share.
    The other interesting possibility would be a buy out or sale of the company to say a Phillips, GE, or the likes.
    I also think Cisco is a possibility.
    Anyhow.
     
  8. asdf

    asdf Well-Known Member

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    So you have the options now? Do they roll over on IPO?

    Regardless of strike price, it's usually more beneficial to hold an option till expiry than exercise early. When do these expire?
     
  9. Superfluous

    Superfluous Well-Known Member

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    90 million shares at a valuation of $1B comes out to about $11/share. At a valuation of $250k, that's about $2.50 /share. What's it currently worth?
     
  10. Superfluous

    Superfluous Well-Known Member

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    So you have the options now? Do they roll over on IPO?

    Regardless of strike price, it's usually more beneficial to hold an option till expiry than exercise early. When do these expire?


    These aren't options options that you'd buy on an open market.... lol. These are most likely options that vest at a certain time and don't expire.
     
  11. asdf

    asdf Well-Known Member

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    These aren't options options that you'd buy on an open market.... lol. These are most likely options that vest at a certain time and don't expire.
    I didn't say you could buy them on the market, I asked when they expired. Are you even allowed to issue options with no expiry? Anyway, the missing relevant bits of information before anyone can give any advice are: 1) expiry 2) treatment on takeover or IPO 3) prospective IPO/takeover price/valuation Unless expiry is imminent or they dissappear on IPO, it's likely better to not exercise them and hold onto them instead.
     
  12. scientific

    scientific Well-Known Member

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    yea layoffs and IPO usually do not go together. can you sell your options or shares in a private transaction, eg secondmarket, etc? or to the VCs?
     
  13. antirabbit

    antirabbit Well-Known Member

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    I have 30 days to exercise them or I lose them.
    I believe the private per share value is around $4.00 range.
    If there is an IPO or another event like a buy out, I can sell with out restriction.
    I will know more when my severence comes today.
     
  14. tj100

    tj100 Well-Known Member

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    I have 30 days to exercise them or I lose them.
    I believe the private per share value is around $4.00 range.
    If there is an IPO or another event like a buy out, I can sell with out restriction.
    I will know more when my severence comes today.


    I'd ask (though I don't believe they have any obligation to tell you) what the strike price of the most recent options issued was, and when they were issued. Even better would be asking what the option value in the latest 123(R) report, but odds are that nobody outside the CFO/finance dept will know that. This is the best shot you're going to get at understanding the valuation of the company.

    But just to ballpark it, this company is worth somewhere between zero and $11 a share ($1B enterprise value). You're best case scenario is that you come out of this with $300,000. Worst case is that you lose $30,000. My breakpoints would be something like this:

    New option strike price (i.e. current value) / Outcome
    <$3.00 / Walk away, maybe throw $1,000 in just on a lark
    <$6.00 / Throw something comfortable in, make it your 'high risk' investment, maybe $10-$15K
    ~$10.00+ / Try to buy as many shares as I could possibly afford.

    Pretty much the only scenario where I'd beg/borrow etc. for money to buy the options would be if the 123(R) was north of $10. That's an independent expert saying that I'm looking at a 10x return. I'd do that all day long.

    All of this assumes that you're fully vested. You'll also need to play dumb on the 123(R) when it comes to tax time, because otherwise you may owe AMT on the delta between strike and FMV (though you can usually convince your accountant that the 123(R) doesn't represent a 'real' market value).
     
  15. NH_Clark

    NH_Clark Well-Known Member

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    $1 a share is a lousy strike price for a privately held co. IMO

    +1 .. should be in the pennies.. or in the .05 range
     
  16. tj100

    tj100 Well-Known Member

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    +1 .. should be in the pennies.. or in the .05 range

    Why? As a founder, you're not trying to give money away. You're trying to encourage good employees to stick it out through the early days with a potential payoff at the end. I don't think I've ever seen options priced below $0.50, and early-rounders at $1.00-$2.00 are pretty normal.

    Ultimately, strike price only matters to people who plan to leave the company before the exit/IPO - and why should I (as the founder) want to 'take care' of those people? We should be in this together, not to make a quick buck.
     
  17. svd

    svd Well-Known Member

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    I'm not suggesting this applies to your situation, but it is something else to consider. I worked at a profitable startup during the late 90s internet bubble. We were 6-9 months from IPO for about 2 1/2 years straight. Then the bubble burst. It was a good 10 years later before the company was sold.
     
  18. mintyfresh

    mintyfresh Well-Known Member

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    Are you required to exercise the entire 30k lot? Or can you purchase at different amounts?
     
  19. antirabbit

    antirabbit Well-Known Member

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    I can buy as many or as few as I wish up to the total vested amount.
     
  20. GHo

    GHo Well-Known Member

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