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Comment by wlfsbrg | Hacker News Reader

This is great, thanks for the insight jbail. I want to clarify using an example (not using real numbers):

I am granted 100k options at exercise price of $0.10, so the total amount it would cost me would be $10k to purchase them. The company is sold with shares being valued at $10 each.

I spend $10,000 purchasing the shares, which then I would see a return of $990,000?

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But AFAI understand before the IPO you can't buy anything, even if the shares are valued some value in some company to company transaction. AFAIK it's not about company being sold, it's only once it's on the market (and other conditions you have are met) that you can execute your options. Then you don't have to worry to even have the mentioned 10K USD, you'll be able to get the difference between the real price of that number of shares and the strike price of your options.

http://en.wikipedia.org/wiki/Strike_price

You can buy before the IPO, but you won't have anywhere to sell them. Buying before IPO is risky because you may face taxes on the difference between the strike price and fair market value, but not be able to turn any of the paper profit into actual cash to pay the taxes.

Wouldn't a website like secondmarket.com allow you to unload stock before a liquidity event? That assumes that someone would want to buy the stock from you.

No, it's a private company, and part of the ownership contract will prevent you from selling your shares to people outside the company. You might even be precluded from selling them period. That's why most people don't buy until the company's exit.

See my mainline comment for more details

If all your options are ISOs, yes.

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