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Comment by patio11 | Hacker News Reader

Without some notion of how much your equity grant represents of the company (by current dilution), the actual number of options you get cannot be sensibly valued. The total number of shares at a company is totally arbitrary. Seriously, when you register one, the state just asks you to pick a number.

If a company won't tell you enough to calculate the percentage, that's like you asking "What's your offer for salary?", "Dollars. Definitely dollars.", "Can you be more specific?", "No. We consider exact salary offers to be competitively sensitive."

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Please forgive my ignorance, but if you know the number and price of the options, is the problem that you don't know the current valuation? Because it seems like if you know the price of the option, how many options you're being offered, and the current valuation, it's trivial to work out the number of outstanding shares. I guess the current valuation is privileged? Or that there is no current-valuation if it's been a while since the last round?

It's still necessary to consider the total number of shares. Let's say you've been issued 500,000 options with a $0.10 strike price, and the company is currently valued at $4 million. The approximate pretax value of exercising your options immediately would be:

~ $2,000,000 if they've only issued 500,000 shares ~ $100,000 if they've issued 13,000,000 shares ~ $2,000 if they've issued 40,000,000 shares.

And your returns would be negative for any greater number of shares.

The real problem is that you don't know the price per share from the current valuation.

I must have misunderstood. I thought that the strike price always reflected the current price of the shares at the time the option was issued, but it seems that this is not the case. Thanks for clarifying.

I'm pretty sure the strike has to be greater than or equal (out-of-the-money) or there are tax implications. So, they would need to tell you (I AM NOT AN ACCOUNTANT)

Not that an at-the-money option has no value -- but I think for tax purposes, it's not treated as such.

Exactly. Another common practice, especially for private companies considering an IPO, is they dont even reveal the valuation at which they most recently raised money. So unknown number of outstanding shares, unknown valuation - this is common. Anyone who interviewed with companies like box.net, linkedin(pre-IPO), etc would attest to this.

I agree, makes negotiation much harder. "We're giving you 25000 options"... but if I have no idea how much its potentially worth, I dont know what I'm saying OK to. This is often the case though, I'm quite sure.

Ask for a clarification. If you don't get one, gracefully exit the negotiation, because they're either stupid or not negotiating in good faith. You have better (no pun intended) options.

My last company did a split by 10 the first round moreover, they didn't tell me why, but I guess the new investors found the granularity too coarse for the stock option plan.

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