The best solution I have heard is from Adam D’Angelo at Quora. The idea is
to grant options that are exercisable for 10 years from the grant date,
which should cover nearly all cases
There is also a precedent for such type of clarification updates in YC family. YC founding partner, Jessica Livingston, provided a clarification with respects to Sabeer Bhatia of Hotmail vs. DFJ ventures based on the statements Bhatia made in an interview with her for the book "Founders at Work".
Having to keep track of "large" (unsure of how to quantify that) percentages of the company that might be purchased at a later date seems like a liability that the company wouldn't want to have to track, especially as a startup with other things to focus on. They're useless to the company, the only upside is for the employee.
It is indeed not useful to the company, and a great upside for the employee. Out of all suggestions in the article, this is probably the most employee-friendly. But that's not a bad thing if it helps recruit good employees, or otherwise seems like a fair thing to do.
The usual 90-day limit makes employee vesting almost meaningless. They either wait for an acquisition (and get all their options accelerated), or leave before that (and lose all of them). Few employees have enough spare cash to buy out their shares.
that's not the only option. The company could remain privately owned - in which case you want to have below 100 shareholders so that you can remain a C corp
Don't agree: the company already got the benefit.
Not to mention employers often try to avoid even telling employees what fraction of the total company their options represent, and definitely don't care to share their participation multiples. They're often very happy to let you think that in the case if a liquidation event, you get (exit amount) * (your ownership fraction) which just isn't true.
@apta: see [1] for a numerical example. You get taxed twice (or three times if someone is stupid) on typical ISOs:
1 - on grant, if the strike is less than the fmv (there are huge tax penalties for this, both for you and your employer, so it oughtn't happen)
2 - on exercise when you convert the option to a stock, on the spread between fmv and strike (but probably amt, depending on the type of option; it's mildly complicated)
3 - on sale of the stock, on the spread between the sale price and your basis
I am not really familiar about this area. It is a one time price to pay to purchase the stock options, is that correct? Furthermore, where does tax come into play? Don't you only get taxed if you decide to sell the stocks to generate income?
Actually that's pretty telling. If they don't give a number it means it's ~0%.
As part of your compensation package when you sign up, you're granted a set of unvested options. The idea is, as you work for the company and provide the value you've promised, the options become vested and are actually yours.
So why do you need to stay there to keep them? If I work at a company for a year and 25% of my options vest, why are the terms surrounding their exercise different depending on whether I choose to stay or not? I earned those options by working there for a year. Why is it fair to take them back if I decide to leave instead of stay?
Yes, I get that you're agreeing to that up front, so it's not like you should be surprised when the 90-day limit kicks in. I just wish option grant agreements weren't structured like that, but the employee has pretty much zero power to change that; these grants are pretty much take-it-or-leave-it, and the only point of negotiation seems to be in the quantity of the options. At best.