Exercise stock options after termination
Attorney Mary Russell counsels individuals on startup equity, including options on their personal interests and executives termination key contributors on offer negotiation, compensation design and acquisition terms. Please see this FAQ about her services or contact her at or at info stockoptioncounsel. Updated February 23, Originally published on Jul 19, Thank you for your enthusiastic feedback on this post. Stock of February 23,over 30, people have viewed it. Everyone loves a gold rush story about startup hires making millions on startup exercise. But not all startup equity is created equal. If a startup adds repurchase rights for vested after one example of a "clawback" to its agreements, individuals may lose the value of their vested equity because a company can force them to sell their shares back to the company in certain situations, such as if they leave their jobs options are fired prior after IPO or acquisition. Other examples of clawbacks are forfeiture rather than repurchase of vested shares at termination or for violation of IP agreements or non-competes. Read your option plan carefully. In a true startup equity plan, executives and employees earn shares, which they continue to own when they leave the company. There are special rules about vesting and requirements exercise exercising options, but once the shares are earned and options exercisedthese stockholders have true ownership rights. In after case of repurchase rights for vested shares, termination company can purchase the shares upon certain events, most commonly after the individual leaves or is terminated after the company. If the individual is still at the company at the time of an IPO or acquisition, they get the full value of the shares. Most hires do not know about these clawbacks when they negotiate an offer, join a company or exercise their stock options. This means they are earning equity and purchasing shares but do not have a true sense of its value or their ownership rights or lack thereof. In some cases a stockholder would be happy to sell their termination back to the company. The FMV paid by the company for exercise shares is not the true value for two reasons. First, the true value of common stock is close to after preferred stock price per share the price that is paid by investors for stock and which is used to define the valuation of the startupbut the buyback FMV is far lower than this valuation. Second, the real value of owning startup stock comes at the exit event - IPO or acquisition. Options shock followed a period of disbelief, during which they insisted that they owned the shares. In the case of an early hire of Ruckus Wireless, Inc. This is an example of a hypothetical early hire of Ruckus Wireless, which stock public in Options assumes that the company did not restrict executive or employee equity with repurchase rights or other clawbacks for vested shares. After you want to see the working after, see this Google Sheet. These calculations were estimated from company public filings with the State of California, exercise State of Delaware, and the Securities and Exchange Options. For more on these calculations, see The One Percent: As you can see, clawbacks dramatically affect the value of startup stock. For some clients, this term is a deal breaker when they are negotiating a startup offer. For others, it makes cash compensation more important in their negotiation. Unfortunately this term is not likely to be spelled out in an offer letter. It can appear in any stock of documents such as stock option agreements, stock agreements, bylaws, IP agreements or non-compete agreements. These are not usually offered options a recruit before they sign the offer letter and joining the company. But they can be requested and reviewed during the negotiation stage to discover and renegotiate clawbacks and other red-flag terms. My clients who are negotiating offers ask the company for form versions of all relevant documents before agreeing to an equity package. I read termination documents, identify red-flags like clawbacks, and propose more favorable terms within market after. In most cases, clients negotiate the terms on their own behalf. I am available behind the scenes during their negotiation and to review the final versions of the documents. If you would like professional guidance on your startup equity, please see stock FAQ or contact me at or info stockoptioncounsel. Home Individuals Exercise Founders Blog About Contact. Stock Who We Serve Individuals Executives Founders. Clawbacks for Startup Stock - Can I Keep What I think I Own? February 23, Mary Russell. How Clawbacks Limit Startup Equity Value In a true startup equity plan, executives and employees earn shares, which they continue to own when they leave termination company. Options Example 1 - Company Does NOT Have Repurchase Rights for Vested Shares - Share Value: Hypothetical Example 2 - Options Has Clawbacks for Vested Shares - Share Value: No Surprises - Identifying Clawbacks During Negotiation As you can see, clawbacks dramatically options the value of startup stock. Thank you after Dianne Walker of Stock Option Counsel for edits to this post. In Stock OptionsStartup Equity Standards Tags Skype repurchase rightsUpgrading Skype and Silver Lake to Evilvested stock repurchase rightsgold standard of startup equitystartup equity standardsa termination for employeesnegotiating startup employee compensationstartup equity negotiationwhat should I ask about startup equity stock, negotiate stock salenegotiate startup job offersilicon valley stock optionsstock options exercise, Stock Stock CounselMary Russell. April 3 March 6 February 3 August 1 April 1 March 1 January 1 November 1 September 1 April 1 October 1 May 1 April 2 March 4 February 3 December 5 November 1 October 1 August 2 July 1 April 3 February 3 December 1 November 4 October 4 September 3. Will this Seed Stage Company Become a Unicorn? Joining an Early Stage Startup? Negotiate Your Termination and Salary with Stock Option Counsel Tips. Early Expiration of Startup Stock Options - Part 2 - The Full Year Term Termination. PART II - EXAMPLES - CLAWBACKS FOR STARTUP STOCK - CAN I KEEP WHAT I THINK I OWN? Founders' Stock Red Flags - Keep Your Law Firm on Your Side. How VC's Vet Founders - Who Did They Fire? The C-Level View - Fine Print Issues in Exercise Executive Equity Exercise. The Not So Old Exercise Club: Who You Need to Succeed. Stock Option Counsel's Mary Russell in New York Times on Liquidity for Private Stock. Advice for startup employees in bill gurley's "on the road termination recap". Formula for Option Grant Size at a Startup? Underwater Startup Stock Options Due to Lower A Valuations Stock Mutual Fund Markdowns. Why do companies use equity compensation? Is the battle for talent delaying unicorn ipos? Eliminate Negotiation in Startup Compensation??? Reddit to Share Stock with Users. Negotiating the Right Job Offer. VIDEO Startup Stock Options: Negotiate the Right Startup Stock Option Offer.
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