stock-optionsIf a startup is offering said stock options, what do they actually mean? As an employee I have some concerns around following:
Assuming no legalese BS (ask a lawyer):
are those subject to being diluted further, e.g. their actual value (if any) drops as more stocks are being released?
No: “x% of fully diluted shared capital” means that irrespective of the amount of capital raised you get the same percentage.
are those stock options actually worth anything if the company doesn’t go public (as in: on stock exchange, I don’t know the finance terms, sorry) nor it is sold (acquired) by anyone, just operates as usual (making profit)?
No. The rule of thumb here is to view stock options as a bonus. If they’re worth something good for you, but don’t accept a lower pay for the privilege (there’s so much risk involved that you’ll get more money by working for an established company if you don’t).
“stock options” term implies there’s an option which I don’t have to execute, why wouldn’t I? When I execute my stock options do I need to pay for those shares first?
Yes and yes. You don’t need to execute on the option (which is what options are about) and when you execute them you need to execute them at the pre-agreed on price (which is also what options are about). That pre-agreed price, by the way, is everything so ideally make sure they’re sanely valued when you get them. Think: “Hey, by working for Apple you’ll get x shares valued @ $500/share.” If you accept it it’ll be a long time before you can cash out while remaining profitable at this time of writing. Reciprocally, if they’re valued for $50/share, you’d cash out instantly at this time of writing.
Arguably, it’s easier to know the “correct” price when a company is public and, hey, how to value a company is by no means a done deal or a short story (hint: it’s worth what someone is willing to pay for it), but that’s a separate - and repeatedly asked - question altogether.
For your sake the company is worth what you think it’s currently worth. If an investor decided to pour money at $x valuation and you get the same deal as options then maybe it’s worth that much, but think of it only as a clue - unless of course the investor was clearly out of whack with reality and overpaid or underpaid what they purchased, but that’s another story too. What you need to do is basically ask why it’s valued this or that much. Get a feel of whether it’s sensible. But as you do, keep in mind that these figures are basically pulled out of someone’s behind for all practical purposes, so my earlier remark is the same: think of them as a bonus for an otherwise sane salary.
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