Takuma Yoneda

Stock Options

Terms

  • strike price

    • a.k.a: grant price, exercise price
    • cf.: fair market value (FMV)
    • the fixed cost you'll pay per share to exercise your stock options
    • the strike price stays the same!!

  • outstanding shares

    • related: common stock, preferred stock and restricted stock
    • company's stock currently held by all its shareholders

  • common stock

    • generally issued to founders and employees
    • receives a lower preference than preferred stock in the event of liquidation
      • preferred shares are issued to VCs or angel investors

  • market capitalization

    • (outstanding shares) x (stock price)

  • ISO (Incentive Stock Options)

  • related: NSO (Non-qualified Stock Option)

    • No favorable tax treatment. You pay taxes when you exercise and sell them

  • Strike price vs FMV (Fair Market Value)

    • At-the-money: (strike price = FMV)
    • In-the-money: (strike price > FMV)
    • Underwater: (strike price < FMV)

Types of Equity (source: https://carta.com/blog/equity/)

  • Stock type (when to issue)

    • RSA: Restricted Stock Award (Before raising outside funds)
    • ISO: Incentive Stock Option (After fundraising)
      • This is common (I believe)
      • Unlike NSO, you don't have to pay taxes when you excersize them
      • When you buy and sell at the same time, there's no tax benefit (normal captal gain)
      • You need to hold the stocks for 1 year after excersize and two years after the grant date
    • NSO: Non-Qualified Stock Option (After fund raising)
    • RSU: Restricted Stock Unit (When the company reaches a stable valuation)

  • RSUs: Restricted Stock Units

    • promises to give you shares on a future date, once the vesting period is over
    • Why would a company want to do this?
      • Typically later stage startup would do this
      • The cost to exercise options (for employees) become too large
      • The company wants to limit dilution

  • RSAs: Restricted Stock Awards

Questions