Our Stock Option pledge(blog.clearbit.com) |
Our Stock Option pledge(blog.clearbit.com) |
Clearbit has raised a $2M seed round from top-tier investors implying a post-money valuation likely over $6M. A conservative FMV of the common shares would suggest a $1.2M valuation. To exercise a 0.5% of total equity grant would cost $6,000. Something doesn't add up here.
If I am correct, will Clearbit help its employees exercise their options?
See: https://www.fenwick.com/publications/pages/playing-with-fire...
Source: I'm a previous founder of a startup that raised a $1.5M convertible note and have done a 409A valuation based on it.
Also, if you keep reading;
Once our valuation rises and the cost becomes prohibitive, we’ll move to an
extended exercise period model instead, where you will have 10 years to
purchase your options. By that time we’ll either have had an exit (in which
case you can do a cashless exercise), or we will have arranged some other
form of liquidity.In an extended exercise period model, there's still the issue of Alternative Minimum Tax on exercise or long-term vs. short term capital gains. There will also likely be lockups on those shares whether inherently built in or in an eventual IPO.
If they say "several hundred dollars", this is likely coming from actual knowledge of their own 409A valuation number.
A big problem is all the inertia in the marketplace where Option Pools, and policies of many companies are already established and written into investment rounds, legal paperwork and usually needs a board decision that may not be in their own interests.
It would be awesome if Glassdoor has some sort of info about this(Option Exercise Policy: XXXX) per company.
@holman has started a GitHub project listing companies with favorable exercise windows. https://github.com/holman/extended-exercise-windows
"Like what you saw? Send some social love and encouragement for Venture Makr: a full editor to create your own rounds with custom valuations and equity distributions. Turn the knobs on your own creations and see how scenarios might unfold differently."
There's an original HN thread with some discussion on it around here somewhere, but if you have anything on your wishlist, let me know!
The problem here is that the CEO is "fighting the good fight" on behalf of insiders, but he may be fighting that fight against the investors.
Guess who wins in that case?
I really like the notion of helping employees exercise their options too with cash compensation and it's something we're looking into too at Pachyderm as we just started hiring.
What's the legal structure of that cash repayment? Is it a bonus or can the company just pay the exercise price themselves and that's that?
Post-A round makes it much harder.
"From each according to his ability, to each according to his needs". Just reminded me.
1. Your company gives you $1400 to exercise options (I don't think Clearbit is doing this, to be clear)
2. You pay $400 in taxes and early exercise $1000 of options in exchange for 1000 shares at $1 each
3. Later you sell those 1000 shares for $1m total
You have employees who own shares but need a nontrivial amount of cash to cover taxes. You have investors who may be interested in acquiring more shares (or the company may want to buy them itself). You have a notion of a current valuation of the shares. Broker a sale at a price that's beneficial to both parties.
What is the company's incentive to block such a transaction?
I'd love to see this become standard.
The 10 year exercise window likely makes this unnecessary, but if not he says they will arrange for some form of liquidity.
If there's a good path to the employee owning their shares (or some fraction thereof) outright, that is more desirable in some ways than an outstanding option agreement with a ticking clock.