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Somebody posted a question about pre-IPO stock - having just dealt with this
with a client, I thought I would share the info I learned with the gang here.
Pre-ipo stock options are totally worthless until the company IPOs and the
restriction period is lifted. Currently, most stocks are restricted for 1 year
from IPO for any inside holders. What that means is that once the company IPOs,
you cannot sell that stock for up to one year no matter how high or low it
goes. So the company may IPO at 10, shoot up to 100, and then by years end be
back down at 10. Which means you don't get to cash in on the post-IPO hype.
Furthermore, unless you know the valuation of the company and the total number
of issued shares, a number of shares is totally, utterly meaningless.
Consider this: if you had 5 shares of pre-ipo Microsoft - you would have over 1
million dollars today! Of course by now that would be 10240 shares! 5 shares
probably seems like nothing these days, but if the company only issued 100
shares, 5 shares would be a 5% stake in the company.
To negotiate stock options, try to negotiate in terms of price or percentage.
In other words, get a dollar value for the shares not number of shares.
Alternatively, negotiate based on a percentage of the issued shares. A 0.5% -
1.0% stake in a company could be worth millions down the road.
Naturally, many company's vest the options over years and you'll also have to
deal with taxes when you cash these in.
Shares are a great way to make big $$$ with a job - but plan to stick it out
for the long term. Shares reward people who stay with a company for 2 or more
years. If you're looking for the fast cash-in - don't take options.
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