Understanding Stock Options and Earning Equity in a Company
Jeff Solomon is an Entrepreneur and Founder of Leads360 (leads360.com). In this video he talks about understanding stock options and earning equity in a company.
- Remember, not all companies are the same
- Awarded Stock is better than Options in early stage companies
- Options come with financial burdens
- Owning stock is like owning part of the company
- State your desires early on
- Maintain multiple drivers
So this is good for people that are joining startups or participating but not necessarily at the stage in your career where it's your startup. So understanding how stock options work and what equity is and how you earn that, and most important is a big conversation. And I have a few tips that I'll give you. But it's important to understand that every company is different, every startup is very different and so you have to really look at all the pieces.
But first and foremost, if it's an early early stage company and you can get stock versus options, you're gonna be better off. Options have a price to them. So when you ultimately exercise them, you have to pay to get them. You have different tax obligations with options so owning the stocks is like you owning a piece of that company and people can't take that away from you and that's more valuable. So I encourage you to try and do that especially for pre-funded companies. So if they haven't raised money, it's gonna be easier to get stock.
Set your precedence early. I'd like to say that to people that I'm trying to guide in new companies because you need to tell your boss or the founders, "Look, I am going to be asking for the stock regularly. I want what you're giving me right now and that's great to get me started, but if this company grows like we're going to do it together, then I want to be rewarded along the way". And if you don't set that precedent early, it's going to be really hard to go back 2 years, 3 years down the line, and I’ve seen this, and ask for more. And you're going to need to get more if the company grows.
Like I said, every company is unique so you really have to look at it but I encourage you to have multiple drivers, right? So equity is important and having stock is important, but not to everybody, right? What are the working conditions? How was the office? What's the culture like? Are you going to meet great people? Are you going to learn how to be an entrepreneur? You may have another exit strategy for you. So think about everything that you want to get out of a company and then choose them in. And that's a little bit about how stock options work in earning equity and just think about the big picture before you just make any decisions.