Stock options in high-potential private companies can represent a significant source of wealth on a family’s balance sheet. However, in a divorce proceeding, stock options, like other marital property, must be valued and divided between the parties. But how do you determine the value of stock options?The decision to exercise stock options implicates yet another thorny issue: which party supplies the cash to exercise the options? One party will almost certainly consider the options risky and low-valued whereas the other party will try to characterize the company as the next Google. Lawyers may use Black Scholes and other methods toRead More
Regardless of risk appetite, startup employees should understand how changes in the company valuation affects them.Cybersecurity startup Cylance is experiencing tremendous growth, but this growth might burn employees with cheap stock options. Many employees assume as the company grows, they will make a ton of money on exit; however, the timing of their exercises can change the outcome significantly. The main contributing factors are the different tax rates employees are subject to over time.As demonstrated below, Cylance has been growing at about 10% a month while experiencing non-existent churn. Few startups can boast such a growth rate. However, high growthRead More
For people who work in private, venture-backed companies, stock options may represent the most potentially valuable asset they have. Note that key word–potentially. Stock options aren’t a sure thing. For every private company that goes public or is sold for high price, many more are liquidated and the people who own common stock or exercised their options lose 100% of their investment. When people change jobs, they usually have 90 days to decide if they want to exercise their incentive stock options. For years, there were really only 2 choices: exercise and take the risk of losing your investment orRead More
the addition of taxes makes the entire investment more burdensome as well as risky The Alternative Minimum Tax (AMT) can apply to current and former employees of privately held companies when they exercise their incentive stock options (ISOs) if the fair market value is higher than the exercise price. The AMT can have a significant cash impact on those who exercise their ISOs. See this page for more information on how to calculate AMT. Holders of non-qualified stock options (NSOs) are subject to tax at exercise if the fair market value of the stock is higher than the exercise priceRead More
selling early is not the only alternativeEmployees of venture-backed startups are tied to the illiquidity of their stock positions. As timelines to exit have consistently lengthened, employees have begun looking for liquidity alternatives such as secondary market sales to enable them to cash out early without having to wait for an IPO or M&A exit. However, selling early is not the only alternative, and it may not be the best way to maximize the value of your equity holdings. While selling early provides near-term cash, it forever limits your future upside potential because once the stock is sold, there isRead More
We have temporarily closed our physical office due to COVID-19; however, our team will be operating remotely to process all option exercise and liquidity requests.