If you own employee stock options in a private company it important to understand when they become valuable. You may be one of the first employees with a very low strike price or a new hire with a strike price that is equal to the current fair market value of the company, either way, your options don’t realize any value until your company goes through a liquidity event: an IPO or an M&A.
An Initial Public Offering or IPO is when a company raises funding by offering its shares for purchase on the public market.
An IPO is great news for anyone with employee stock options in a private company. The company has now elected to go public and will be traded on the stock market, just like any other publicly traded stock (think AMZN, AAPL, or FB). Because you are technically an insider, you will be forced to wait out an IPO lockup period before you can sell any of your shares. These periods typically last 90 to 180 days and can last even longer if you are high up in management and privy to more sensitive information. If you are exercised, then you simply need to sell your shares to get liquidity. On the other hand, if you have not exercised your options, you will need to exercise and then sell, but the net gain will likely be much more than you pay for the exercise. Another option is to hold the stock and go long if you believe the company has more room to grow on the open market, and you aren't strapped for cash in the short term.
For more information on how to monetize your private company equity, please contact us at the Employee Stock Option Fund.