How startup stock options work, from the job offer to the day they pay
Startup stock options: why the number in your job offer means nothing alone
A startup offers you a job with a salary and thousands of stock options. Is that a lot? Two offers with the same number of options can be worth very different amounts.
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1
Miva and Rono started a small company two years ago: an app that lets neighbours lend each other tools. They want you as their first employee, and next to the salary, the offer says 50,000 stock options.
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2
Is that a lot? Each option lets you buy one share of the company, a little later. A share is one equal piece of the company, so 50,000 could be half of it, or almost nothing. It depends on how many shares there are in all.
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3
You ask, and Miva draws the company: 10 million shares. She and Rono hold 4.5 million each. The last million is kept for the people they will hire. That reserve is the option pool, and your options come from it.
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Now you can find your part: divide your 50,000 by all 10 million. You get 0.5%, the thin coral line under the glass.
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5
Half a percent of an app that earns nothing yet. Still, Miva has news: next week an investor comes, and he wants a part of the company too.
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Quick check
Two offers, two companies.
Show the answer
Offer A. 20,000 out of 2 million is 1%, and 100,000 out of 50 million is only 0.2%.
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Go further
Three names you will meet in a real offer.