How does common stock option work in a startup?"Come here Rover, I have got something to explain to you. Stock Options ....STOP scratching yourself and listen....Stock Options are an offer from the company to allow you to buy company stock at a later date. The cool thing...STOP sniffing my pant leg....The cool thing is that the company will let you buy that stock at today's price. If the stock price goes up then you get a deal. If it goes down, then you get nothing (or close to it). A couple of key details....COME back here and stop rubbing noses with that cute poodle...If you quit your job anything options that haven't vested will probably go back to the company. In fact, ...GEEZ stop pulling at your leash!... the shares you do exercise may also be bought back by the company (I would have to read the plan and agreement to know for sure).
...What did you ask boy? How do you
value them?... The company is required by IRC 409A to have a reasonable valuation performed on the company at, or near, the time of grant and again at least annually or whenever the value may have materially changed. ....OK, just hang on and I will get you a treat....The 2000 options you received could have a starting value of a few dollars or a few thousand dollars. It depends on the number of shares outstanding and the total value of the company. The final value will depend on the success of the company, and your ability to keep your options etc. ...I'm not sure what's in the treats, probably beef and bones or something like that...They could be worth nothing or they could be worth millions! The key is working to raise the value of the company as a whole.
I hope this helped a little. Now roll-over and let me rub your tummy.