Under an option plan, an employee is granted options, which can be exercised to become shares in the company. The options can only be exercised after they have Vested.
Until options are exercised, you won’t have any shareholder rights (like voting rights, for example). Essentially, until your options vest, you can’t eat your cake.
Receiving a slice of the cake, means sharing in ownership of the company. What could be more exciting and motivating than knowing your hard work could exponentially increase your own personal wealth? It’s pretty delicious!
How much could my options be worth?
Imagine you are granted options valued at $30k, the table below illustrates the growth in value of your options over time*
*It’s important to note the exercise price will be deducted from the value of options.
Let's explore what this may translate to for you or some of your employees or advisors.
Stock options examples
Example 1: Kelly, Sales Manager
Kelly joins a series B fintech startup. Kelly’s starting package is made up of 100k base salary with 100 options issued at a company valuation of $50 per share with an exercise price of $0.01.
On the current valuation, if Kelly exercises her options to purchase shares she can realise just shy of $5,000. 3 years laters, if the company value has increased by 5x her options will be worth $25,000.
Example 2: Peter, Head of Marketing
Peter joins a seed stage marketing tech company. His starting package is made up of $200k base salary and 20,000 options issued at a share price of $2.27, with an exercise price of $1.00.
If Peter exercises all of his options to purchase shares, he can realise up to $25,400 in addition to his base salary and this value will continue to grow as the company value increases.
3 years later, if the company value has increased by 10x his options will be worth $254,000.
Example 3: Julie, CPO
Julie joins an AI company following their Series D raise. Her starting package is made up of $250k base salary and 50,000 options at a share price of $7.50 and an exercise price of $0.50.
If Julie exercises all of her options to purchase shares, she can realise $350,000 in addition to her base salary and this value will continue to grow as the company value increases.
7 years laters, if the company value has increased by 8x her options will be worth $2,800,000.
Know the value of your options, in real time
If you're using Cake, once you have accepted your offer, your employer will send you an invitation to create an account, where you can login and see your option (or share) holding.
Here, you can also see the estimated value of your options, vesting schedule, milestones, and other options related documents.
Cake will send you instant notifications each time any of your options vest, so you’ll always know how much cake is coming your way!
*Estimated value: In the Cake app, this is the estimated value of all granted options ($0 per option), based on the company's most recent valuation and total company diluted equity. Unlike your salary, the value of your equity isn't a set amount - it depends on the value of our company as a whole. Here, we lay out different growth scenarios to help you estimate how much your equity could be worth.
This article is designed and intended to provide general information in summary form on general topics. The material may not apply to all jurisdictions. The contents do not constitute legal, financial or tax advice. The contents is not intended to be a substitute for such advice and should not be relied upon as such. If you would like to chat with a lawyer, please get in touch and we can introduce you to one of our very friendly legal partners.