Startup stock options: what is your offer actually worth?

A stock option offer can be worth a lot or nothing. Running the numbers before you accept keeps you from trading salary for a promise you can't measure.

The pieces of an offer

• Number of options and strike price: what you pay per share when you exercise.
• Vesting: you earn the right over time, typically 4 years.
• Cliff: before it, nothing is yours — 12 months is standard.
• Fully diluted shares: to know what slice of the company your options represent.

The example

10,000 options at a $0.10 strike in a company whose shares are worth $10 today. If the company sells for 3x today's value with no dilution, each share is worth $30 and the gross gain is 10,000 × (30 − 0.10) = $299K. With 35% dilution until exit, the share drops to $19.50 and the gain to about $194K.

Taxes, simplified

NSOs are taxed as ordinary income on the spread at exercise. ISOs held long enough are taxed as long-term capital gains — but AMT can apply. Talk to a tax advisor before exercising.

What's left out

Liquidation preferences: in a small exit, investors get paid first and common stock can be worth much less than the price per share.

The stock options calculator shows vesting, value today and across exit scenarios, with a tax estimate.