Reply to: Share Options for permie's

[TheFaQQer]

shares and options are completely different things.

If a company doesn't go for a listing, options ARE completely worthless.

tim

I'll still disagree. Options in a company which then sells on to a VC can be worth quite a lot, providing you exercise them before you lose them and before the sale.

[tim123]

Not necessarily - I wouldn't class the shares in my business as worthless, but they aren't going to be listed.

shares and options are completely different things.

If a company doesn't go for a listing, options ARE completely worthless.

tim

[DiscoStu]

Handsfree - the calculation should be quite simple:

1) Work out how much the options are worth (or might be worth), realistically, at exercise time, and hence how much profit you are likely to make.

2) Work out how long contracting it would take you to save up that same amount of money.

I believe you'll find that you can earn/save a lot more by contracting, assuming you are in a marketable skillset.

^^^What he said

[ChimpMaster]

Handsfree - the calculation should be quite simple:

1) Work out how much the options are worth (or might be worth), realistically, at exercise time, and hence how much profit you are likely to make.

2) Work out how long contracting it would take you to save up that same amount of money.

I believe you'll find that you can earn/save a lot more by contracting, assuming you are in a marketable skillset.

[TheFaQQer]

If that latter doesn't get to a listing the options are completely worthless.

Not necessarily - I wouldn't class the shares in my business as worthless, but they aren't going to be listed.

[tim123]

Misys used to (still do) a share-save scheme.

...

There's a very big difference between a share scheme in a currently listed company and one in an unlisted company. If that latter doesn't get to a listing the options are completely worthless.

tim

[Moscow Mule]

Misys used to (still do) a share-save scheme.

You front up so much cash a month then at the end of 3, 5 or 7 years you can buy shares at what was a discount price at the beginning of your term. Or you can have the money if the shares have tanked.

It kept a lot of people in the company through the late 90's/early 00's as they didn't want to give up there options. At the height of the tech boom, the first 7 year plan matured - quite a few folk retired off the back of it with very hefty sums of cash (20p option price, 1300p sale price)

I started too late for it to be worthwhile me holding onto my options so I left. I've since made about 10X as much as the shares would have made me...

You pays your money, and you takes your choice...

[TheFaQQer]

I've been there ...

Share options = gimmick.

Come back over our side of the fence.

I know people that were given options on Oracle shares some years back. They're quite happy with how they've done.

[Gonzo]

I've been there ...

Share options = gimmick.

Come back over our side of the fence.

Not necessarily. I know of people who have done very well, but only by being very fortunate with the timing.

One person I met was able to semi-retire in 2000 as he was sitting on options in the company shares that he had built up over the course of the previous decade.

Of course, the timing was everything, and it was a position that had taken 10 years to build, spanning one bust and one boom (in that order).

[moorfield]

I've been there ...

Share options = gimmick.

Come back over our side of the fence.

[Crossroads]

I had a frank discussion with one of the principles of a private company I did some work for. They were/are still keen to employ me on a permanent basis, and they rattled off the usual "salary, big bonus, share options" etc etc...

I went through the "share options" piece with them...my take was this:

They are a small company with a handful of founders who comprise the shareholders. Realistically, they are building the company to sell it, and I would guess if they were offered £10m in a few years time they would take it.

Now lets say they sell for £10m, and 50 employees have shares or share options...realistically the directors are not going to set aside a big chunk of equity...probably only a couple of percent, but lets say they are generous - 10%

so 10% of 10m = £1m. Shared between 50 people = £20k

or even if they sell for £100m. - same equation - £200k

And that is after several years of effort on your part. For something that might never happen.

Not likely.

[beaker]

Exactly. You want to find out when you can exercise the options - sell them then get the hell out!

[Gonzo]

The company is about to kick off another round of investment, so that will set the value I suppose, but if they issue more shares to investors, are there any guarantees that mine won't simply be diluted?

It depends what the company intends to do with the extra money. If it will add value and make the company worth more, then it should not dilute the value of the shares.

If they pi$$ the money up the wall then, yes it will dilute the value of the shares that already exist.

You say the shares are not publicly listed. What would you be able to do with them if you did exercise the options? Are you able to get an estimate of their value against the exercise price to make a judgement about whether or not they are worth anything.

I would be sceptical myself that the options you get for one year of work would be worth all that much, unless in that year the firm has made alchemy work or something similar. But I know nothing about your company so a valuation is the way to go.

[TheFaQQer]

Thanks,

Will check the excise price, it's not massively high. But there is no current share price as it's not publically listed. The company is about to kick off another round of investment, so that will set the value I suppose, but if they issue more shares to investors, are there any guarantees that mine won't simply be diluted?

I guess it comes down to how much you think they might be worth in the future - my dad had a load of options in a company when he joined, but when he retired he let them all lapse as he didn't think they would do much. And he was right.

If you think that the company has a good looking future, and the options are cheap, then it may be worth taking a punt on them, as long as you can afford to write the loss off.

Also, check whether there is any restriction on how quickly you could sell the shares after exercising your options. Although they aren't publicly traded, you could still sell them on privately, plus if they do list, you don't necessarily want to be stuck with shares you can't shift for a while.

Finally, even though they are privately listed - does the company pay a dividend? If so, then it might be worth getting the shares. If they are still seeking funding, then this is unlikely though.

[handsfree]

Thanks

What is the exercise price on them? What is the current share price? When do the options lapse? When can you exercise the option?

Thanks,

Will check the excise price, it's not massively high. But there is no current share price as it's not publically listed. The company is about to kick off another round of investment, so that will set the value I suppose, but if they issue more shares to investors, are there any guarantees that mine won't simply be diluted?