Can someone explain employee stock options to me? I recently encountered them for the first time, and my understanding is they're not equity. It's basically just a contract that says "you can buy some of our stock if you want". So the part I'm confused about is, why do I need stock options to buy the stock? Since startups are private and their only way to raise money is via outside investment, wouldn't they want people to buy their stock? Why do you need the options and can't just say, phone up and just ask to buy shares?
@malwaretech ah. They are not entirely different than options trading. Basically, you are given the right, but not the obligation, to buy a certain amount of stock at a predetermined price (the strike price). After the stock vests you can sell your options if the stock is worth more than the strike price. You pocket the difference between the strike price and the sale price. If the stock does not go up, you get nothing or nearly nothing. But if it goes up a lot, you stand to make a bunch of money. It’s an incentive for you to help do things that increase the stock’s value.
Funny story - back in the dotcom days, I got a job at a private company that was bought by a public company. I ended up with a lot of options and in the late days of 1999 and early part of 2000, I had MILLIONS worth of stock options. But none were vested. My stock started vesting shortly after the stock price fell below the strike price and I had nothing. Was so close to retiring in my 30’s.
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