Discussion on: What Happens to My Options When The Start-up Gets Sold? — Equity Compensation

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Matt Curcio

Alternatively, You could be in a company that oversold its options. This is not uncommon.

One scenario is that the technology to produce a product (i.e. vaccine, piece of hardware or software) simply takes longer than people (the scientists, programmers, previous investors, etc.) thought. Meaning the company needs to find new investors, sometimes quickly, to back it again which dilutes the cost of any previous shares sold.

A 2nd scenario can be timing for the I.P.O. roll out. If the IPO occurs during a downward turn in the economy the sales price of the stock may be a fraction of what was hoped. The company might hope for a strong showing, i.e. a stock price of US$50 per share, but got pinched between a rock and hard place and needs the money. The now sour market may only be willing to pay $10.

The 3rd possible scenario (and the most humiliating to the grunts) is a Reverse-Stock-Split. The dreaded Reverse-Stock-Split can be due the company going back to the well once too often. In this case the company is limited by its perceived value (Remember Perception is everything) on the market. If your little startup hopes to be valued at $3 billion but in reality its value is 1/10, then sum-tin' ain't right. This is time for the RSS. The company unceremoniously proclaims it is swapping your 10 shares for 1 brand new share.

So you thought that playing the stock market was fun for the whole family, well don't worry you're young and have dozens of chances to strike gold again. lol