

Ask HN: Why does % of ownership matters more than number of stock options - quietthrow

I recently got my stock option grant letter and to  make some sense of what I could potentially be getting I simply took the number of options and multiplied it with a reasonable sales price and then subtracted my total cost (number of options * strike price). Upon looking up on the internet, I found numerous articles indicating that &#x27;the only number that matters when it comes to stock options is what % of company you own. I dont understand why % of ownership matters more than number of options I have. Because with the latter its very simple...num of options * sale prices...% of ownership it seems like complicates things unnecessarily. Can somebody explain what I am missing??
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sandeepc
Your method works if you know $/share of the sale price.

People generally don't know the $/share. Let's take the case where you only
know the company valuation and the number of shares you have.

Eg: You know a company sold for $30MM and that you have 1MM shares. How much
are your shares worth ?

Unless you know the outstanding shares you don't know if the price/share is
$15/share (2MM Outstanding) or $3/share (10MM Outstanding) or some other
number. In this case your portion could be worth 15MM or 3MM depending on the
number of shares outstanding.

The percentage ownership lets you calculate the value of your shares directly
through simple multiplication ie. your %ownership * Sales Price = Your
Portion's Value

It also tells you number of shares outstanding. You can divide the number of
your shares by your percentage to get shares outstanding.

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quietthrow
I see. So is there a reason why a company might not disclose its sale price
per share? I ask because the fact that a lot of people say you must know the
ownership % implies that you will not know the sales price - which to me seems
impossible. Basically there is two positive outcomes for which the original
question is relevant. 1) the company get bought out by another company and 2)
the company goes for IPO

In case 1, the purchasing company will be buying all the shares outstanding
which includes employee stock options. Since I have the option and will be the
beneficiary of the event by virtue of getting the capital gains which in turn
will tell me the sales price (albeit after the fact), whats the benefit to the
company by not dislcosing the price?

In case 2. I will know the sale price because it market price of when I
exercise my options.

So with the above logic...So is there a reason why a company might not
disclose its sale price per share?

~~~
nostrademons
It's not that it won't disclose the sale price per share - it's that at the
time you join the company, _the sale hasn 't happened yet_, and nobody can
predict the future. Knowing the sale price X years in the future, when and if
the company actually gets sold or IPOs, doesn't help you evaluate the company
_now_.

The value of understanding your % ownership is that you can do your own math
on what potential sale prices are likely and then see if it ends up being
personally worthwhile to you in those scenarios. The company's quite capable
of picking an arbitrary sale price and then doing the math to tell you what
the sale price per share is - but given that they have a vested interest in
hiring you for the lowest stock grant possible, they will probably pick the
highest conceivable offer and then divide that by the number of shares
currently outstanding (ignoring dilution), because they can't predict the
future any more than you can and, when asked to make things up, are under no
obligation to make things up that are more favorable to you than them.

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codeonfire
There's a difference in options and shares. Option value is based on lots of
things like strike price, time to maturity, volatility and price of the
underlying stock,etc. If a stock is 100% guaranteed never to exceed the strike
price its options are worthless. If no one can buy the option from you it is
worth significantly less. Many startups give options that are so far out of
the money they are worthless. They will give you Options on 10k shares that
you'll never be able to exercise so it may as well be 100k.

Options don't represent an equity position in the company. Percent of the
company is meaningless anyway because companies will never give more than a
small fraction of a percent.

