
Ask HN: Help understanding startup equity (for employees) - metalgearsolid
I worked at a Canadian startup for just under 3 years. I signed a stock option agreement at the very beginning of 2017.<p>My understanding of private equity was:
Over a scheduled period of time, options would be granted to me. These are shares in the company that can be purchased at my given strike price.<p>So a smart person would do either two things with their vested options:
1. Purchase them, and then immediately sell them back if there is a positive spread.
2. Ignore them because the spread is negative, making the options essentially worthless (unless you want to hold onto the shares for a year or more and hope the company goes back up in value. I&#x27;m taught that this is generally an awful idea.)<p>I&#x27;m hinting at some incomplete knowledge here because unlike a publicly traded company on a stock market, I&#x27;m not sure who would be purchasing the shares from me. I figure it would be either the startup themselves or the investors involved with the startup.<p>This is the curve ball:
[When asking what the current value of a share is, in order to determine the spread] &quot;it was just re-evaluated to that new strike price. You don&#x27;t know the value until it goes public. It is a much better value now than it was previously so you are in a better position.&quot;<p>Current value re-evaluated to a strike price? This is a puzzling statement to me, but more importantly, I&#x27;m not allowed to know the value until the company goes public?? I find that to be very suspicious. I&#x27;m supposed to take my employer&#x27;s word that the spread exists? But I&#x27;m not allowed to know what it is?<p>My instincts are raising red flags. A good majority of my options vested but now I feel like I just have to forget about them. I was very sure that startup equity could be of tangible value even without the company being publicly listed on the TSE or NYSE or wherever. Had I simply had the wrong understanding of this or is this abnormal, or perhaps normal but rare?
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talvi
Things may be somewhat different in Canada but I’ll try to stay generic so it
should fit.

Startups are hard to value and they are essentially only valued when someone
makes a monetary investment in them. So investor Aardvark puts in 100k and
gets 10% sets a value of 1 million for the company and the value of the shares
is calculated from that.

In most cases, employee shares cannot be made liquid unless the company offers
to buy them. Most stockplans for startup companies don’t legally allow you to
sell your shares to random people, but instead essentially make it so you can
only sell to specific entities during specific events. This isn’t actually a
red flag as this is common.

However the red flag would be if your company isn’t upfront about current
valuation and when investment happens. For two reasons, your an employee and
especially in a startup should understand roughly what current financial state
company is in. But most importantly you are actually a shareholder, if you’ve
excercised options, and they have a responsibility to keep you appraised of
what’s happening with shares.

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metalgearsolid
You have been very helpful. Thank you.

