Comments on: How do you set the exercise price of stock options to avoid Section 409A issues? http://www.startupcompanylawyer.com/2009/01/01/how-do-you-set-the-exercise-price-of-stock-options-to-avoid-section-409a-issues/ Venture capital, seed financings, convertible note bridge debt, M&A, option vesting and other matters explained for founders and entrepreneurs Sun, 11 Dec 2011 21:54:46 +0000 http://wordpress.org/?v=2.9 hourly 1 By: Mike http://www.startupcompanylawyer.com/2009/01/01/how-do-you-set-the-exercise-price-of-stock-options-to-avoid-section-409a-issues/comment-page-1/#comment-3400 Mike Sat, 08 Oct 2011 02:42:09 +0000 http://www.startupcompanylawyer.com/?p=348#comment-3400 Yokum, what is the latest thinking on how to price common stock options for an early stage company?  I saw that in 2009, a valuation firm said 25-30% of the preferred stock price.  Is that the current thinking?<br><br>Mike O. Yokum, what is the latest thinking on how to price common stock options for an early stage company?  I saw that in 2009, a valuation firm said 25-30% of the preferred stock price.  Is that the current thinking?

Mike O.

]]> By: Ianakamel http://www.startupcompanylawyer.com/2009/01/01/how-do-you-set-the-exercise-price-of-stock-options-to-avoid-section-409a-issues/comment-page-1/#comment-3233 Ianakamel Mon, 27 Sep 2010 03:48:40 +0000 http://www.startupcompanylawyer.com/?p=348#comment-3233 What if the start-up company has not gone through a round of financing, is pre-revenue, does not currently own any assets, but is having engineers research and develop a proof-of-concept for an idea that the company's owner has for a new product. If the start-up wants to offer the engineers options such that, if the engineers are successful in developing the proof-of-concept (thereby allowing the company to actually patent the idea), the engineers can enjoy the upside potential of their efforts, can the company set the exercise price at or near zero (since the company currently doesn't own anything, has no cash flow, and has had no financing), or does it have to assume future cash flows based on a possible product, and then add an extra layer of discount to reflect the probability (as opposed to the the certainty) of developing the product successfully and receiving cash flows from it at a later date? Thanks! What if the start-up company has not gone through a round of financing, is pre-revenue, does not currently own any assets, but is having engineers research and develop a proof-of-concept for an idea that the company's owner has for a new product. If the start-up wants to offer the engineers options such that, if the engineers are successful in developing the proof-of-concept (thereby allowing the company to actually patent the idea), the engineers can enjoy the upside potential of their efforts, can the company set the exercise price at or near zero (since the company currently doesn't own anything, has no cash flow, and has had no financing), or does it have to assume future cash flows based on a possible product, and then add an extra layer of discount to reflect the probability (as opposed to the the certainty) of developing the product successfully and receiving cash flows from it at a later date? Thanks!

]]> By: Yokum http://www.startupcompanylawyer.com/2009/01/01/how-do-you-set-the-exercise-price-of-stock-options-to-avoid-section-409a-issues/comment-page-1/#comment-3003 Yokum Fri, 17 Apr 2009 10:50:18 +0000 http://www.startupcompanylawyer.com/?p=348#comment-3003 @Geo - Tough call. Options need to be granted at FMV. If a company is able to raise $800K of financing, it probably means that FMV of the common is greater than nominal. BTW, $0.01 is a meaningless number without more context. @Geo – Tough call. Options need to be granted at FMV. If a company is able to raise $800K of financing, it probably means that FMV of the common is greater than nominal. BTW, $0.01 is a meaningless number without more context.

]]> By: Yokum http://www.startupcompanylawyer.com/2009/01/01/how-do-you-set-the-exercise-price-of-stock-options-to-avoid-section-409a-issues/comment-page-1/#comment-2475 Yokum Fri, 17 Apr 2009 04:50:18 +0000 http://www.startupcompanylawyer.com/?p=348#comment-2475 @Geo - Tough call. Options need to be granted at FMV. If a company is able to raise $800K of financing, it probably means that FMV of the common is greater than nominal. BTW, $0.01 is a meaningless number without more context. @Geo – Tough call. Options need to be granted at FMV. If a company is able to raise $800K of financing, it probably means that FMV of the common is greater than nominal. BTW, $0.01 is a meaningless number without more context.

]]> By: Geo http://www.startupcompanylawyer.com/2009/01/01/how-do-you-set-the-exercise-price-of-stock-options-to-avoid-section-409a-issues/comment-page-1/#comment-2465 Geo Wed, 15 Apr 2009 23:14:19 +0000 http://www.startupcompanylawyer.com/?p=348#comment-2465 If a startup company is pre-revenue and pre-VC financing, but has a convertible note seed financing of $800K, can it offer options at an exercise price equal to the common stock par value of $0.01 to staff joining before the VC financing. I get it that after the VC round it will have to equal 25%-30% of the Series A VC preferred price, based on what's above, but what about during the angel-seed-convertible note stage? If a startup company is pre-revenue and pre-VC financing, but has a convertible note seed financing of $800K, can it offer options at an exercise price equal to the common stock par value of $0.01 to staff joining before the VC financing. I get it that after the VC round it will have to equal 25%-30% of the Series A VC preferred price, based on what's above, but what about during the angel-seed-convertible note stage?

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