Stock Option 101
Vesting is another word for unlocking; the vesting schedule determines the quantity and frequency by which your stock options unlock.
Given that we don’t enforce a cliff period (2), we believe that a slower vesting cadence creates an incentive alignment between both parties. Employees can leave at any time, as they do not need to wait for the cliff period to mature (Golden Handcuff effect). And from the company’s perspective, this structure begins to mitigate the risk of overcompensation.
Cliff is a short word for probation period. Upon maturity of the designated cliff period, you finally own the options that have vested to date. If you leave before the cliff expires, you will lose the right to pruchase the options that have vested to date.
Post termination exercise period (PTE) as known as the exercise window is the amount of time you have to buy your options once you leave. Yes, you need to BUY (4.) your options.
*The market standard is 90 days – (Don't work for these companies). There are a few companies offer that offer extended PTE periods – here's a list of startups with extended exercise windows https://github.com/holman/extended-exercise-windows.
The total number of shares will allow you to calculate your total equity percentage – (Allocated shares / total shares) * 100 = equity %.
What is the vesting/cliff period?
See 'what is vesting' / 'what is a cliff' for further details.
What is the post-termination exercise period?
See 'What is a PTE period' for further details.
Is there excess in the current option pool?
Excess in the option pool means that the company will not need to issue more options to hire additional employees. This is important because your equity percentage is diluted every time the company increases the total number of shares. To see how dilution works, use the calculation mentioned in question 1 – only this time increase the total shares.
How much equity do you plan to sell by the end of the series A?
Whenever the company raises money, it will usually need to issue more shares. As mentioned above, when the company issues more shares, your equity percentage is diluted.
What is the current 409A price?
The 409A price reflects the strike price at which the vested options can be purchased.
- If the 409A price is $0.05c per share and you have 1,000 shares vested, then the cost of the shares is $50.