had the chat with E. i still can't believe it. it's happening. and all this from writing this blog?

i started researching on austin vs SF and navigated how to ask about stock options.

things i learned:

• stock options: right to buy a certain number of shares of a company's stock at a predetermined price (strike price)
  • why? as company grows, the stock options would be worth more
  • ex: strike price: $1, next year stock is worth$3. you profit $2 per share.
  • types:
    • incentive stock options (ISOs): no taxes when exercise options (unless AMT kicks in). only pay after selling shares
    • non-qualified stock options (NSO): pay tax in the year you exercise your options. then pay capitol gain tax when you sell shares.
• 409A valuation: for setting strike price for employee stock options, cannot be lower than FMV determined by 409A valuation
  • why? tax compliance with IRS regulations. if strike price < FMV -> incurs tax penality on employee and company
  • when? before issuing stock options, after raising rounds, at least every 12 months, material events

references

• what is a 409a valuation? key concepts & process
• startup stock options explained - startups 101 - youtube