What happens to stock options when startup is acquired?

Your company cannot terminate vested options, unless the plan allows it to cancel all outstanding options (both unvested and vested) upon a change in control. In this situation, your company may repurchase the vested options.

Do startups have stock options?

Most startups give employees Incentive Stock Options (ISOs), though some use Non-qualified Stock Options (NSOs). For this post we’ll assume that we’re only dealing with ISOs, but you can read about the difference here. There are a few key components to an equity offer that you should always look for.

Startups provide stock options via a Stock Option Plan, which is a legal document that details your stock option rights. Each company will have its own version of a Stock Option Plan, but the plan follows the same terminology and processes outlined previously in this article.

When did stock options become common in startups?

When a group of engineers launched Fairchild Semiconductors—the first chip startup in Silicon Valley—in 1957, investors offered the founders a relatively new type of compensation: stock options. By the mid-1970’s, investors in venture-funded startups began to give stock options to all their employees. On its surface this was a pretty radical idea.

How are employee stock options different from founders stock options?

Early employees take an equal risk that the company will crater, and they often work equally as hard. However, today founders own 30-50 times more than a startup’s early employees. On top of the founder/early employee stock disparity, the VC’s have moved the liquidity goal posts but haven’t moved the vesting goal posts for non-founders.

What do you need to know about stock option grants?

Stock option grants are how your company awards stock options. This document usually includes details like the type of stock options you get, how many shares you get, your strike price, and your vesting schedule (we’ll get to this in the vesting section). Your stock option agreement should also specify its expiration date.

What happens to employee stock options when company goes public?

If the company was successful, the employee could sell the stock at a much higher price when the company listed its shares on a stock exchange (an “initial public offering”) or was acquired. Employees didn’t get to own their stock options all at once.