What Happens to My Stock Options if My Company Goes IPO Before I Start?
Starting with a company often brings up the prospect of stock options as a potential incentive for the early employees. However, if you haven't commenced employment yet, you might not have granted stock options, or you might not yet meet the vesting requirements. This article will explore the implications and potential changes to your stock options if your company goes public before you start working.
What Are Stock Options?
Stock options are a type of equity compensation offered by many startup and technology companies. These options allow employees to purchase company stock at a predetermined price, usually at below the market value, if certain performance targets are met. They are a common form of long-term incentive for employees, especially those in early-stage startups.
Why Don't You Have Stock Options Yet?
If you haven't started working for the company, it's highly unlikely that you have stock options. Companies will typically vest these options over a period of time, usually starting with a one-year "cliff." This means that you will not receive any of the options until one year has passed since the grant date, and then they will vest in installments over the following years.
Where Do You Stand Right Now?
Since you have not yet started working for the company, it is most likely that your stock options have not had the opportunity to vest. They would need to be granted, and you would need to meet the vesting requirements before any of the options would become available to you.
What If My Company Goes IPO Before I Start?
One of the most significant events in a company's lifecycle is an initial public offering (IPO). If your company goes IPO before you start working, several things may occur in terms of your stock options.
1. No Options Yet
It's highly probable that you will not have stock options at all if you have not started working for the company. The vesting schedule for these options is typically tied to your start date. If you have not yet started, you will not have any vested options until you begin employment.
2. VestingFTER You Start
Assuming you are granted stock options, they will vest after you have started working for the company. Most companies have a one-year vesting period starting from the grant date. Therefore, you would receive the first tranche of options once the one-year waiting period is over, and additional options would vest each year thereafter.
3. Moving to RSUs
In some cases, if your company anticipates that you will not be able to start within the vesting period, they might move your equity offer from options to restricted stock units (RSUs). RSUs are units of company stock that vest according to a predetermined schedule, much like options, but without the option to purchase at a fixed price.
4. Setting an RSU Grant
Another possibility is that your company might set an RSU grant for your account to compensate for the missed vesting period. This would mean that you would receive a lump sum of RSUs at a future date rather than having to wait through a full vesting period.
Conclusion
Whether your stock options will vest and when depends on several factors, including your start date, the company's equity strategy, and the terms of your employment agreement. Regardless of the outcome, it is crucial to be informed and prepared for any changes that may occur due to your company's IPO or your startup timeline.
For more information, you should consult your options agreement or seek advice from HR. Staying informed and understanding the terms of your stock options is key to maximizing the value of your equity compensation over the long term.