How does an Air-Thru stock work?

How does common stock option work in a startup?

• In layman terms, as if you were explaining this to your dog, can someone explain how common stock options in startup work. Say that when you join a company you got 2000 share's of the company's common stock which 25% vests after 1st year. Will you still hold this stock if you quit your job? How do you evaluate whether 2000 is big or not? And one last question is, what is your salary going to be say you didn't take that stock option. Say your current salary is X. How to do the calculation? I know this might vary, but a typical or average on how it works will help

• Answer:

  "Come here Rover, I have got something to explain to you. Stock Options ....STOP scratching yourself and listen....Stock Options are an offer from the company to allow you to buy company stock at a later date. The cool thing...STOP sniffing my pant leg....The cool thing is that the company will let you buy that stock at today's price.  If the stock price goes up then you get a deal.  If it goes down, then you get nothing (or close to it).  A couple of key details....COME back here and stop rubbing noses with that cute poodle...If you quit your job anything options that haven't vested will probably go back to the company.  In fact, ...GEEZ stop pulling at your leash!... the shares you do exercise may also be bought back by the company (I would have to read the plan and agreement to know for sure).  ...What did you ask boy?  How do you value them?...  The company is required by IRC 409A to have a reasonable valuation performed on the company at, or near, the time of grant and again at least annually or whenever the value may have materially changed. ....OK, just hang on and I will get you a treat....The 2000 options you received could have a starting value of a few dollars or a few thousand dollars.  It depends on the number of shares outstanding and the total value of the company.  The final value will depend on the success of the company, and your ability to keep your options etc.  ...I'm not sure what's in the treats, probably beef and bones or something like that...They could be worth nothing or they could be worth millions! The key is working to raise the value of the company as a whole. I hope this helped a little.  Now roll-over and let me rub your tummy.