Stock Option Counsel - Clawbacks for Startup Stock - Can I Keep the Shares I Think I Own?
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Attorney Mary Russell counsels individuals on startup equity, including founders on their personal interests and executives and key contributors on offer negotiation, compensation design and acquisition terms. Please see this FAQ about her services or contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
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These calculations are a companion to CLAWBACKS FOR STARTUP STOCK - CAN I KEEP WHAT I THINK I OWN? on the Stock Option Counsel Blog.
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Example 1: NO Repurchase Rights for Vested Shares - Employee's Owns $1.7 Million of Equity at IPO
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EventCompany's Fully Diluted Capital (Shares)VC Price/Share*Company ValuationEmployee's Shares% OwnershipCommon Stock "Fair Market Value" (Estimate)**VC Valuation of Employee's SharesFMV Repurchase Right PriceEmployee's IPO Value
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Aug-04Series A Financing11,359,833$0.23$2,574,933$0.08
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Aug-04Employee Granted Stock Options with Four Year Vesting & Early Exercises Stock Options
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Feb-05Series B Financing19,441,981$0.49$9,526,571113,5980.58%$0.16$55,663$18,554
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Nov-05Series C Financing33,678,120$1.15$38,729,838113,5980.34%$0.38$130,638$43,546
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Nov-06Series D Financing52,479,120$1.46$76,619,516113,5980.22%$0.49$165,853$55,284
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Oct-07Series E Financing59,056,943$1.82$107,483,637113,5980.19%$0.61$206,748$68,916
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Aug-08Employee Owns Vested Shares, Is Terminated by Company; Company Does Not Have Repurchase Rights for Vested Shares, So Employee Keeps Shares
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Sep-09Series F Financing70,293,823$1.98$139,181,770113,5980.16%$0.66$224,924$74,975
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Feb-12Series G Financing83,732,245$5.45$455,989,059113,5980.14%$1.82$618,632$206,211
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Nov-12Initial Public Offering98,532,074$15.00$1,477,981,108113,5980.12%$15.00$15N/A
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Nov-12Initial Public Offering - Employee Still Holds Shares So Owns Publicly Tradable Shares Worth IPO Price of $15/Share$1,703,970
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* At the time of an IPO, the VC Preferred Stock traditionally becomes Common Stock, so there is no longer a difference in price between VC price per share and Common Stock Fair Market Value
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** Until the time of an IPO, the VC price paid for Preferred Stock is higher than the FMV of Common Stock. The FMV is set at a deflated price per share based on an outside valuation firm;
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This is designed to allow employees to buy cheap stock without running afoul of the IRS, but it is not the true "value" of Common Stock
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Example 2: Repurchase Rights for Vested Shares - Employee's Forced to Sell at $68,916 at Termination, Owns $0 at IPO
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EventCompany's Fully Diluted Capital (Shares)VC Price/Share*Company ValuationEmployee's Shares% OwnershipCommon Stock "Fair Market Value" (Estimate)**VC Valuation of Employee's SharesFMV Repurchase Right PriceEmployee's PayoutEmployees's Lost Value Because of Repurchase
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Aug-04Series A Financing11,359,833$0.23$2,574,933$0.08
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Aug-04Employee Granted Stock Options with Four Year Vesting & Early Exercises Stock Options113,5981.00%$0.08$25,749$8,583
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Feb-05Series B Financing19,441,981$0.49$9,526,571113,5980.58%$0.16$55,663$18,554
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Nov-05Series C Financing33,678,120$1.15$38,729,838113,5980.34%$0.38$130,638$43,546
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Nov-06Series D Financing52,479,120$1.46$76,619,516113,5980.22%$0.49$165,853$55,284
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Oct-07Series E Financing59,056,943$1.82$107,483,637113,5980.19%$0.61$206,748$68,916
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Aug-08Employee Owns Vested Shares, Is Terminated by Company; Company Exercises Repurchase Right and Forces Employee to Sell Back Shares at Fair Market Value of Common Stock$68,916
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Sep-09Series F Financing70,293,823$1.98$139,181,770113,5980.16%$0.66$224,924$74,975
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Feb-12Series G Financing83,732,245$5.45$455,989,059113,5980.14%$1.82$618,632$206,211
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Nov-12Initial Public Offering98,532,074$15.00$1,477,981,10800.00%$15.00$0N/A$0
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Nov-12Initial Public Offering - Company Had Repurchased Shares at FMV of Common Stock at Termination of Employment, So Employee Owns $0 in Equity at IPO-$1,772,886
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* At the time of an IPO, the VC Preferred Stock traditionally becomes Common Stock, so there is no longer a difference in price between VC price per share and Common Stock Fair Market Value
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** Until the time of an IPO, the VC price paid for Preferred Stock is higher than the FMV of Common Stock. The FMV is set at a deflated price per share based on an outside valuation firm;
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This is designed to allow employees to buy cheap stock without running afoul of the IRS, but it is not the true "value" of Common Stock
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Attorney Mary Russell counsels individuals on startup equity, including founders on their personal interests and executives and key contributors on offer negotiation, compensation design and acquisition terms. Please see this FAQ about her services or contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
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Stock Option Counsel