The startup you are working at is about to be acquired. It's an exciting time, but we know it can also bring up a lot of questions and concerns, especially for those of us who have stock options. You might be wondering, "What's going to happen to my stock options? Will they still be worth anything? What does this mean for my financial future?"
First things first, it's important to understand that there is no one-size-fits-all answer to what will happen to your stock options. The outcome will largely depend on the specific terms and conditions of your stock option agreement, as well as the details of the acquisition itself. However, there are some common scenarios that can help give you a better idea of what to expect.
But first, assess
- Find out the number of shares you have or have the right to buy
- What is the vesting period, and what is the exercise window?
- What is the strike price?
- What is the company’s current market valuation and what is it potentially getting bought at?
Understanding different scenarios
What you end up getting is plenty dependent on what your founders negotiate as part of the acquisition.
In case of a distress sale, those with preferred shares will have the first right to cash out before common shareholders, which includes those with stock options. Preferred shares typically have priority over common shares (what most ESOPs give you the right to buy) in terms of payouts and are often held by investors or senior executives.
Depending on the circumstances, an acquisition could entail swapping unvested stock options for those in the acquiring company, where employees exchange their stock options in Company A for stock options in Company B.
Alternatively, the acquiring company may decide to pay out the entire employee stock option pool, encompassing both vested and unvested options, by converting the shares into cash. If the acquiring company is publicly traded, it may offer its own publicly traded stock in exchange for the stock options.
Accelerated Vesting
Usually ESOP policies will define what happens in the event of an exit or a sale.
The hallmark of a good policy is that your unvested shares will accelerate, giving you the opportunity to maximise your gains.
What should you do?
Seeing that you don’t really have a say in the matter, the best course of action is to stay informed and at the time of joining, reviewing your policy thoroughly.
