I want a sanity check my thinking. I haven't made a decision about exercising yet but I'm leaning towards doing it.
- Stage A, currently raising round B very successfully
- I'm in the numbers all day and I'm optimistic about trajectory
- Strike price ~= FMV right now, so no AMT
- If it all goes to $0 I'll eat the cost to exercise, which I can tolerate
- I currently have the cash on hand to exercise
So my thinking is that the downside is I eat the cost to exercise. The upside is that I make some money and save some taxes. I'm ok with that risk profile.
Waiting until an exit is more obvious but not guaranteed seems riskier to me. If the spread is enough to trigger AMT then I could pay to exercise then pay AMT (out of pocket) then pay cap gains if all goes well. And if the company ends up not IPOing/being acquired/valued for less then I paid a lot more for the same outcome.
So it strikes me that while the probability of an upside is low right now, so is the risk.
As a follow up - I'd like confirmation that I understand the effects of cap table structure at some exit valuation. Say my ownership is 0.01% after all dilution. The company exits at $200M. There is $50M of 2x preferred stock for early/big investors.
- $200M - (2 * $50M) = $100M left for common stock investors
- $100M * 0.0001 =$10k
So I'd get $10k pre-tax?
I could def make more than that over the vesting period of my options by switching companies and/or getting raises. So I just want to make sure I don't stick around solely for such a small payout, which already has a small chance of happening.
Thanks for any and all thoughts.
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