Stock Options Question

[Kori Ellis]

Since this is probably a better place to ask than the Club, I'd appreciate some help.

I don't know a lot about company stock options, since I have been freelancing for many years. However, I have been given the opportunity to buy stock options of a company that is currently not a public stock.

They told me I can buy up to 50,000 shares at a given price per share. They also gave me a vesting schedule (25% after one year and the other 75% split monthly over the next 36 months).

They aren't giving me the options in place of salary. This is just something additional they offered.

So anyway, I have some questions...

Does the money I invest just go into working capital for the company?

How is that price determined when the stock isn't public? How does it rise or fall since it's not on the stock market?

What happens if they do go public while I have the stock?

Any other insight on why/why not to do this.

Thanks,

Kori

[Wild Cobra]

I've only had stock options once in my life, but it was with a company that was already public. If you are not required to commit to anything, the option is generally a no lose thing. In my case, I bought and sold my options the same day, making something like $20,000.

They gave you a price per share, right?

I'm out of my league here. I'm sure others will have some proper insight.

[Winehole23]

c_g?

[DarrinS]

If you really believe in this company and think it has a bright future, it's probably a good investment if you're getting them at a reasonable price. The vesting schedule doesn't seem too out of line. Make sure you plan on being there a few years (at least) if you're going to invest in them. When they go public, the way they set the price is a bunch of smoke and mirrors (if you ask me). Maybe RandomGuy has some more insight into this.

[ElNono]

Think of it as any other investment. Get yourself informed first. Bare basic things you should know before investing are:
1) What's the current market value of the company?
2) How many of these stocks have already been issued?

Just like any other investment, you want to know if they have a viable business model, what their goals are, and what your overall expectancy for that company is.

The advantage of buying stock pre-IPO is that you normally pay substantially less than what's offered on the IPO. But in order for the company to get to a initial public offering and being traded publicly they have to be doing fairly good and must have grown to a certain size.
Obviously, the disadvantage is that you could simply lose money if they don't do well.

As far as the money you put in, I do believe it goes as working capital for the company.

My understanding of the value of the stock pre-IPO is that it's based on the value of the company overall. What your stock is buying is a certain percentage over the company. So if the company value grows, the cash value of your percentage grows. If it shrinks, then the value shrinks. Unlike public stock, private stock is normally subject to a lot less speculation. So the overall company value is normally not as volatile.

Disclaimer: I'm not a financial advisor. This is not financial advise. Just merely opinion.

[Twisted_Dawg]

No guts....no glory! Go for it. You will never get rich not taking chances.

[DarrinS]

I like ElNono's response.

[clambake]

where do you see this company in 4 years?

what kind of business is it?

is it a media company?

are you sure that the shares are not actually a piece of ownership.....which could mean more than you think.

[Kori Ellis]

Thanks for the answers. Another poster wrote me some additional info via PM too, so I'm more clear.

Thanks for the advice.

-K