i have been offered a position in a start-up...i was initially told that my 100,000 share options were 0.25% of "the allocated shares".
In my own research i came across terms for "diluted stock". which i believe is all the shares have company have issued... but may not have allocated.
I asked the company for their total number of diluted shares and they replied saying that there were about 250million shares in issue on a fully diluted basis.
Does this mean that my % of the company is actually 0.04%.
Or if they have only allocated 40 million shares then my percentage is 0.25%.... which is what they are telling me.
I'm concerned that even if they have only issued 40million shares... if they go through further rounds of funding.. my percentage will be diluted even further.
Also... if the company were to be bought...(which i believe is their exit strategy) when the buyer comes to value the company... do they look at the diluted stock only when making an offer?
They are well financed.. $100million... and have visions to be worth $1billion in 3-5 years..
if they did reach that $1billion dollar valuation.. would i be right in saying that $1billion dollars divided by 250,000,000 shares.. gives a valuation of $4 a share.. so my options would be worth $400,000 (less the strike rate).
thanks in advance....J
Percent means nothing, value means everything.
You're right on both fronts. You're being offered 0.25% NOW, which will likely turn into 0.04% over time. The idea is, though, that by the time the company has issued enough stock to dilute your PERCENTAGE to 0.04%, that 0.04% is worth far more than the original 0.25% of stock.
You're offered 0.25% of a company with a $100 value. Your stock value is $0.25. Fast forward 5 years, the company has fully diluted and you now own only 0.04% of the stock, but it sells for $1,000,000. That 0.04% is worth $400.