Should I exercise my options?

One of the favorite things I get to do as an entrepreneur is to add a new owner to the companies I’ve founded: an employee shareholder.

Employees most often get granted options (vs. shares). Since options are more complicated beasts, it’s valuable for new optionholders to understand how they work.

Over the years, I’ve gotten better at explaining to prospective and current employees what it means to own these options, including modeling out what they might be worth someday under different scenarios, and whether they might want to exercise them now, or wait.*

To help, I’ve created a little spreadsheet. You’ll want to make a copy of it so you can keep your data private.

• As a founder or hiring manager, feel free to use it if you’ve wanted to explain the same to your employees or candidates.
• As an employee, feel free to use it if you’ve asked yourself the same. Note you’ll need your employer’s help in filling out a couple of details.

Note: the orange cells are usually knowledge the company has, while the blue cells are knowledge the optionholder generally has.

I want to be clear that I’m neither an attorney nor accountant, and implore you to check with yours before making any decisions. This worksheet is directionally accurate for simulation purposes, but the intricacies of your tax treatment is best left to a professional. A timely notice, given today’s tax day.

* For those who claim an MBA is worthless in tech, this is one of those things I learned to understand at Stanford GSB.