Given that my largest one-time purchase ever has been on my $7,000 car, it was difficult for me to write a check today for $15,000 to “early exercise” the majority of my mostly pre-vested stock options. Perhaps I should have sought out more advice before doing this, but I feel like my life has a way of working out and this was a smart risk to make.
Worst case scenerio — I find out that over the long run, this risk has cost me $15,000 plus whatever interest I would have made investing that money elsewhere. Best case, I could become a millionaire, or even a billionaire. Most likely outcome is somewhere closer to the first option, but why not take the risk now when I’m young and can handle the set back.
The whole equity situation at startups is so tricky. You really can only get the best value out of your options if you’re able to exercise early, at the strike price, before the stock value is raised in a later funding round. But early is also when it’s not very clear how the company will do over the long run. It’s exactly like buying a lottery ticket, except maybe you know that the winning lottery ticket was sold within one specific town. You have some insider information that within this “town” someone is going to win big. Everyone else, still, is going to lose. But if you were able to pinpoint the town, or even the exact street the store is on, would you buy a ticket?
That’s what I’ve done. I wrote out my check, stared at it for a few minutes before handing it off to my boss to exercise most of my stock options. I believe that of all the companies I may work for in my life and have in this past, this is the one to bet on. The team is great, the product, while early, is solid and something that companies are willing to buy and spend quite a bit of money on. I’ve been involved in many aspects of the business, enough to know the market and believe we have a shot at really building something special.
My last startup — where I never bought the stock — never had a business model. There, it seemed silly to buy the stock. And even they managed to get acquired for a small sum. No one besides the founders got rich off of it, but at least anyone who exercised their options got their money back plus a little pocket change.
Still, as I drive around in my busted car with no air conditioning, I can’t help but think… should I have taken that $15k and spent it on a nicer car vs. exercising my stock options that a few years from now could very well be worth nothing. I guess I’ll just have to wait and see. My dream is to have a million dollars by the time I’m 30, and given I’m half way to 28, this is really the only possible way.