option_questions.md

• will they let you sell stock to an outside investor?
• If you can only exercise for 3 months after leaving, is that negotiable? (can they do what Pinterest does?)
• If the company got sold for 500M in 2 years, can they walk you through what that could look like for you? what if the company raises a lot of money between now and then?
• Can they give you a summary of what stock & options other people have? This is called the “cap table”. (The reason you might want to know this: often VCs are promised that they'll get their money first in the case of any liquidation event. Before you! Sometimes they're promised at least a 3x return on their investment. This is called a "liquidation preference".)
• Can you early exercise your options? I know someone who early exercised and saved a ton of money on taxes by doing it. the guide talks more about early exercising.

Standard Disclaimer: Though I do have a more than a decade of experience of hiring folks with ISOs as part of their compensation package, I am just some person on the Internet; please find a legal and/or tax professional to help you with these issues if you want good advice.

Awesome list. Here's what I'd like to suggest:

• Is my strike price the FMV of common shares on the day that I start?
  • You want the answer to be an unequivocal yes. If it is "no", then you will likely owe taxes when options are granted, and the company knows nothing about how to issue employee options.
• What will my strike price be?
  • This is actually a trick question. The correct answer is "whatever the FMV is on the day you start, but I can't guarantee what that will be. Today the FMV is $X." If a company promises you an FMV/strike price, that shows they either make promises that they can't legally keep or that they determine their common shares FMV incorrectly/illegally and are potentially setting you up for bad tax consequences.
• Under what conditions do VC liquidation preferences kick in, and under what conditions do they NOT kick in?
  • Usually acquisitions always mean that liquidation preferences kick in, but going public sometimes voids all liquidation preferences. Recently, giant growth round (>$50M) funding rounds have tended to have liquidation preferences even when going public in my experience.
• How is my FMV determined?
  • The only two acceptable answers in my experience are "the board sets it on a quarterly basis or when events warrant" or "we get an independent company to do a 409a evaluation every 3-6 months". For very early stage companies, the board is probably an acceptable answer, but if at all possible you want it to be an independent 409a company. For a company with, say, >$100M valuation, it should just be a 409a company. The benefit to an employee of having a 409a evaluation is that it changes the default presumption of whether or not the FMV is fair for tax purposes. If the board sets the FMV without an independent evaluation, then the burden is on the option holder/taxpayer (you!) to prove that the FMV is correct. If a 409a company sets the FMV, then the burden is on the IRS to prove that the FMV is incorrect.
• I might frame the third question as: Can I get a summary of liquidation preferences and participation of all preferred shares as a percentage of the company? Asking for a full cap table with names assigned might raise hackles, and all you really need to know is how many shares are ahead of you in line, not necessarily who is in which position in line.
• Note that if a company offers exercise for 3 months after leaving (question #2), they legally cannot be ISOs. They have to switch to NSOs. Also, in my experience, this will be something that is very hard to negotiate for an individual employee. Changing this would usually involve completely rewriting and re-forming the employee stock pool, I think.
• The answer to the last question should really be "yes". IMO there's no good reason for a company to prohibit early exercise. Though if you do early exercise, please, please, please know what an 83b election is, and please fill it out if advantageous (which is 99.9% of the time).