0

I own 10% of the company I helped co-found. After a round of funding last year, I was given and signed an options letter to adjust my number of options to maintain my 10% equity. However, unbeknownst to me or our CEO, the number of options in the letter was ~100 more than what accounted for to maintain the 10%. These options have a strike price of $0.25.

Our accounting team set up our options in Carta and I noticed there was a different number vs my signed options letter.

We've just gone through another round of funding and so new options are being granted but the new strike price is set at $0.7. After I raised this problem with the CEO, they have suggested 2 different ways to fix this:

  1. They own the screw up since the letter is the legal agreement that I'm owed the ~100 options at $0.25. They will have to get board approval for this and they seem a little reluctant about this. If they do this, I'll get less options at $0.7 in the current round to make sure it stays at 10%. I'm also a little worried that they'll hold this dumb mistake against me since they were really trying to downplay this.

  2. They re-issue the letter with the fixed number and strike price of $0.25. I get the ~100 options at the current round's strike price of $0.7.

Doing the math, it's only about $45 difference in strike price:

  • Old: ~100 * 0.25 = $25
  • New: ~100 * 0.7 = $70
  • Difference: $45

Obviously, I was only ever supposed to own 10% equity, so in principal I'm OK with option #2. Is there a reason I shouldn't go with option #2 to make my CEO's life a little easier? Or, there something major that I'm missing about this situation?

  • 1
    I'm kind of lost on what you're actually talking about which leads me to believe this may be more suitable on Personal Finance & Money. Are you asking about the financial impact/consequences of these two scenarios? If so, that's not really on-topic here. If you had a reason to go for a scenario that would take some political capital to achieve, that's more in our neck of the woods. – Lilienthal Apr 13 at 22:25
  • Please get yourself a Lawyer! You don´t want to loose out on a ton of cash if this is eventually worth something in the end because you just did what some people on the internet told you! – Daniel Apr 14 at 15:43
1

Mistakes happen. And boards of directors can correct mistakes like this; it simply involves amending an old incorrect letter so it's correct, and mentioning it in the board minutes.

But, you know: your board's lawyer will have to double-check the correction.

That probably cost more that $450. When you hold 10% it will cost you more than $45.

My advice: You're a founder. You have founder shares. Write a memo to the file -- the company's file about stock options -- about the issue and let it go for now.

If you end up selling the company or doing a public offering, somebody can decide whether to correct the problem at that time or let it go.

| improve this answer | |
  • 1
    This is probably one of those things you want to get sorted early before the stakes get higher and the maths gets more complicated. – Gregory Currie Apr 14 at 16:15
  • I definitely do not agree with the "wait and see approach", Judges often are of the mindset, "if you knew about the problem 5 years ago why didn't you handle it when you discovered it" and could in theory say due to the inaction you approved of the mistake. Of course I am not a lawyer, and based this comment, entirely on a class on business case law. – Donald Apr 14 at 17:08

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .