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If I am working at a company that offers stock options and those options vest over some period. If the company gets acquired, IPOs, etc. then those options usually vest into shares, and those shares are usually sold.

However, at any point before that, the options need to be exercised (i.e. paid for) to become shares, at which point something can be done with them. If this doesn't happen, the stock options disappear usually 30 days after you leave a company.

How can one keep that equity other than by paying out of pocket to exercise?

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    This is probably a better question for Money SE The workplace answer is this is an incentive for employees to stay with the company until it is acquired or goes public. There is probably no way to do this unless you are an investor. Mar 7, 2014 at 18:18
  • @Joe Because its very expensive. As an example; if the exercise price is $0.5 / option, and one has 100 000 options, that's $50 000 (which is a lot of money). Is it possible for this question to be migrated to the Money SE?
    – NT3RP
    Mar 7, 2014 at 18:20
  • Options are just options until you pay to exercise them. At a buyout stock is converted; options are worthless. A benevolent acquiring company might pay you for your options (this actually happened to me once), but... no risk, no gain. You can't keep your money and expect to benefit from the sale. Mar 7, 2014 at 20:01
  • I suppose that what I am asking is, what services exist (if any) that will pay for options for a cut of potential proceeds. I can update the question (or ask a separate one) if that adds clarity.
    – NT3RP
    Mar 7, 2014 at 21:00
  • This question appears to be off-topic because it is about financial/legal advice. I would vote to move to the personal-finance site if that were an option. Mar 9, 2014 at 18:15

2 Answers 2

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The specific answer is that you should consult the plan under which you were granted the options to see if the terms give you a way to do that.

The more general answer is that there is no way to retain your options after you've left the company. This would run counter to the purpose of option programs, which is to give employees an incentive to stay with the company and be able to invest at a discount if the share price is greater than the strike price.

Stock options aren't equity, they're potential equity. Turning them into equity requires that you complete any vesting period and then exercise the vested options. At that point you lose the options and receive shares. Those shares are equity.

The underwriters of some public companies offer optionees a way to avoid paying the strike price called exercise-and-sell. The underwriter puts up the strike price at exercise and the shares are immediately liquidated on the public market. The underwriter takes back the lent amount and gives the remainder to the employee. This requires that the option still exist, which means you're either still employed or in the exercise-or-lose period afterward.

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Usually, options are earned either by working for the company ("sweat equity") or by investing money in it. There are edge cases such as the "silent founder" but these don't seem to apply in this case. One of the drawbacks of sweat equity is that it generally can't be realized until the company undergoes an "exit" (is purchased, IPOs, etc). Most people consider this to be an acceptable tradeoff because of the low barrier to entry (you don't need to have a lot of money). What you want to do is convert your sweat equity into real equity prior to an exit without any upfront money.

If you don't invest the $50K the only other way would be for the company to give you the options. This would amount to them giving you $50K to leave which begs the question, what is their motivation? In some cases, usually that of a founder leaving, the company will decide what is best for all concerned is to give some proportion of the vested options to buy some loyalty to the company in the future. This almost never happens for regular employees.

Presumably this wouldn't have come up if you didn't think your current sweat equity was likely to be worth much more than $50K in the future. You need to decide if the opportunity you are leaving for is good enough to outweigh that.

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