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Employee Stock Options 101

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A simple slide deck to explain the basics of employee stock options.

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Employee Stock Options 101

  1. 1. OUR VISION A new reading experience that eliminates the distance between people, and enables the creation of personal connections and billions of new stories.Our technology and the power of the crowd will publish, review, curate and distribute a continual flow of relevant, quality content for everyone.Enrich Lives Through Stories
  2. 2. Understanding Stock OptionsEnrich Lives Through Stories
  3. 3. SUPER IMPORTANTThis may be the largest lump sum of potential wealth you’ll receive!Enrich Lives Through Stories
  4. 4. EMPLOYEE EQUITY • Employee ownership is an important part of tech startup culture • Everyone is a shareholder • Reinforces that everyone is on the same team, everyone is sharing the success of the company • Aligns everyone’s interest – makes you think and act like a founder of the company • Stock option is by far the most common form of employee equity issued in startup companiesEnrich Lives Through Stories
  5. 5. WHAT IS STOCK OPTION? A stock option is the right, but not the obligation, to buy a fixed number of shares of stock at a specified price for a specific period of time.Enrich Lives Through Stories
  6. 6. WHY STOCK OPTION? • It is all about “tax” • Unlike stock grant, you don’t have to pay tax when you receive stock option grant • Canadian advantage: When you exercise your options, you can deduct 50 per cent of the income derived from exercising stock options (i.e. only half of your gain is subject to tax) Note: Please consult your accountant for financial advice. I am not an accountant!Enrich Lives Through Stories
  7. 7. HOW DO I KNOW HOW MUCH MYOPTIONS ARE WORTH? Current Market Price – Grant Price e = Value of OptionEnrich Lives Through Stories
  8. 8. HOW DOES IT WORK? Example: 2012 - $1 grant price 2015 - $13 stock price 2016 - Exercise: $12 gain Note: numbers here are for illustration purposeEnrich Lives Through Stories
  9. 9. VESTING • Your options must be vested before you exercise them • Vesting usually happens over a four year term and “cliff vest” the first year (i.e. 25% on one year grant date anniversary, monthly vesting for the next 36 months)Enrich Lives Through Stories
  10. 10. EXERCISE • Two common times when you would likely exercise 1. When you are preparing to sell the underlying common stock, mostly likely in connection with a sale of the company or liquidity event like a secondary sale opportunity or a public offering 2. When you leave the company • Three ways to exercise 1. Cashless exercise 2. Sell to cover 3. Cash purchase and holdEnrich Lives Through Stories
  11. 11. FAQ • What is the difference between preferred stock and common stock? • I heard something called 409a assessment. What does that mean? • I have no plan to leave the company. Is there a reason for me to pay cash and convert my options to stock? • I am planning to work for Wattpad until I retire. Will I be able to keep my stock options ‘til then? • This is different than what I learned from Shark Tank. What should I do? (Answer: Shark Tank is just a TV show. Live performance is always better!)Enrich Lives Through Stories
  12. 12. IF YOU WANT TO KNOW MORE … • AVC.com, search for “employee equity”, “stock options”, etc. • Feld.com • Brad Feld’s book “Venture Deals: Be Smarter Than Your Lawyer And Venture Capitalist” • Talk to meEnrich Lives Through Stories
  13. 13. IF YOU CAN ONLY REMEMBER …. • Aligns everyone’s interest – makes you think and act like a founder of the company • This may be the largest lump sum of potential wealth you’ll receive!Enrich Lives Through Stories
  14. 14. Thank You! Allen Lau CEO and co-founder wattpad.com/allenlau @allenlau Funded by: Union Square Ventures Khosla Ventures OMERS Ventures Golden Venture Partners Version One Ventures Jerry YangEnrich Lives Through Stories

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