Stock options give employees the right to buy shares at a fixed strike price. If the company is later sold or goes public at a higher price per share, the difference is the option holder’s gain. For many startup employees, options are a large part of total compensation.
Offer letters usually state a number of options, which on its own says little. What matters is the percentage of the company those options represent, how much that percentage will shrink in future rounds, and what the company might eventually be worth.
How to use it
How it’s calculated
The calculator grows today’s fully diluted share count to account for the dilution you expect, then divides each exit valuation by that share count to get a price per share at exit. Your gain is the exit price minus the strike price, multiplied by your options. If the exit price is below the strike, the options are worth nothing.
This is a simplified estimate. It does not model liquidation preferences, which pay preferred shareholders first, or taxes.
Worked example
An engineer receives 20,000 options at a $0.50 strike in a company with 10 million fully diluted shares, about 0.2% of the company. Assuming 35% further dilution, the share count at exit is about 15.4 million.
At a $150 million exit, each share is worth about $9.75 and the grant is worth roughly $185,000 before tax. At $50 million it is worth about $55,000. Exercising every option costs $10,000.
Be first to get new tools
We add new fintech calculators regularly. Subscribers to the monthly TechPortfolio briefing hear about them first.
Frequently asked questions
How are stock options taxed in Canada?
Generally, the difference between the share value and the strike price at exercise is a taxable employment benefit. For employees of Canadian-controlled private corporations (CCPCs), that tax is usually deferred until the shares are sold, and a deduction may reduce the taxable amount by half if conditions are met. Rules differ for other employers and change over time, so speak to a tax professional.
What is a liquidation preference?
Preferred shareholders, usually investors, are often entitled to get their money back before common shareholders receive anything. In a smaller exit, this can leave little or nothing for option holders even if the headline price looks large.
What happens to my options if I leave?
Most plans give you a limited window, often 90 days, to exercise vested options after you leave. Unvested options are usually forfeited. Check your plan documents.
Is the strike price what the shares are worth today?
Usually it is set at the fair market value of common shares when the options were granted. That is typically well below the price investors paid for preferred shares.
What is vesting?
Vesting is the schedule on which you earn the right to exercise your options. A common schedule is four years with a one-year cliff: nothing vests in the first year, then a quarter vests, then the rest vests monthly.
This tool gives estimates for planning and comparison. It is not legal, tax or investment advice. Confirm numbers with your lawyer, accountant or financial advisor before you sign anything. Inputs stay in your browser and are not stored.