Given the risks involved, employees are likely not to want to pay the exercise price out of their own pocket. It certainly isn’t at the initial public offering price. In addition, the fair market value of the option may be very low andĪt or near the exercise price. The reason is that this provision forces former employees to exercise their options while the company is still private and the true value unknown. The effect of this provision is to substantially penalize a venture capital employee who leaves the company prior to it going public. Yee Lee also worked at PayPal while it was a private company and it had the same provision before going public (see belowl). Lee complained about and was also buried in the back of these options documents.
This language is no worse than the legalese in the Skype documents that Mr. Termination is for any reason other than death, Disability or Cause. three months after the date the Optionee’s Service with the Company and its Subsidiaries terminates if such This Option shall expire and shall not be exercisable after the expiration of the earliest of. Phrased in the LinkedIn option agreement as: Each of them has this same requirement for vested options, As for vested options, if you don’t exercise them within three months of leaving, then you forfeit them.ĭon’t believe me? Then look at the Google, LinkedIn and Pandora Media option documents I link to at the end of this post. Rather, the norm in Silicon Valley is that you forfeit unvested options when you leave. In other words, if only Skype and Silver Lake had followed Silicon Valley practices, the former employees of Skype would be sharing in these riches. Lee was right that Skype’s option terms are uncommon in Silicon Valley, but commentators interpreted his comment to mean that in Silicon Valley, ex-employees simply keep vested options once they leave andĬan exercise them any time thereafter until they expire. Voluntarily or is terminated with cause - effectively taking ‘vested’ shares and making them worthless.” Lee stated “Skype’s stock option agreement had special clauses that the Board had slipped in that gives them the right to ‘repurchase’ any vested shares for anyone who leaves the company Yee Lee, noted that he had 15 years of experience in Silicon Valley and that Skype’s option terms were not the Silicon Valley norm. Deal Professor: In Silicon Valley, a Culture ClashĪs it turns out, this isn’t really Silicon Valley practice at all.
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