Hi GV, RE: "If a company reprices options, that would necessitate a charge to earnings. Intel has never taken such a charge."
Tradeoff is, dilution by refresh no charge (vs) non-dilutive by reprice but charge to earnings, right?
But in a private company, wouldn't a reprice be a better option if a company is not profitable (because there would be no resulting tax hit on the charge). Said another way, can you conclude who in the valley is non-profitable if they've repriced -or- profitable if they've refreshed? (I'm asking)
RE: "There is a "back door" way to reprice options without such a charge, but canceling the options, then waiting 30 days and issuing new ones. I have not seen Intel do this, either."
Why wouldn't a startup do it this way? It would reset grant date, but couldn't vesting date be sent back to make up, so it's a wash on the dates with no impact to employees, no charge to company and non-dilutive to investors so how does this negatively impact anyone, what am I missing? Is this "back door" done often by startups? Is the strategy endorsed by the high-tech law firms?
On another note, if startups had the choice of hiring someone at x% equity at $g, why wouldn't a startup simply hire at x-y% (reduce equity, so less painful to investors) at a discounted $g-$d (but create discount on grant price to make up equally, so its fair to new hire), where the cost of the discount on grant would be a charge to earnings that would hit the books, but it wouldn't be taxable if a startup decided to remain non-profitable in the year of hire (so who cares, right?), and the result is less dilution, meaning there's more SOPs to distribute to others. What are your thoughts on such a strategy, if such a strategy exists and is proper? And most important question: would the charge hit the books as it vests ($g-$d)/(#vesting yrs) per year, or all at once in the first year of grant? But would this strategy create a negative psychological risk onto negotiating a company's valuation in a round after applying such a strategy, where an investor may attempt to claim valuation is g-d rather than FMV = g, what do you think? Or, are discounts from FMV obviously recognized as discounts in the investment community, or is there a risk they could try to stuff that back down the existing shareholders by attempting to claim it wasn't a discount? If so, then wouldn't such a strategy create a huge risk (on valuation) by way of the PF:CS ratio during negotiations, and then not be worth doing? It feels like it would be a huge risk, but I'm hearing it's not at all?
Regards,
Amy J |
