[csmeder]

Wouldn't this essentially just be the same as being an angel investor. This takes away all the value of getting options.

For example I am an early employee at a startup valued at 1M. If on day one I am given $10,000 worth of options and I buy all of them, how is this different than investing $10,000 worth of money for 1% of the company?

The value of options is that they are options. You get to wait and see if they are worth buying. If you have to buy them on day one, then they are not a compensation for taking a lower salary, they are simply an investment vehicle like a stock or a bond (a much riskier one).

> If the company is truly concerned about this, then they can provide a signing bonus with which to exercise the options

This is the only way it would make sense.

Say you can take a $150,000 salary with zero options. Or a $120,000 salary with $30,000 worth of stock options.

But if the company needs to give a $30,000 signing bonus to pay for the stock on day one, then they aren't saving any money for runway. Thus the main reason they want to compensate with stock is taken away. And a $30,000 bonus wouldn't do it, it would need to be $30,000 after taxes. The company would end up paying over $150,000 for this person's total salary.

Right? Or maybe I'm missing something?

[nwatson]

An Angel investor ends up with Series A stock which typically costs more per share and has extended rights. The early-exercising employee buys cheaper Common shares. In an IPO the classes may end up with the same value, meaning the employee got a better financial deal per share for their sweat-equity. In a non-IPO the employee may get a lot less per share often 0. Also, each employee has access to a very limited supply of cheap stock, whereas no founder/board will stop an Angel from buying more shares ... "wanna double your investment? come to the trough. "

[sk5t]

You are missing that the $30K bonus to buy the options would immediately flow back into the company's coffers. Perhaps a better scenario would be $30K of stock via grant and $15K in cash to pay the tax man... the company is out $15K net and the employee owns something putatively worth $30K.