[kevinpet]

I don't see what's so horrible about that. By the time you get to the offer, you have an idea of the current valuation of the company. The price * options = $1000 already tells you if the company can grow 25x, you'll make on the order of $25k.

Or maybe you're just saying who the hell bothers to negotiate over $1000 over 4 years. I guess that's a valid point.

[yoak]

As the other commenter pointed out, that's not my point. If I issue a billion shares and offer you stock options at a $0.10 strike price you can't really expect the company to grow that 25x . It's an entirely different matter if there are 50,000 shares.

You may be assuming that the strike price is fairly pegged at a real value of the company and thus you can make assumptions about real growth of the company in terms of multiple. Short of public markets, this is always a questionable assumption, but in the case of new startups it is almost completely arbitrary. When you start a new one, there is no reason to differentiate between choices in the number of shares varying by a factor of 10,000x or more, and strike prices are almost as flexible.

Perhaps the best reason to pick any number is to pick a large one because of the (irrational) psychological impact that your large absolute number of shares will have in option grants.

I suppose this emerges out of people's naive appreciation of public markets. Smaller companies often have stock prices in the teens. Mature, stable companies tend to hold prices closer to a hundred. Blockbusters like Google go to 400! Etc. These prices are managed with splits and have little to do with the return captured by owners of the stock, but people looking at it from the outside sometimes miss this. That's why I appreciated the article so much. It goes beyond these simple matters.

[loewenskind]

I think what he was saying is; they don't know what the options are worth. The strike is 10 cents. What if the shares are so diluted that a realistic exercise price will be 8 cents?