[rfrey]

1. You pay tax on the difference between the current valuation and your strike price. So if you exercise before new valuation events you save tax dollars, potentially a lot of tax dollars.

2. If the company gets acquired there are several mechanisms founders and investors use to wipe out options holders. It is harder to wipe out common stock owners. If an acquisition event takes you by surprise you may not have time to exercise.

3. You may get laid off, decide to quit, or get fired, and have only a limited time (3 months, often) to exercise your options. That might be a bad time for you to spend the case, so you may want to do it now while you are in a better position to do so.

[elwell]

Regarding #1, won't you have to pay tax on the gains anyways, if you ever sell the stock?

[rfrey]

Sorry, I missed this when you posted it. Yes you're right, you certainly will pay tax. But you'll have the proceeds from the sale to pay it with. When you exercise options for (possibly non-liquid) shares, you have to find money to pay the tax elsewhere.

If you can exercise and immediately sell the shares, point 1 isn't relevant.

[AYBABTME]

Good point about (2), I think that's also overlooked.