Exercising equity is a choice

The key insight this week

Let's talk about startup equity—specifically the need to exercise your options in order to own a portion of the business.

Data we just compiled from the 1.5 million employee equity holders on Carta showed that more than half of vested options that were in-the-money (e.g. actually worth something) were not exercised before they expired last year.

So startup employees, who very likely joined their startup in part for the upside of equity compensation, are not taking full advantage of that very upside.

Dive into the full report here: /blog/2022-employee-stock-options-report/

Now, of course, this is complicated. Maybe the employees had better things to do with their cash than purchase their options. Maybe they have a better read on the business and don't love its prospects anymore. Maybe a lot of things.

But with layoffs rising and startup tenures being rather short to begin with, it begs the question: are startup employees preparing correctly to take advantage of their equity opportunity?

The basic case is this: most options have a 90-day clock for exercise that starts the moment an employee leaves the company (whether by choice or through layoff). And a large majority of employees leave before their initial 4-year grant has finished vesting. So almost all startup talent will come to a point where they have to pay to exercise or lose the upside.

Whether buying those options is right or not, preparing to buy them is a must.

Get the word out with your startup employees friends!

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Peter Walker

Carta Insights Team