This is an opinion piece by Rickard Vernet, investor and legal expert with a long background helping startups. He has a background at Vinge (law firm), Pale blue dot (VC fund) and is now at Bolago (formerly known as StartupTools) where he works with creating legal tools for startups and growth companies. Rickard is also co-founder of NaturaTua, a startup enabling private investments in biodiversity.
Gentle reminder to consider the terms of your stock options. And for European startups to understand rather than blindly follow US market standards. 🇪🇺 🇺🇸
Another really great data visualization by Peter Walker and the Carta team on the dubious value of stock options in private companies and the market standard in the US.
For me this highlights the importance of understanding the origins behind market standards (many which originate from specific tax and/or regulation) and their implications, especially cross-border.
In short, the standard 90 days post termination exercise period (“PTEP”) for US stock options means that a LOT of (vested) stock options will be unexercised as leaving employees will not be able to exercise in the short time window. Many leaving employees will be under financial stress, and deciding whether to exercise and hope for a future liquidity event can be a very difficult decision. Unexercised options will be lost to the ex-employee and returned to the option pool. While this has positive dilution effects for founders and investors, it is obviously bad for employees.
However – and this is important – the 90 days exercise window exist as a direct effect of US tax. So there is very little reason why this market standard should be applied outside of the US where the same tax rules doesn’t apply (and in fact there seems to be ways for US companies to implement an extended PTEP).
That’s why it’s surprising to come across European startups using 90-day exercise periods, believing that it’s “market standard” and what their investors expect.
If the US tax issues aren’t applicable, the company is simply choosing to issue low-value stock options — sadly, in many cases, because neither the company nor the employee understands that there are other options (pun intended) available.
Stay tuned for more insight and perspectives from Rickard in the future.
