> if the common stock becomes less than exercise price, their personal assets are on the hook
Can someone explain what that may mean for the >50% of employees at Bolt that bought into this program, now? I'm really struggling to grok what my quoted sentence entails...
By taking part in this program, you are essentially taking a personal loan, partially secured by your stock options which will vest later.
If you don't happen to understand Stock options: At a later date you will have the OPTION to buy company stock at a set price (often referred to as a Strike price)
So some entity is lending you money because they know you have Stock options and presumably will be good for the money when they vest/mature.
Of course, if the value of the Stock at the point of your options maturing is LOWER than your strike price, you essentially have earned yourself the option to buy $4 apples at the price of $50 an apple. Eg: your options are worthless (beyond their ability to purchase shares which might not be buyable on a public market)
So since you took out a _personal loan_ you now have to pay it back.
EDIT: I missed one thing - you actually get to exercise _now_ if you take out this loan... This has slightly more upside because it means that you could have in theory, sold those shares for immediate upside on the secondary market and thereby have de-risked yourself. If you didn't, then you got hosed. You could also have a capital gains advantage by spreading the gains I suppose
I was struggling to understand why someone would take a loan against options rather than just sell them on the secondary market like you mentioned and I think the key difference is that you can't sell an unvested option on the secondary market but with this Bolt program you could take a loan against an unvested option which is unique and kind of bizarre. Who would underwrite such a loan and how is the accounting for it done at the company level? Also wouldn't they be taxed as income?
a lot of popular and semi-popular startups are hard for some VCs to invest in. So some of them like ESO fund (https://www.esofund.com) will give you money to exercise and pay taxes but on condition that they'll take a decent amount of profits when you sell the stock
These employees chose to take out a loan in order to exercise the options. These employees now own the shares that they exercised their option for _and_ a loan to pay back the amount of money spent to exercise. If the price of these shares becomes _less_ than the price spent to exercise the option to receive the share, then the value of the employees' shares is now _less_ than the price paid to exercise. This means that if an employee wants to pay off the loan, they first sell their shares, and then they're still on the hook for the remaining difference between the sale of the share price and the principal for the loan.
For the Bolt employees who took this deal, I feel bad...
> if the common stock becomes less than exercise price, their personal assets are on the hook
Can someone explain what that may mean for the >50% of employees at Bolt that bought into this program, now? I'm really struggling to grok what my quoted sentence entails...
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