How do startup stock options work?
Startup stock options are a form of equity compensation offered to employees as an incentive and a means of sharing in the potential future success of the company. Typically, an employee is granted an option to purchase a certain number of shares at a fixed ‘strike price.’ Over time, these options ‘vest,’ meaning the employee earns the right to exercise a portion of their options and buy shares. If the company’s value increases, employees can purchase shares at the previously set strike price and potentially sell them at a higher market price, realizing a gain. However, the options may become worthless if the company doesn’t succeed. Stock options align employees’ interests with the company’s growth and success.
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