![]() ![]() Worse yet, if the valuation remains depressed when your company is sold, you will end up with nothing to show for your years of hard work after investors take their cut. Once that happens, it makes no sense to exercise your options and pay more than the stock is worth. Unlike company stock, which typically will not fall to zero unless the company goes bust, your options can easily become worthless. With so many companies facing declining valuations and funding challenges, employee options have plummeted in value. Those declines are hard to quantify and remain largely invisible, but are likely to get worse before they get better.ĭeclining Startup Valuations Can Decimate Your Options Implicit valuations for other companies that may have been seeking funding unsuccessfully or holding on with current resources to ride out the storm may have declined more significantly. Companies that received funding represent the cream of the crop whose value would have held up the best as well as those with deep-pocketed VCs willing to help them bridge to better times. ![]() With many startups unable to get funded, the 16% valuation decline reported by Pitchbook for the second quarter certainly understates the true downturn. That means biting the bullet and accepting a significant reduction in valuation and sometimes with onerous preferential terms for the investors. In the absence of competition, many companies are forced to take capital on whatever terms they can get it if they can get it at all. In today’s turbulent investment climate, VCs are making calculated decisions on which companies to support and which to ignore or abandon. It all depends on what your company chooses to do about it in the short term and whether it is on a path to a successful exit down the road. This is certainly not a happy situation, but with a little luck and proper navigation, it could turn out to be an opportunity. That means the current valuation of your company’s common stock lower than the exercise price of your options. In many cases, this decline may have left your options “underwater”. With startup valuations dropping, you need to ask yourself what the impact is on your stock options. "Early-stage VC valuations in the second quarter dropped to an average of $52 million, down 16% from the first quarter." ![]()
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