Person 1: Part of my remuneration, at the
startup I work, is stock options. What should I ask about preference overhang?
Person 2: You can ask, “At what valuation the firm has to exit now for my stock options to turn to one dollar in cash for me?”
Person 1: Thanks. Also, I prefer my stock options to turn to $250,000 in cash for me if the firm exits now. What should I ask?
Person 2: You can ask, “At what valuation the firm has to exit now for my stock options to turn to $250,000 for me?”
An employee owning startup equity should understand the risk of preference shares arising at the time of liquidation. Our illustration describes how the employee can become aware of liquidation preference overhang.
