Mapping Out Stock Option Scenarios

This video uses a hypothetical example from Carta to illustrate how startup stock options can lead to financial gain—or loss—depending on the company’s trajectory. It highlights both the upside potential of a successful IPO and the downside risk if the company underperforms.

• A fictional employee joins a startup, Meatly, in January 2020 and receives 16,000 stock options at a $1 strike price. After two years, 8,000 options (50%) have vested.
• When the company IPOs at $5/share, the employee exercises the options, spending $8,000 for shares now worth $40,000—a $32,000 profit.
• Alternatively, if the employee exercises at departure and the company later sells for only $0.75/share, the same $8,000 purchase yields just $6,000 in value, resulting in a $2,000 loss, not including taxes.
• This example underscores that stock options carry real financial risk, unlike RSUs, which are granted outright and do not require upfront payment.
• Employees need to carefully consider market performance and timing before exercising options to avoid losses.