Red Herrings

Posted on December 19, 2008
Filed Under Uncategorized |

BusinessWeek
gets it wrong, rapidly escalating valuations complicate hiring when
looking at stock options alone. Options are priced on actual events,
like a financing event, that a company experiences; options are not
priced according to what the Board believes they are worth. Therefore,
Facebook’s $15b valuation following the Microsoft investment was a
bigger hiring issue because options priced at a $15b valuation
represent a steep hurdle for employee liquidity.

Declining
valuations are throwing a wrench into the gears of Silicon Valley’s
wealth machine. In the worst cases, the money dries up and startups are
shut down. But even for fortunate companies such as Digg that can still
raise money, complications abound. Falling prices can make it harder to
attract the best and brightest. Morale can suffer, and workers with
stock options underwater may be less likely to stick around. Such
pressures can force companies to grant new options at lower prices or
reprice existing options, which can infuriate venture capitalists
backing the company.

[From A Wrench in Silicon Valley's Wealth Machine - BusinessWeek]

The issue is really a small distraction right now because I don’t
think many people in Silicon Valley are concerned about options value
while job losses are dominating the headlines.

At any rate, there are a number of avenues available for a company
looking to make employees whole on their options. Repricing is not that
complicated and every financing round includes a topping off of the
option pool to accommodate new hires and existing employees.
BusinessWeek