Cake Equity | Understanding the value of your Options
ESOP

Understanding the value of your Options

April 27th, 2022   —   Tessa Hawthorn


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Under an option plan, an employee is “Granted” Options, which can be Exercised to become shares in the company. The Options can only be Exercised after they have Vested.

Until Options are Exercised, you won’t have any Shareholder rights (like voting rights, for example). Essentially, until your Options Vest, you can’t eat your cake.

Receiving a slice of the cake, means sharing in ownership of the company. What could be more exciting and motivating than knowing your hard work could exponentially increase your own personal wealth? It’s pretty delicious.

How much could my Options be worth?

Imagine you are granted Options valued at $30k, the table below illustrates the growth in value of your Options over time*:

*It’s important to note the Exercise Price will be deducted from the Value of Options.

Let's explore what this may translate to for you or some of your employees or advisors.

Example 1: Kelly, Sales Manager

Kelly joins a series B fintech startup. Kelly’s starting package is made up of 100k base salary with 100 options issued at a company valuation of $50 per share with an Exercise Price of $0.01

On the current valuation, if Kelly exercises her options to purchase shares she can realise just shy of $5,000. 3 years laters, if the company value has increased by 5x her options will be worth $25,000

Example 2: Peter, Head of Marketing

Peter joins a seed stage marketing tech company. His starting package is made up of $200k base salary and 20,000 options issued at a share price of $2.27, with an Exercise Price of $1.00

If Peter exercises all of his options to purchase shares, he can realise up to $25,400 in addition to his base salary and this value will continue to grow as the company value increases.

3 years laters, if the company value has increased by 10x his options will be worth $254,000.

Example 3: Julie, CPO

Julie joins an AI company following their Series D raise. Her starting package is made up of $250k base salary and 50,000 options at a share price of $7.50 and an Exercise price of $0.50.

If Julie exercises all of her options to purchase shares, she can realise $350,000 in addition to her base salary and this value will continue to grow as the company value increases.

7 years laters, if the company value has increased by 8x her options will be worth $2,800,000.

Where can I view my Options and Vesting progress?

If you're using Cake, once you have accepted your Offer, your employer will send you an invitation to create an account, where you can login and see your Option (or share) holding.

Here, you can also see your Vesting schedule, milestones, and other options related documents. Cake will send you instant notifications each time any of your Options Vest, so you’ll always know how much cake is coming your way.

If you liked this article and want to learn more about your options, check out our comprehensive ESOP guide for employees.

This blog is designed and intended to provide general information in summary form on general topics. The contents do not constitute legal, financial or tax advice and should not be relied upon as such. If you would like to chat with a lawyer, please get in touch and we can introduce you to one of our very friendly legal partners.