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Suppose that you work at some private company and that company offers some stock options to you as part of employment. For the sake of discussion, suppose they offer 100 000 options at $0.50 an option, vesting along a simple schedule of 25 000 options per year.

Things don't work out, and you decide to leave. Again, for the sake of discussion, assume that you leave after two year. Normally, when a person quits, they have thirty days to exercise their stock. So, as that employee, you can do one of the following:

  • Exercise your options ($25 000 + taxes)
  • The options disappear :(

What other ways can an employee keep the upside of stock options without paying to exercise out of pocket? What services exist to aid in this scenario?

  • So you want to get something that cost $25000 and you're asking how can you get it without paying the price? Did I summarize your question correctly? – littleadv Mar 10 '14 at 2:51
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    Yes and no? I'm not trying to get something for nothing. I read this article which explains how another party can assist in the financing (and benefit) of exercising the options, and I'm partly wondering if this is the only way, or if there are services that exist like that. – NT3RP Mar 10 '14 at 3:13
  • Most employee options come with strings attached, and I'm not sure how legal such arrangements can be (or whether they're in line with the options contract, even if legal). Of course you can always do things under the table in dark rooms, but on this site we do not condone this. – littleadv Mar 10 '14 at 3:17
  • Is the company already public? – Chris W. Rea Mar 10 '14 at 4:28
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    @littleadv - in the us, loans between people are legal as long as income is declared. (Obviously, I can't just start a bank without proper licensed, but I don't think one private loan is an issue. – JTP - Apologise to Monica Mar 10 '14 at 18:45
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You can borrow money from an individual and pay him interest with a simple agreement. A friend or relative might offer a low rate, a stranger, a far higher rate. Either might ask for a portion of the profits. This all depends on how much the options are in the money. Say you were my sibling. You want $25K, and I'm happy to help, but if the options are not already in the money, and the company doesn't IPO, I'm going to lose this money. If they IPO at $50, you just made $2.5M. How much do I get? You see how awkward Thanksgiving could be next year?

A stranger would want a decent rate of return along with a personal guarantee, else, logically speaking, this is like funding a trip to Vegas for you.

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In addition to JoeTaxpayer's answer and the article referenced in the comments, in my research I've come across a few alternatives, but they are all circumstantial.

Generally, these organizations are looking for late-stage (Series B or later) companies in the U.S. (ideally venture backed) and generally deal with shares (rather than options).

  • i thought that the company would have to approve of all these transactions anyways, right? – Dzt Oct 12 '14 at 20:36
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    I don't see why. The transaction only involves the movement of dollars and doesn't affect the movement of their stock. – David Schwartz Mar 14 '17 at 20:49

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