Strike Price

Summary of How Strike Price Works

• Strike price is the fixed price per share you pay to exercise your stock options. It’s set on the grant date (based on the 409A valuation at that time) and does not change.
• Early employees at seed-stage startups usually get very low strike prices (fractions of a cent to low cents) because the company’s 409A valuation is low.
• Later employees at Series B+ companies often see higher strike prices (several dollars per share) because the company is more valuable.
• Exercising options costs real cash: # of options × strike price. Your economic upside is the difference between the eventual share price at exit and your strike price, multiplied by your shares.

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Core Example

You join a seed-stage startup and receive 10,000 options. The company’s 409A valuation implies a $0.10 strike price.

Scenario 1: Modest Exit at $50M

• Exercise cost: 10,000 × $0.10 = $1,000.
• Exit valuation: $50M with 20M fully diluted shares.
• Exit share price: $50M ÷ 20M = $2.50 per share.
• Your shares at exit: 10,000 × $2.50 = $25,000.
• Gross gain (before taxes, prefs, etc.): $25,000 − $1,000 = $24,000.

Scenario 2: Strong Exit at $200M

• Same exercise cost: $1,000.
• Exit share price: $200M ÷ 20M = $10 per share.
• Your shares at exit: 10,000 × $10 = $100,000.
• Gross gain: $100,000 − $1,000 = $99,000.
• Here, the strike price is negligible relative to the exit value.

Scenario 3: Company Fails

• You exercised for $1,000.
• Company shuts down; shares go to $0.
• You lose the full $1,000 you spent to exercise.
• This downside is why many employees wait to exercise until a liquidity event seems likely.