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# Comparison of Laddered Exercise and Ten-Year Panic

## Number of share options 400,000

Strike price per share \$0.01
End of
Year 1 Year 2 Year 3 Year 4 …
Vested 100,000 200,000 300,000 400,000
Unvested 300,000 200,000 100,000 -
FMV at EOY \$0.50 \$1.00 \$2.00 \$3.00

Exercise 1 100,000
Exercise 2 100,000
Exercise 3 100,000
Exercise 4 100,000
Cost to exercise \$ 1,000 \$ 1,000 \$ 1,000 \$ 1,000
Spread = (FMV - exercise) * shares \$ 49,000 \$ 99,000 \$ 199,000 \$ 299,000
Tax (@ 49% assumed) \$ 24,010 \$ 48,510 \$ 97,510 \$ 146,510
Total cost over 4 years \$ 320,540

## Year 10 cost to exercise

Tax (@ 49% assumed)
Total cost in year 10

Notes
This differs from the text of the blog in one key way -- the strike price is \$0.01 here and it's \$0.10 in the blog. My ba
Assumes ISO option, ergo taxed as ordinary income, no AMT cacls -- often not the case in early-stage startups, be su
Assuming 49% tax roughly Calif max (Fed 37% + Calif 12%) on ordinary income/short-term gains and 30% (20% + 10%
Note that while I don't highlight it, you can stop along the way in scenario and have part of your options; only at the
The 83b early exercise is not shown but the math is simple -- if done properly it costs \$0 to execute up-front and res
This is not my best spreadsheet (e.g., tax rates are hard-coded), but it does make the point.
Year 10 Sells in Year 10
400,000
-
\$10.00

Sale price \$ 4,000,000
Tax basis \$ 650,000
Tax at 30% \$ 1,005,000
Keeps \$ 2,995,000

## Total taxes \$ 1,321,540

Avg rate 33%

n-Year Panic
Sale price \$ 4,000,000
4,000 Tax basis \$ 4,000
\$ 1,958,040 Tax @ 49% \$ 1,958,040
\$ 1,962,040 Keeps \$ 2,037,960

Avg rate 49%