Would you buy shares of private company where you work?

[Jimbo]

Who and how many people are bringing in the business for this company? If those are the people that are looking to sell their shares and retire this would not be a great investment. In a consulting business you are buying into the company's ability to bring in new profitable business.

Absolutely true. This is my greatest fear for the mid-to-long term. Current management is doing the heavy lifting on this front. This needs to change and more players need to step up.

[lutorm]

I was offered ISOs when I started my current job, 7 years ago. It's a private company and since then the FMV has gone up by about a factor of 20x. The stock is illiquid, part of the agreement is that you may not sell it to anyone not approved by the company until if/when there is an IPO, but they've done a pretty good job of arranging buybacks so people can realize some of these gains. I've been very careful about plowing outside funds into them given the high risk, but by repeatedly exercising and selling back to the company I'm now sitting on stocks whose paper value is greater than all our remaining assets. But it's highly unclear to what extent I'll ever be able to realize these gains, so I'm having a hard time assigning value to them... History is full of people owning common stock getting screwed for all kinds of reasons and ending up with nothing.

I would never purchase company stock outright, that risk/reward outlook is way too bad for me.

[Indio]

@Jimbo One factor to consider is what type of stock you will be buying - class a or b and do you have voting rights. If they have any debt and are planning on refinancing, that could throw off a dividend. Also, knowing how many shareholders might help you feel that you're not alone because ethical CEO's tend to want to do right by employees who became investors.

All of my experiences with buying equity or being given it through ISO, have been solid investments. I wouldn't work for a company that was going downhill so had high level of confidence in mgmt ability to increase profitability. As others have mentioned, I wouldn't do this if it was going to represent more than 5% of my net worth. It was more a asset diversification play.

[yakamashii]

Semi-related situation: I worked for a privately held company years ago that is just now getting around to issuing the stock options I was offered back then. They'd promised 1.5% with some incentives for performance that I ultimately didn't achieve (in part due to a major project that came up in the interim, where my performance was great for the company), so the 1.5% seems fair to me.

The company has grown a lot since I left, and they want to issue stock options to everyone to whom they've been promised since then. Now they're talking about offering me 0.75%, reasoning that, if I had been given the options four years ago, the share would be diluted by the present round of options anyway.

The fact that it would be diluted makes sense; what concerns me is the strike price. I probably would have gotten a lower price four years ago, right? I don't understand the concepts enough to know if the math is correct, but to get a fair deal here, do I need to ask for a lower strike price for the adjusted share of 0.75%, or ask for 1.5% as promised if I'm getting the same strike price as everyone else?

Either way, it's probably not as good an investment as index funds, but as long as they're offering, I'd like to get the deal we agreed on.

[Linea_Norway]

My DH bought company shares (at a bit of a reduced price) at three of his former employers. All three times he got a good yearly dividend og about 10%. And he could sell them for a good price. He only spent an amount that was not critical for us, but that was a substantial sum. In all cases his employer was a very stable company and he had insight in that they were doing well.

[lutorm]

The fact that it would be diluted makes sense; what concerns me is the strike price. I probably would have gotten a lower price four years ago, right? I don't understand the concepts enough to know if the math is correct, but to get a fair deal here, do I need to ask for a lower strike price for the adjusted share of 0.75%, or ask for 1.5% as promised if I'm getting the same strike price as everyone else?

I don't know what the situation is like in Japan, but the whole point of stock options are that they valuable because they entitle you to buy stocks at a fixed price in the future, regardless of what the current stock price is. So typically when you are "offered" options, you will be offered a number at the current market value of the share, vesting at some point in the future under some conditions. If they didn't actually give you the options back then but just said "hey we should give you some stock options" then you've essentially lost whatever value the stock has gained since then. I'm not an expert but I think if they offer you options for less than the current market value, that is essentially a cash gift and will be taxed as such. At least in the US.

What they should have done is offer you the options and condition their vesting on whatever conditions they wanted to. My understanding is that there is nothing they can do now that will replicate the offer they could have given you back then. Either you get options whose strike price are higher, or you get taxed on the difference if they price the options lower because you're no longer bearing the risk over that time.

[yakamashii]

The fact that it would be diluted makes sense; what concerns me is the strike price. I probably would have gotten a lower price four years ago, right? I don't understand the concepts enough to know if the math is correct, but to get a fair deal here, do I need to ask for a lower strike price for the adjusted share of 0.75%, or ask for 1.5% as promised if I'm getting the same strike price as everyone else?

I don't know what the situation is like in Japan, but the whole point of stock options are that they valuable because they entitle you to buy stocks at a fixed price in the future, regardless of what the current stock price is. So typically when you are "offered" options, you will be offered a number at the current market value of the share, vesting at some point in the future under some conditions. If they didn't actually give you the options back then but just said "hey we should give you some stock options" then you've essentially lost whatever value the stock has gained since then. I'm not an expert but I think if they offer you options for less than the current market value, that is essentially a cash gift and will be taxed as such. At least in the US.

What they should have done is offer you the options and condition their vesting on whatever conditions they wanted to. My understanding is that there is nothing they can do now that will replicate the offer they could have given you back then. Either you get options whose strike price are higher, or you get taxed on the difference if they price the options lower because you're no longer bearing the risk over that time.

It's a US company that I worked for remotely in Japan (and I'm a US citizen). I definitely don't want to trigger taxes at this point in time, or otherwise endure anything unpleasant, so I guess I'll just listen to the formal offer if it ever comes. Truth be told, I thought they'd forgotten about it, and I stumbled upon index investing in the meantime, so wasn't too upset about it.