Share options - would you buy?

[Money383848]

I’m about to change jobs. I have some share options that I need to decide whether I want to exercise before I leave. They can be purchased at a nominal price and the total
amount would be a few thousand pounds - quite a substantial amount for me, affordable for now but if anything were to happen like redundancy and long term unemployment I would probably need that money.

I can’t decide whether or not to buy them. When I first worked for my company they had huge plans. Some plans have come to fruition very successfully and many have not. Their main products are quite niche and very useful to a few big manufacturers so I think there is the possibility they will be bought out by one of them in time. I think they had hopes not to be bought out, to focus on global sales, go public and make everyone megabucks but this hasn’t worked out yet, in part because of the economy since Covid, but also because the sales side of the business is badly managed and I don’t think is profitable. The side that works with the aforementioned manufacturers runs very smoothly and is profitable. Overall they are still making a loss and rely on investment.

So it’s quite a mixed bag. If they went public successfully I would probably have enough to buy a big house. If they were bought by another company I would probably make enough to pay for a house deposit. There’s also the possibility that the company folds and I lose a substantial amount.

I don’t how to make this decision. It seems like such a gamble. I’m a bit jaded after my time there and I don’t think they are going to become the next Microsoft or Apple. I do think they have a pretty good product and they don’t know what to do with it. It also ties
up my money for god knows how long - could be many more years.

I would love any advice, thank you.

What percentage of your cash savings would buying them remove? And how quickly could the shares be sold in future if you needed to liquidate that investment in an emergency ?

How many thousands are you talking about? Could you exercise maybe half of them to hedge your bets a bit if the full amount is too much? The gains sound large if they go public / get bought out so I’d be reluctant to just walk away from all of it.

How easy would the shares be to sell? What are they actually worth now ie does this scheme involve getting them at a discount? What are the tax implications of the scheme?

They are essentially worthless at the moment. They can’t be sold unless the company goes on the stock exchange or is bought out by another company.

Yes exactly, there have been different values attached to the shares. I can buy for a nominal price, less than 1p a share. They have been valued independently at 20p a share. But it means nothing until the company goes public or is bought up.

How much have you invested in them (say x) and how much would you actually get back now.

it’s essentially a gamble in my view Are you willing to lose x for a possibility for a bigger gain.

whatever value is attached to it now could potentially be zero the next day so I’d ignore that if you’re keeping them. It’s only relevant if you’re going to sell

Are there any secondary sales on the horizon?

You don't always need to wait until IPO IME.

Can you buy them and immediately sell?

^^ this

Or is waiting for a public (or private) sale the only thing you can do?

If you can buy and sell immediately then you could exercise the options and immediately sell some or all to realise a chunk and sit tight on some more in the hope they will be worth more later.

If it's all resting on "some day in the future" and you don't have other investments and wealth and would feel the loss of the few thousand it will cost you now then I wouldn't buy.

Double check that you do in fact have to exercise the options.

Many a former 'good leaver' employee in the companies I work with has retained them as options and will only exercise if they can do it in a cashless way. If you do have to exercise them, be careful about tax implications if there is a tax relevant valuation available, you may have to pay capital gains on top of the exercise price (depending on where you are, not all tax regimes are the same on this).