Stock options at a startup feel like a lottery ticket. Maybe nothing, maybe a lot. But there’s a part of the deal most people don’t read closely enough — what actually happens if the company gets bought.
Here’s the short version: when an acquisition happens, your unvested options are not guaranteed. At all.
According to Carta (an equity management platform used by many startups), a few different things can happen to your unvested shares when a company is acquired. The new company might give you a fresh grant with a new vesting schedule. They might convert your options to cash and pay it out over time. Or — and this is the one that stings — they could just cancel them entirely. Which outcome you get depends entirely on how the deal was negotiated, and you usually don’t have much say in it.
So that four-year vesting schedule you’ve been grinding toward? If you’re two years in and the acquisition terms don’t protect you, the other half might disappear on day one of the new ownership.
Now here’s the other thing nobody warns you about. The post-departure exercise window.
When you leave a company — whether you quit, get laid off, or the acquisition pushes you out — you typically have a limited window to exercise your vested options. Many agreements default to around 90 days, but some are shorter (or occasionally longer), so never assume. That means you have to actually buy the shares you’ve earned, at the strike price agreed on when you got the grant. If you don’t do it in time, you lose them. Not “lose some value” — lose them completely.
The catch is that exercising options costs real money. And depending on the type of option you have, it can also trigger a tax event. The IRS treats different stock options differently — incentive stock options (ISOs) and non-qualified stock options (NSOs) each have their own rules for when and how you get taxed. The IRS covers the basics of stock option taxation if you want to dig in, but the honest advice is to talk to a tax person before you exercise anything significant.
The big takeaway: don’t assume your options are safe just because you’ve been vesting for years. Read your equity agreement before you sign, and definitely before your company starts getting acquisition buzz. Look for language about “change of control” — that’s the section that tells you what happens to your unvested shares if the company gets bought. Some agreements include “acceleration” clauses that protect you. Many don’t.
And if you’re ever about to leave a startup — for any reason — check your option agreement immediately and find out exactly how many days you have to exercise. Don’t assume 90 days. Some agreements are shorter.