Barbera Arneson Case
Decision: All other factors being equal, and based on the stock option packages only, I would accept the InterWeb offer of 60,000 shares at an exercise price of $0.10 per share because:
Factors Considered:
1. Higher potential return on stock options 2. Larger ownership percentage at InterWeb
Assumptions:
1. I made the assumptions that Barbara would work for at least 4 years with whichever company she chooses.
2. BioGene would continue to grow at an average rate of the past 4 years. The PE ratio will be $35.
3. InterWeb will perform as projected in its business plan and will go IPO at a) $10/share b) $12.50/ share c) $15/share
Options Comparison:
BioGene:
There are currently 23,030,303 shares outstanding at BioGene. In four years when the options are fully vested, Barbara would own 0.026% of BioGene with her offer of 6,000 shares. I assumed that if the company grows at the average growth rate of the 4 years i.e. 61.75%, then her financial gain will be $415,800.
InterWeb:
There are currently 118,600,000 shares outstanding at InterWeb. In four years when the options are fully vested, Barbara would own 0.051% of InterWeb with her offer of 60,000 shares. Here I assumed three scenarios:
a) If InterWeb goes IPO at $10/share her stock will gain $594,000 b) If InterWeb goes IPO at the typical $12.50/share her gain will be $744,000 c) If INterweb goes IPO at $15/share then her return will be $894,000
Risks:
There is a risk associated with taking InterWeb’s offer that the product might fail and the company might not be able to get an IPO. This risk can be mitigated by being flexible and open minded about her plans. She will be working with ten other experienced engineers this can help her get another job due to recommendations if the company fails.
Some other factors to consider are the alignment of her own personal objectives with her career with InterWeb. Working at a start up will give her hands on experience and practical
Factors Considered:
1. Higher potential return on stock options 2. Larger ownership percentage at InterWeb
Assumptions:
1. I made the assumptions that Barbara would work for at least 4 years with whichever company she chooses.
2. BioGene would continue to grow at an average rate of the past 4 years. The PE ratio will be $35.
3. InterWeb will perform as projected in its business plan and will go IPO at a) $10/share b) $12.50/ share c) $15/share
Options Comparison:
BioGene:
There are currently 23,030,303 shares outstanding at BioGene. In four years when the options are fully vested, Barbara would own 0.026% of BioGene with her offer of 6,000 shares. I assumed that if the company grows at the average growth rate of the 4 years i.e. 61.75%, then her financial gain will be $415,800.
InterWeb:
There are currently 118,600,000 shares outstanding at InterWeb. In four years when the options are fully vested, Barbara would own 0.051% of InterWeb with her offer of 60,000 shares. Here I assumed three scenarios:
a) If InterWeb goes IPO at $10/share her stock will gain $594,000 b) If InterWeb goes IPO at the typical $12.50/share her gain will be $744,000 c) If INterweb goes IPO at $15/share then her return will be $894,000
Risks:
There is a risk associated with taking InterWeb’s offer that the product might fail and the company might not be able to get an IPO. This risk can be mitigated by being flexible and open minded about her plans. She will be working with ten other experienced engineers this can help her get another job due to recommendations if the company fails.
Some other factors to consider are the alignment of her own personal objectives with her career with InterWeb. Working at a start up will give her hands on experience and practical