Deal Terms
Strike Price
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Quick Answer
The price at which an option holder can purchase company shares — set at fair market value at time of grant, as determined by a 409A valuation.
The strike price (or exercise price) is the price per share at which a stock option can be exercised. Under IRS rules, options must be granted at or above the fair market value of the underlying stock at the time of grant (hence the need for 409A valuations). Example: if a 409A values common stock at $2/share and you receive 10,000 options at a $2 strike price, you can eventually buy 10,000 shares for $20,000 total. If the company is later acquired for $20/share, your options are worth ($20 - $2) × 10,000 = $180,000. Options are worthless ('underwater') if the current share price falls below the strike price. Understanding your strike price and the current 409A value is essential for evaluating the economic value of your equity package.
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Frequently Asked Questions
What is Strike Price in venture capital?
The strike price (or exercise price) is the price per share at which a stock option can be exercised. Under IRS rules, options must be granted at or above the fair market value of the underlying stock at the time of grant (hence the need for 409A valuations).
Why is Strike Price important for startups?
Understanding Strike Price is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Strike Price fall under in VC?
Strike Price falls under the deal-terms category in venture capital. This area covers concepts related to the financial and legal terms that define investment agreements.
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