Should I quit now, or stay on to get stock options?

Dec. 1, 2000
I hate to leave my current job to start a business because I am five months away from a one-year cliff vesting of my stock options. Should I work on my new company while keeping my job or just quit?
1304qa Chang New

Q: I hate to leave my current job to start a business because I am five months away from a one-year cliff vesting of my stock options. Should I work on my new company while keeping my job or just quit?

A: A company typically grants a new employee a four- or five-year stock option that vests equally on a monthly basis. But often there is a provision that an employee does not get any stock options vested if he or she leaves the company within one year of joining the company. That is, vesting of the first year's stock options occurs on the 366th day; thus the term "cliff vesting."

You can reasonably guess the value of your stock options by talking to a lot of people, but the impact on your new venture can be profound if you choose not to leave. Before you make the move, make sure you are not making an impulsive decision. People who run off to start their own businesses are often thinking "Why not me?" even though some are clueless as to whether they have a good business model or even a truly superior technology. And in today's environment, some of these people even get funded if they are promotional enough. But what good is it if at the end the company can't succeed?

Assuming you have done that part of the homework and that you do have a supportable model, then my recommendation is biased toward leaving your current job. If you choose to stay on the job, the body language you convey is clearly that you value your new company less than the stock options. This is not a positive signal for either people planning to join you or to fund you. Another aspect is in a startup company, your creative juices and time commitment are the most valuable assets. In today's fast-moving world, time-to-market could mean the difference between success and failure. Another factor is that if you stay you increase the risk of intellectual-property disputes, especially if there is an overlap between the two companies' businesses. I hope you'll make an intelligent decision based on logic and your own personal priorities.

Q: I am about to raise capital to start a company; how does the venture capital (VC) community view the laser industry?

A: Venture capitalist investment activities usually pattern after the stock market, especially the IPO market. Since the stock market is volatile, I will keep my comments general and draw some logical conclusions. Overall, the trends are healthy for our industry, and the huge investments that are flowing into our field are going to have a lasting positive effect.

My reading is venture capitalists will continue to invest aggressively because they have raised substantial capital from their investors. Low-cap stocks (companies whose total market value is less than about $500 million) have not been in favor for many years. Most traditional laser/optics companies fall in that category, therefore only those business plans with the potential of generating hundreds of millions of dollars can get top-tier VCs interested. Investing in the optical telecommunications space has been in favor for some time because the business potentials are enormous and will last many years. Companies in this sector that continue to grow can maintain high valuations, whereas companies that disappoint Wall Street will be severely punished. Given that many companies rushed to IPO recently, disappointments will occur. A significant number of new companies were started in the last couple of years, some formed without careful due diligence, as venture capitalists competed to get in the deal. Failures will occur, and that hopefully will drive VCs to become a lot more selective.

Q: I want to return to my homeland in Eastern Europe to start a company manufacturing photonics products for American companies. How should I go about it?

A: You may have the beginning of a good idea, since you will have access to an educated work force and low-cost labor. In the contract manufacturing business, customers are looking for a reliable supplier. That means you must have consistency in quality, respond quickly, and always deliver on your promise. These aspects are particularly important because "buyers are risk adverse," and the implied uncertainties and risks are proportional to distance. My suggestion is to start small, import western management disciplines, and build a strong operational infrastructure. It isn't difficult to convince one or two companies to give you a small trial order and gradually increase order size as you build trust. Having a strong operational system is particularly important because you cannot afford to disappoint your customer. In situations like this, you will only get one chance.

About the Author

Milton Chang

MILTON CHANG of Incubic Management was president of Newport and New Focus. He is currently director of mBio Diagnostics and Aurrion; a trustee of Caltech; a member of the SEC Advisory Committee on Small and Emerging Companies; and serves on advisory boards and mentors entrepreneurs. Chang is a Fellow of IEEE, OSA, and LIA. Direct your business, management, and career questions to him at [email protected], and check out his book Toward Entrepreneurship at www.miltonchang.com.

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