The last $350 million round @ a $1.6 billion valuation priced common shares @ $5/share implying ~ 320 million common shares (napkin math ignoring a bunch of other variables). 100,000 options would represent .03125% of the company. Assuming the strike price was at least $500 million (maybe more), that's a gain of $781,250, or ~ 43x on his initial $18k investment. A great angel investment for sure, but perhaps not millions. If that's truly the same number of options that some of the earliest employees were granted (as mentioned in the article), then I feel bad for those employees as they probably deserved a bit more.
Why are you assuming the strike price is $500MM (not to mention this is the price of the company, not the strike of the option)? The strike price is what the stock is worth in terms of GAAP accounting, not what a VC is willing to buy X% of the company for (if I offer you $1 for x% of your company, is the company now necessarily worth $1/x?)
Companies of that size will typically have biannual 409(a) valuations done by professional valuation firms in order to establish the ''fair market value'' of common stock. This value becomes the strike price for employee options. Usually this is done for tax purposes, so that the IRS doesn't come in later and accuse you of under-pricing. In my experience common stock is valued around a 30-70% discount to the latest preferred stock (but can fluctuate on a case by case basis), with greater discounts seen in small companies (''we could go bankrupt at any time'') and lesser discounts seen in more mature companies (''we're going to IPO for billions we're just not sure if there will be a 2 or a 10 in front''). In the case of Jet, I'm just guessing at the fair market value at the time the award was made based on the published investment round valuations.
<< (if I offer you $1 for x% of your company, is the company now necessarily worth $1/x?) >>
Great point. Secondary market transactions have to be included in the 409(a) valuation analysis and this caused a lot of problems for companies like Facebook who had active secondary markets (with rising prices) even as they tried to keep option strike prices low to recruit new employees. I am not an expert but I think the short answer is that if you buy $1 worth of stock then it can be ignored as a non-material transaction but if you buy $1 million then it has to be scrutinized along with all similar transactions which would be collectively factored into the formula for ''fair market value''.
Another minor point - when calculating return in this case, you have to adjust for the fact that this guy ''invested'' $18k but wasn't able to count that money towards his basis in the stock or realize long-term capital gains treatment the way a typical angel investor would have. This means he will likely pay an extra 20% in Federal taxes, which lowers his LTCG-adjusted psuedo-angel-investment return a bit further.
