Call option & put option

Hi there!

‍

Time for the last newsletter in this quarter! We know things are busy over there, so we’ll keep this one extra short. Today, we’re discussing another two investor rights that you’re bound to spot in an investment term sheet - call options and put options.

‍

‍

What are call options and put options?

Call options give investors the right (but not the obligation) to buy shares at a fixed price in the future. Call options come in handy when the investor believes that the company stock will increase in value over time.

Put options, on the other hand, give investors the right (but not the obligation) to sell shares at a fixed price in the future. This works as a safety net for the investors, protecting them against market dips.

‍

‍

Why does this matter?

For founders, these options are important financial instruments and strategic levers during funding rounds. Call options can secure additional funding by allowing investors to commit at today's price, banking on future success. Put options can offer investors exit opportunities in uncertain times, making your startup a more attractive investment option.

For investors, call and put options allow them to adapt to changing market conditions.

‍

‍

Dos and don'ts

‍When dealing with call options and put options, keep these tips in mind:

‍

Dos:

• negotiate clear terms including the strike price, expiration date and conditions for exercise
• offer call options to secure future funding
• use put options to attract investors in uncertain times
• calculate the impact of exercised put options on financial stability

‍

Don'ts:

• overcomplicate agreements
• ignore market trends and the potential impact on share price
• forget about share dilution after call options exercise

‍

‍

In a nutshell

Call and put options are vital for investors looking to balance risk and reward when investing into a startup. By understanding these tools, you can make strategic decisions and potentially enhance your investment portfolio.

‍

For a deep dive into investment strategies, reach out to our team anytime and follow us on LinkedIn for more insights.

‍

Here's to making 2024 a successful fundraising year!

‍