For IPO sales, all options can eventually be converted into common shares then sold (often after various lockup periods giving other investors chances to cash out first).
For private sales, which can be structured in a variety of ways, there's a bucket order that can vary depending on the share structure (remember options aren't shares until converted). Most VCs have terms that they get paid out first to recoup their investment (and often then some) before common or option holders get paid out.
So for a simple example (I'm making these numbers and percentages up):
Say if VCs invested $10m for 30% of a startup with a guarantee of first rights to get that back and 50%, then a founder class of shares owns a percentage, say 50%, and then there's a class of common shares/options that are in theory 20% of the company. So in thoery, the investors own 30%, employees on 20%, and founder(s) 50%.
Let's say then that the company then sells for $20m. The investors get their $10m back, plus $5m for their 50% return guarantee. The founder class of shares has rights to 50% of the company, but all that's remaining is the $5m left over which is 25%; they get it all. Everybody else gets shit unless the buyers want to retain any employees and give them anything extra (this can happen).
Things like this happen a lot. I knew people that worked at 500px (the photo site) and eventually the investors forced a sale after the business stagnated that even the founders got nothing in the end.
For private sales, which can be structured in a variety of ways, there's a bucket order that can vary depending on the share structure (remember options aren't shares until converted). Most VCs have terms that they get paid out first to recoup their investment (and often then some) before common or option holders get paid out.
So for a simple example (I'm making these numbers and percentages up): Say if VCs invested $10m for 30% of a startup with a guarantee of first rights to get that back and 50%, then a founder class of shares owns a percentage, say 50%, and then there's a class of common shares/options that are in theory 20% of the company. So in thoery, the investors own 30%, employees on 20%, and founder(s) 50%.
Let's say then that the company then sells for $20m. The investors get their $10m back, plus $5m for their 50% return guarantee. The founder class of shares has rights to 50% of the company, but all that's remaining is the $5m left over which is 25%; they get it all. Everybody else gets shit unless the buyers want to retain any employees and give them anything extra (this can happen).
Things like this happen a lot. I knew people that worked at 500px (the photo site) and eventually the investors forced a sale after the business stagnated that even the founders got nothing in the end.