Does anyone know what (if anything) generally happens to employee stock options in the event of these large funding rounds. Most options schemes are effectively designed around the idea of "liquidity event" which used to mean IPO in successful cases.
These days when we see large investment rounds and acquisitions replacing a lot of what IPOs used to do, where does that leave options holders? I suppose this question also applies to early investors and founders too.
If the option holder decides to exercise, they will have to pay tax on the spread between the strike price and the 409a value at the time of exercise. This can be painful if the 409a value jumps significantly. There are a few companies like Uber, Airbnb, etc where the price jumped so much that many employees were stuck with massive tax bills.
If you find yourself in a similar situation, some funds like the ESOFund can help cover the up front cost and allow you to keep future upside.
[1]: https://equidateinc.com/ - disclosure: I'm an investor in Equidate, and they're my favorite. There's a few others in the space like SharesPost, EquityZen, etc.
It also makes it more expensive to exercise the options for employees as AMT will be assessed on the difference between the strike price (what the options cost to exercise) and their new higher "value".