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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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The New Public Company Option Pricing Strategy

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Quest Software has been competing with Mercury Interactive for a number of years.  In the past, several of Quest’s strategic moves clearly positioned it as a alternative to Mercury.  However, last week, they ended up being similar to Mercury in a way they most likely weren’t happy with and never anticipated.  Quest announced that it will have to restate its finances from 2000 to 2005.  The stock dropped some, but will likely hang out where it is until this plays out more. 

In response, a friend dropped me a note with a new public company option pricing strategy.  As we now know, many of these companies went to great (and in some cases illegal) lengths to get the best possible option pricing for their employees – often disproportionately so for their executives.  Now that this information is coming to light, the new strategy is:

  • Announce that you are restating earnings due to option backdating.
  • Grant a bunch more options after the stock dives.

Hopefully the irony of this won’t be lost on anyone.

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