3 ms·

I think your math is a bit off. The dilution computation gives me 0.044% (before assuming you get any extra stock). With no extra stock, that gives you an exit

I think your math is a bit off. The dilution computation gives me 0.044% (before assuming you get any extra stock). With no extra stock, that gives you an exit at $150K. With the extra stock, you probably are in the $200K-$400K range. Which you do want to compare to your "investment" of $750K... So your post is very good advice to everyone. I encourage you to apply similar math. Of course, the hard part to evaluate is the variation: maybe the exit is 10X better. Or maybe it's 10X worse. How valuable is a high-risk/high-reward payoff? At least, by doing this math, you put hard numbers on just how high the payoff can be. If it turns out to be no so high, that's a great help to your decision.

p4wnc6 11y ago
I think this advice is OK as long we make a heavy emphasis on the need for some probability distribution over possible exit values. Such a distribution has to account for growth of the company, ability to succeed against competitors, potential acceptance of outside funding along with restrictions like liquidity preference, and so on. No one is good at articulating these distributions, and many people who influence you during the hiring process with either be overtly nefarious in their attempts to get you to believe what their rosy-colored prior looks like, or they will be suffering from different biases (especially the earliest-stage employees). For a young engineer who may or may not have a great command over this sort of probabilistic reasoning, and may or may not know any techniques to mitigate the biases that might creep in, it can be extremely risky to advise them to determine their own personal assessment of whether the exit will be 10X better and so on. Almost always they would be better off simply saying that they can't put a useful probability distribution on it, and therefore they cannot come up with a useful model of what the equity portion would be worth. It sounds nice to teach these types of candidates about how to value the equity in terms of knowing about liquidity preference, asking about the composition of the board of directors, asking detailed questions about comparable companies and their exit numbers, and so forth. But in truth it's a bit like handing someone a loaded gun, pointing it at their foot, and saying, "you're welcome for the advice."
- relaunched 11y ago
  I don't think it's that tricky to put a general distribution on it, Chi-Squared.

p4wnc6 11y ago

I think this advice is OK as long we make a heavy emphasis on the need for some probability distribution over possible exit values. Such a distribution has to account for growth of the company, ability to succeed against competitors, potential acceptance of outside funding along with restrictions like liquidity preference, and so on. No one is good at articulating these distributions, and many people who influence you during the hiring process with either be overtly nefarious in their attempts to get you to believe what their rosy-colored prior looks like, or they will be suffering from different biases (especially the earliest-stage employees). For a young engineer who may or may not have a great command over this sort of probabilistic reasoning, and may or may not know any techniques to mitigate the biases that might creep in, it can be extremely risky to advise them to determine their own personal assessment of whether the exit will be 10X better and so on. Almost always they would be better off simply saying that they can't put a useful probability distribution on it, and therefore they cannot come up with a useful model of what the equity portion would be worth. It sounds nice to teach these types of candidates about how to value the equity in terms of knowing about liquidity preference, asking about the composition of the board of directors, asking detailed questions about comparable companies and their exit numbers, and so forth. But in truth it's a bit like handing someone a loaded gun, pointing it at their foot, and saying, "you're welcome for the advice."

relaunched 11y ago
I don't think it's that tricky to put a general distribution on it, Chi-Squared.