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"I was an early engineer at Zenefits and found myself holding stock options seminars to explain this stuff to the rest of the engineers." This is a tricky posi

"I was an early engineer at Zenefits and found myself holding stock options seminars to explain this stuff to the rest of the engineers." This is a tricky position to be in, considering that in this sort of situation, you're generally explaining to people a small subset of the ways that they can get screwed. As much as it might seem nice to see people spending lots of time trying to figure out what their stock options are worth, it's not worth the time or effort. By the time you have it figured out, it's changed. And the future is so unknown. If everything goes great and the company hits all of its targets, stock options will be worth something. If there's a bump in the road, you're toast.

calcsam 10y ago
The simplest heuristic to use is to assume the company exits at its latest valuation and do the calculations of what your options would be worth in that case. Then, understand when your company could (at soonest) go public, given that growth rates will slow down at a rate around what comparable companies exhibit. Obviously it's still a crapshoot, but this will give you a value for E(x) and timeframe.
- JonFish85 10y ago
  > assume the company exits at its latest valuation and do the calculations of what your options would be worth in that case. Sure, but even in this case, you have no idea what the provisions of that round are, most likely. The investors may have asked for better returns (money-back + participation), there may be lines of credit that have to be paid back first, there may be loans that are paid off the top. My point is that most non-executive employees can't get enough information to make an accurate assumption. It's possible, maybe even likely, that if you exit at your latest valuation, your stock is worth $0 of actual money when on-paper, it was worth something significant.
  - calcsam 10y ago
    If cash-out is around latest valuation, weird terms will only change the $ amount by <10% or so. If cash-out is less than the latest valuation, then it starts mattering. At ~40-50% of latest valuation, common shares can end up effectively worthless, for example Good Technologies.

calcsam 10y ago

The simplest heuristic to use is to assume the company exits at its latest valuation and do the calculations of what your options would be worth in that case. Then, understand when your company could (at soonest) go public, given that growth rates will slow down at a rate around what comparable companies exhibit. Obviously it's still a crapshoot, but this will give you a value for E(x) and timeframe.

JonFish85 10y ago
> assume the company exits at its latest valuation and do the calculations of what your options would be worth in that case. Sure, but even in this case, you have no idea what the provisions of that round are, most likely. The investors may have asked for better returns (money-back + participation), there may be lines of credit that have to be paid back first, there may be loans that are paid off the top. My point is that most non-executive employees can't get enough information to make an accurate assumption. It's possible, maybe even likely, that if you exit at your latest valuation, your stock is worth $0 of actual money when on-paper, it was worth something significant.
- calcsam 10y ago
  If cash-out is around latest valuation, weird terms will only change the $ amount by <10% or so. If cash-out is less than the latest valuation, then it starts mattering. At ~40-50% of latest valuation, common shares can end up effectively worthless, for example Good Technologies.