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> The average unicorn, the researchers note, has eight stock classes for different types of investors, including founders, employees, venture capitalists, mutua

by gjem97 9y ago

> The average unicorn, the researchers note, has eight stock classes for different types of investors, including founders, employees, venture capitalists, mutual funds, and others. As an aside, this is why I think that any effort of a prospective employee to divine the value of a stock option package is likely in vain. Without a detailed accounting of the ins and outs of the preferred stock that is senior to your common shares, it is nigh impossible to tell how much the common shares (and options thereon) are worth.

JonFish85 9y ago
And to add to this, it's impossible to predict the future. Even if you are privy to all relevant details to come up with an accurate "value" to attach to your shares, you have no idea what sort of deals will be made in the future (stock-backed loans or later equity rounds come to mind). All it takes is one bad-for-common deal and you're wiped out, and common is usually the first to get the short end of the stick (and the last to find out).
woah 9y ago
This is part of what makes cryptocurrency "ICOs" appealing. Depending on how the token sale is set up, you can usually be sure of exactly what portion of the equity you are getting. Whether or not it will be worth anything in the future is another question of course.
- dsacco 9y ago
  > Depending on how the token sale is set up, you can usually be sure of exactly what portion of the equity you are getting. You also trade off any ordinary protections as a consumer.
mbesto 9y ago
This is why I always recommend to individuals that when a startup offers equity in lieu of cash compensation to ask every financial/equity question imaginable. (what are you valued at today? how much investment have you taken? what's been diluted? etc etc) People don't like to have that conversation because they think it's inappropriate. However, it's more inappropriate for a founder to tell you that you're getting equity in lieu of compensation and explain nothing about the value of that equity and potential future value of that equity based on the current state and future state assumptions.
- GuiA 9y ago
  90% of my engineer/designer friends have no clue what every financial/equity question imaginable even look like, and even if they had a list of them, they'd have no clue about how to interpret any of the results, or how to tell if the company is feeding you BS. I mean, I was the first employee at a startup, involved with fund raising, and then founder at a startup, and even I would have a hard time with that. Not to mention that even if you have a very solid understanding of what things are like when you get hired, it can all change dramatically in subsequent fundraising. This is just one of many instances where the employee/employer relationship is heavily biased against the employee. And unless clear disclosure requirements understandable by the average worker are put in place, it'll stay that way. As an employee, your options are inscrutable lottery tickets which value can be redefined in many ways at many points in time, and there's not much you can do against that.
  - mbesto 9y ago
    > 90% of my engineer/designer friends have no clue what every financial/equity question imaginable even look like Totally - I've been thinking about actually putting on a "equity master class for engineers looking to join startups" type seminar in the bay area if people are interested.
    - dpeck 9y ago
      Not bay area (though there fairly often) but if you do it please have it recorded and posted somewhere. Would be a great resource.
    - mbesto 9y ago
      Seems like there's some interest for this. If people legitimately want to know more, please let me know here: https://goo.gl/forms/j70V7ew5Dds7AoOt1 https://goo.gl/forms/j70V7ew5Dds7AoOt1 If there's enough interest I'll put something on. PS - By way of background, I work in tech M&A and regularly see cap tables, equity packages, salaries etc. both in and out of SV.
  - ykler 9y ago
ChuckMcM 9y ago
I completely agree with this. While I could (and have) done due diligence into a valuation of privately held companies in order to understand the value of a stock option, once you get to the later rounds there can be so much change to make any previous valuation calculation moot. I really enjoyed the TL;DR stock option visualization earlier but for unicorns it would be a really interesting exercise to walk through various 'liquidity events' and their value and see the various percentages that went to which investors.
beambot 9y ago
In theory, an external 409A valuation should serve this purpose: determine the FMV of common stock options, while accounting for all the nuances of existing preferred stock, liabilities, cash flows, and comparables. Where is the disconnect...?

by gjem97 9y ago

JonFish85 9y ago

And to add to this, it's impossible to predict the future. Even if you are privy to all relevant details to come up with an accurate "value" to attach to your shares, you have no idea what sort of deals will be made in the future (stock-backed loans or later equity rounds come to mind). All it takes is one bad-for-common deal and you're wiped out, and common is usually the first to get the short end of the stick (and the last to find out).

woah 9y ago

This is part of what makes cryptocurrency "ICOs" appealing. Depending on how the token sale is set up, you can usually be sure of exactly what portion of the equity you are getting. Whether or not it will be worth anything in the future is another question of course.

dsacco 9y ago
> Depending on how the token sale is set up, you can usually be sure of exactly what portion of the equity you are getting. You also trade off any ordinary protections as a consumer.

mbesto 9y ago

This is why I always recommend to individuals that when a startup offers equity in lieu of cash compensation to ask every financial/equity question imaginable. (what are you valued at today? how much investment have you taken? what's been diluted? etc etc) People don't like to have that conversation because they think it's inappropriate. However, it's more inappropriate for a founder to tell you that you're getting equity in lieu of compensation and explain nothing about the value of that equity and potential future value of that equity based on the current state and future state assumptions.

GuiA 9y ago
90% of my engineer/designer friends have no clue what every financial/equity question imaginable even look like, and even if they had a list of them, they'd have no clue about how to interpret any of the results, or how to tell if the company is feeding you BS. I mean, I was the first employee at a startup, involved with fund raising, and then founder at a startup, and even I would have a hard time with that. Not to mention that even if you have a very solid understanding of what things are like when you get hired, it can all change dramatically in subsequent fundraising. This is just one of many instances where the employee/employer relationship is heavily biased against the employee. And unless clear disclosure requirements understandable by the average worker are put in place, it'll stay that way. As an employee, your options are inscrutable lottery tickets which value can be redefined in many ways at many points in time, and there's not much you can do against that.
- mbesto 9y ago
  > 90% of my engineer/designer friends have no clue what every financial/equity question imaginable even look like Totally - I've been thinking about actually putting on a "equity master class for engineers looking to join startups" type seminar in the bay area if people are interested.
  - dpeck 9y ago
    Not bay area (though there fairly often) but if you do it please have it recorded and posted somewhere. Would be a great resource.
  - mbesto 9y ago
    Seems like there's some interest for this. If people legitimately want to know more, please let me know here: https://goo.gl/forms/j70V7ew5Dds7AoOt1 https://goo.gl/forms/j70V7ew5Dds7AoOt1 If there's enough interest I'll put something on. PS - By way of background, I work in tech M&A and regularly see cap tables, equity packages, salaries etc. both in and out of SV.
- ykler 9y ago

ChuckMcM 9y ago

I completely agree with this. While I could (and have) done due diligence into a valuation of privately held companies in order to understand the value of a stock option, once you get to the later rounds there can be so much change to make any previous valuation calculation moot. I really enjoyed the TL;DR stock option visualization earlier but for unicorns it would be a really interesting exercise to walk through various 'liquidity events' and their value and see the various percentages that went to which investors.

beambot 9y ago

In theory, an external 409A valuation should serve this purpose: determine the FMV of common stock options, while accounting for all the nuances of existing preferred stock, liabilities, cash flows, and comparables. Where is the disconnect...?