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Evaluating the worth of a company and stock options is very hard and usually requires several skill sets the employee doesn't have, as well as information the c

Evaluating the worth of a company and stock options is very hard and usually requires several skill sets the employee doesn't have, as well as information the company is reluctant to give out. If I asked the founder for all of the financial documents the company has signed so I could know it's obligations, I can't imagine that a majority of the founders/CEOs would say "sure here you go". And even if they did, the cost of a lawyer to go over all of that paperwork to make sure you didn't miss anything would be expensive.

birken 9y ago
Learn the skills! Financial literacy is a very important skill. Yes, startups are complicated. To be an informed employee you need to deeply understand how stock options work, you need to deeply understand how startup financing works, and it wouldn't hurt to have a general understanding of business. And look, if you just want to be a software engineer, then you don't have to learn these things, but then you can't complain if you get screwed. Or take a job at a publicly traded company and use the stock price as a proxy for how the company is doing. And as for the availability of the documents and financial information, the main ones you care about are: revenue, expenses, total burn and cash in the bank. Any company that will not reveal those is being shady, full stop. These figures should be so top of mind the CEO or CFO should know them off hand without even having the look. A good company will share all of these with the full company every month or quarter, because they are really important indicators of how the company is doing and what the overall strategy should be. You don't need a lawyer. You are not auditing the company, you are just getting a sense for the company's trajectory. Your job is actually really easy. If things are going well that is normally obvious. Revenue going up. Burn going down. Fundraising rounds at higher valuations. If these things aren't happening or you suspect something shady is going on, leave! You don't need to break the case, just get a better job at another company that is doing better.
- JonFish85 9y ago
  "the main ones you care about are: revenue, expenses, total burn and cash in the bank" That's part of it, but not all of it. Total number of outstanding shares (including warrantable shares!) can change the complexion of things a lot. And then there's the question of preference -- deals that a company made years ago can make for a big difference in share value. Unless a company has an incredibly clean cap table, a rank-and-file employee will never really know how much their shares are worth until they are either worthless, or have a cash-in-hand buyer. What you're talking about is the general case of "things are moving in a pretty good direction", and that's important. But to really gauge value of a stock option is much, much more complex (and is constantly changing!). Even if an employee were able to come to a reasonable estimate of common stock value, one bad month can wipe that away (an emergency $5m round to make payroll? a loan backed by stock? a long-term lease backed by stock?).
zenlikethat 9y ago
Most of the time the company should share with you the most relevant info: # shares outstanding, liquidation preference on the term sheet, strike price of shares, FMV of shares and so on. If they don't then run. They're making you a deal you can't properly evaluate.

birken 9y ago

Learn the skills! Financial literacy is a very important skill. Yes, startups are complicated. To be an informed employee you need to deeply understand how stock options work, you need to deeply understand how startup financing works, and it wouldn't hurt to have a general understanding of business. And look, if you just want to be a software engineer, then you don't have to learn these things, but then you can't complain if you get screwed. Or take a job at a publicly traded company and use the stock price as a proxy for how the company is doing. And as for the availability of the documents and financial information, the main ones you care about are: revenue, expenses, total burn and cash in the bank. Any company that will not reveal those is being shady, full stop. These figures should be so top of mind the CEO or CFO should know them off hand without even having the look. A good company will share all of these with the full company every month or quarter, because they are really important indicators of how the company is doing and what the overall strategy should be. You don't need a lawyer. You are not auditing the company, you are just getting a sense for the company's trajectory. Your job is actually really easy. If things are going well that is normally obvious. Revenue going up. Burn going down. Fundraising rounds at higher valuations. If these things aren't happening or you suspect something shady is going on, leave! You don't need to break the case, just get a better job at another company that is doing better.

JonFish85 9y ago
"the main ones you care about are: revenue, expenses, total burn and cash in the bank" That's part of it, but not all of it. Total number of outstanding shares (including warrantable shares!) can change the complexion of things a lot. And then there's the question of preference -- deals that a company made years ago can make for a big difference in share value. Unless a company has an incredibly clean cap table, a rank-and-file employee will never really know how much their shares are worth until they are either worthless, or have a cash-in-hand buyer. What you're talking about is the general case of "things are moving in a pretty good direction", and that's important. But to really gauge value of a stock option is much, much more complex (and is constantly changing!). Even if an employee were able to come to a reasonable estimate of common stock value, one bad month can wipe that away (an emergency $5m round to make payroll? a loan backed by stock? a long-term lease backed by stock?).

zenlikethat 9y ago

Most of the time the company should share with you the most relevant info: # shares outstanding, liquidation preference on the term sheet, strike price of shares, FMV of shares and so on. If they don't then run. They're making you a deal you can't properly evaluate.