3 ms·

Summarizing the most popular startup con here: if I'm a relatively senior engineer, joining some late-stage startup for 180-250K cash comp and 50-100K options,

by kika 8y ago

Summarizing the most popular startup con here: if I'm a relatively senior engineer, joining some late-stage startup for 180-250K cash comp and 50-100K options, then the payout in case of good M&A or IPO could be $20-100 per share (if I don't wait years, cash out at the end of the hold period and move on). So let's say in 4 years I can make $720K-1M cash and $1-10M in stock. Which is roughly comparable to the big guys. Make it possible at the little guys too. More risk - more equity. What I see now in the Valley is that the series-A guys are offering the same stock (roughly) as the series-D. Just the strike price is an order of magnitude lower. I ever saw pre-IPO startup offering _more_ stock than seed-stage one. This just doesn't make any sense. ISOs are not dollars, their value is multiplied by the risk coefficient. And I feel that founders are somehow lured into thinking that their ISOs are even worth the strike price. Change that and you'll see more people coming to work for startups.

snowmaker 8y ago
Very interesting comment. May I ask a quick clarifying question? When you say "the series-A guys are offering the same stock (roughly) as the series-D", what units are you comparing them in? Number of shares? Percentage of the company? Estimated $ value of the shares (and if so, how calculated)?
- kika 8y ago
  The number of shares. One can argue that early startup shares are less diluted and thus comprise a bigger piece of the company, but the risk is disproportional to dilution. When evaluating an offer, you just multiply this number to the projected IPO price given the comparable (same industry, company size, etc) IPOs recently.
  - snowmaker 8y ago
    FWIW, I wouldn't recommend using the number of shares as the benchmark for comparing offers (across any two companies, startups or otherwise). Actual share counts are quite arbitrary. It's common for startups that are going public to do a 10 to 1 stock split shortly beforehand. Using your algorithm, an offer from that company would 10x more valuable the day after the split! Much better would be to compare the expected value, by multiplying the ownership percentage by some estimate of the value of the company.
    - kika 8y ago
      True. This metric is as good (or bad) as any else, a percentage of the company included. You can't predict dilution or stock split (the only startup I joined early enough to have the strike price of 11 cents which went IPO, did a _reverse_ stock split). But somehow the number of shares granted in a company of 20 ppl with stage-A money and 0 revenues is within 10% of the company with 3000 ppl and doing 300M in revenues. And also within 10% from the company with 200 ppl and 30M in _profits_. Go figure.

by kika 8y ago

snowmaker 8y ago

Very interesting comment. May I ask a quick clarifying question? When you say "the series-A guys are offering the same stock (roughly) as the series-D", what units are you comparing them in? Number of shares? Percentage of the company? Estimated $ value of the shares (and if so, how calculated)?

kika 8y ago
The number of shares. One can argue that early startup shares are less diluted and thus comprise a bigger piece of the company, but the risk is disproportional to dilution. When evaluating an offer, you just multiply this number to the projected IPO price given the comparable (same industry, company size, etc) IPOs recently.
- snowmaker 8y ago
  FWIW, I wouldn't recommend using the number of shares as the benchmark for comparing offers (across any two companies, startups or otherwise). Actual share counts are quite arbitrary. It's common for startups that are going public to do a 10 to 1 stock split shortly beforehand. Using your algorithm, an offer from that company would 10x more valuable the day after the split! Much better would be to compare the expected value, by multiplying the ownership percentage by some estimate of the value of the company.
  - kika 8y ago
    True. This metric is as good (or bad) as any else, a percentage of the company included. You can't predict dilution or stock split (the only startup I joined early enough to have the strike price of 11 cents which went IPO, did a _reverse_ stock split). But somehow the number of shares granted in a company of 20 ppl with stage-A money and 0 revenues is within 10% of the company with 3000 ppl and doing 300M in revenues. And also within 10% from the company with 200 ppl and 30M in _profits_. Go figure.