6 ms·

I don't think the equity is worthless. I just think an engineer can work at Facebook with a monthly vest and their equity is as good as cash. An engineer at str

by ffggvv 6y ago

I don't think the equity is worthless. I just think an engineer can work at Facebook with a monthly vest and their equity is as good as cash. An engineer at stripe has illiquid shares that they hope they can convert to cash in 3+ years. Usually the hope of a large return would offset that (time value of money) but thats cancelled by the fact that stripe's private valuation is 30B+.

ivalm 6y ago
Not patio11 but you can still evaluate something like net preset value by doing discount to the eventual liquidity event. In reality this is complicated as you need to assign probabilities to (1) when liquidity event can occur (2) real value of your equity at the event (3) discount rate. While estimating probability distributions is probably beyond what one can do without detailed inside knowledge (and even then), it's useful to think of a number of stories, eg: target_co will ipo in 3 years at 2x last raised value, target_co will ipo in 5 year at last raise, target_co will be acquired at 0.1x last raise in 8 years (what is the overhang?); let's say all at equal probabilities. For discount rate you can think of alternative places where you could work (eg. alternative_public_co will grow at -10, +20, +30% yoy with equal probability) + time value of not being able to liquidate (let's say another 10%). This will give you some range of numbers to consider.
- ffggvv 6y ago
  that makes sense. though it seems like many companies these days such as uber, palantir etc are actually worth less after IPO than before.
  - deleted 6y ago
    [deleted]
VBprogrammer 6y ago
Maybe I'm misreading what Patrick is saying here but personally, if I believed that the equity part of an offer was worth near zero, then I'd ensure that the cash part of an offer met my needs and aspirations for the medium term. Perhaps there is an argument that by being so focused on the cash part of an offer I probably left equity on the table, if the IPO lottery ticket came in perhaps I would find myself regretting that.

by ffggvv 6y ago

ivalm 6y ago

Not patio11 but you can still evaluate something like net preset value by doing discount to the eventual liquidity event. In reality this is complicated as you need to assign probabilities to (1) when liquidity event can occur (2) real value of your equity at the event (3) discount rate. While estimating probability distributions is probably beyond what one can do without detailed inside knowledge (and even then), it's useful to think of a number of stories, eg: target_co will ipo in 3 years at 2x last raised value, target_co will ipo in 5 year at last raise, target_co will be acquired at 0.1x last raise in 8 years (what is the overhang?); let's say all at equal probabilities. For discount rate you can think of alternative places where you could work (eg. alternative_public_co will grow at -10, +20, +30% yoy with equal probability) + time value of not being able to liquidate (let's say another 10%). This will give you some range of numbers to consider.

ffggvv 6y ago
that makes sense. though it seems like many companies these days such as uber, palantir etc are actually worth less after IPO than before.
- deleted 6y ago
  [deleted]

VBprogrammer 6y ago

Maybe I'm misreading what Patrick is saying here but personally, if I believed that the equity part of an offer was worth near zero, then I'd ensure that the cash part of an offer met my needs and aspirations for the medium term. Perhaps there is an argument that by being so focused on the cash part of an offer I probably left equity on the table, if the IPO lottery ticket came in perhaps I would find myself regretting that.