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I'm not sure that is the "right" way (if there is a "right" way), because ideally you would find the expected utility of that equity. What I mean is that a scen
by naturalauction 5y ago
I'm not sure that is the "right" way (if there is a "right" way), because ideally you would find the expected utility of that equity. What I mean is that a scenario with a 100% chance of making $10 million and a scenario with a 10% chance of making $100 million and a 90% chance of making $0 hace the same expected value. However, many people will be happy to retire on $10 million or $100 million - so a 10% chance of retiring is a much worse option than a 100% chance of retiring even though they have the same expected value (the guaranteed money has a much higher expected utility).
- ska 5y agoSure, but that's why I said compare to other opportunities and repeat. But you are right, I should have said "a better way". EV works ok at the beginning to sanity check, because you have very little info, and honestly unlikey enough to do a utility comparison on two similar offers. EU is really hard to even estimate here. If you truly value equity at $0, why accept it at all? Fwiw I've seen this experiment done with founding engineers, offer a sliding scale of salary and equity, in bounded ranges. 100% of people in that case (small sample) took some equity in exchange for a bit lower salary. Obviously they didn't actually value it at $0.
- vl 5y agoEV is a good first step because it’s way easier to calculate than EU. Look at similar companies, do the math, compare to corporate EV and boom - 95% of startup offers are really uncompetitive. Reliable EU calculations are mostly possible for pre-IPO companies, and even then…