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When calculating expected value of private stock/options I multiply by a factor of ~10 at the end. There are so many unknown unknowns that significantly decreas

When calculating expected value of private stock/options I multiply by a factor of ~10 at the end. There are so many unknown unknowns that significantly decrease the value of your equity. The equity agreements I have seen also give ultimate discretion to the board on how your equity is executed. You don’t have control over triggering events and also there are usually quite a few clauses with “at the discretion of the board of directors”. When negotiating offers for non-public companies I provide a sliding scale of cash vs equity. 1 dollar of cash is worth to me 10 dollars in equity of a private company. So if my total comp goal is 300k per year you can give me 250k of cash and 500k of equity, 200k cash and 1000k equity, or just 300k cash. Most companies will baulk at this, but in my experience you have none of the power when holding private equity and so you need a really large multiplier to make it worth the risk. Equity in a public company is a totally different story because the company valuation is controlled by the stock exchanges and you can cash out you equity at any time.

colordrops 4y ago
How would you value apple equity vs cash? I recently got a decent offer with a total comp higher than my current all cash salary, but rejected it as it seems that equity even in Apple is not a sure bet at the moment. Even with the generous offer that was greater than my current salary that they gave me a few months ago, it would still be worth less than my current job after the recent market dip. I asked for more equity to buffer for a potential market downturn, and they insisted that Apple stock doesn't go down lol. Unfortunately I was correct. I've been in the industry for 25 years - what do they take us for?
- pclmulqdq 4y ago
  Most financially savvy people would say that public company equity is almost like cash. If you are saving money for retirement, you are going to put most of your cash in the stock market, and AAPL and the stock market are highly correlated. The vesting schedule essentially forces you to save that cash for a later date (in a volatile but usually highly accretive investment vehicle). You don't have the same kinds of situations as you get with a startup where your company folds but the rest of the market is unaffected.
  - mym1990 4y ago
    I would say take what most 'financially savvy' people say with a grain of salt and go ahead and do your own research or find an actual professional to sort through the details. The average lifespan of a company on the S&P 500 is dropping fairly quickly, which puts the risk of a single investment going to 0(or on a long haul downward trend) higher.
    - gleenn 4y ago
      Obviously "doing your own research" is good but I think the question is totally reasonable in a tech forum where probably a very large percentage of people here have gone through this process. Also, they asked specifically about Apple. Companies that are sitting on massive amounts of cash and have trillion dollar valuations don't disappear over night, they're not gonna "drop out of the S&P" any time in the foreseeable future.
      - mym1990 4y ago
        What question? Did you even read the comment I was responding to(which was not the OP)?
      - mym1990 4y ago
        I guess not
    - pclmulqdq 4y ago
      Yeah, I should have said "blue chip" stock. Public companies include COIN and HOOD, which I would say are more like startups.
  - __turbobrew__ 4y ago
    We are talking about stock/option grants though. You have to factor in what you think the grant will be worth over the vesting period. A lot can happen to a public stock over 4 years and your grant can easily be worth an order of magnitude less once it vests. Cash to a lesser extent has this problem as well that you don’t know how much a dollar will be worth in four years, but it most likely less volatile than the value of equity. I would value a 4 year 500k grant in apple stock much higher than a 4 year 500k grant in a crypto company because I believe the apple grant will better hold it’s value over the vesting period.
- __turbobrew__ 4y ago
  I would personally value apple equity at 70-80% face value vs cash. Apple has solid fundamentals and their equity is liquid. The iphone and m1 macs are still really strong product offerings. Apple also has priority access to TSMC which means they will have the best silicon on the market for the foreseeable future.
- mdavis6890 4y ago
  Public company stock should be valued near it's current market value, minus a bit to account for volatility. I would think 90-95% is about right.
  - dgoldstein0 4y ago
    I think this really depends if you want to come up with it's expected value, or you care about e.g. the p50 or p25 or worse scenarios. Worst case is probably too negative most of the time, but occasionally you might choose to join a company that then implodes or has some really nasty problem surface that tanks the stock value. It really just depends on how risk-averse you want to be as to what metric personally makes the most sense.
    - pclmulqdq 4y ago
      It all depends on when you need the money. If you are expecting to have to spend the money right after the stock vests, it may be worth 50% of cash due to the chance of a bad market. If you are expecting to save the money for 10 years, it's probably worth as much as cash.
bigiain 4y ago
> When calculating expected value of private stock/options I multiply by a factor of ~10 at the end. For early stage startups? I just go ahead and value them at zero. Ownership of equity in pre B series tech startup is, for me, about the same as ownership in a lottery ticket. It has some value in that it's fun to dream about what might happen, but that's pretty much it. I am still likely to jump on start-up offers (I'm kinda waiting on two to form a little more fully right now) where I _know_ the salary will be below market rate, but where I also know the "mission" is something I care about and the team are people I want to work with. But I'm going to do that still valuing the equity at zero. If things work out like the pitch deck says, yeah maybe I'll make 7 figures out of it. But I'm not gonna assume that'll happen, even if the pitch deck success _does_ happen, I'd expect to have been diluted along the way to only end up with 6 or 5 figures.

colordrops 4y ago

How would you value apple equity vs cash? I recently got a decent offer with a total comp higher than my current all cash salary, but rejected it as it seems that equity even in Apple is not a sure bet at the moment. Even with the generous offer that was greater than my current salary that they gave me a few months ago, it would still be worth less than my current job after the recent market dip. I asked for more equity to buffer for a potential market downturn, and they insisted that Apple stock doesn't go down lol. Unfortunately I was correct. I've been in the industry for 25 years - what do they take us for?

pclmulqdq 4y ago
Most financially savvy people would say that public company equity is almost like cash. If you are saving money for retirement, you are going to put most of your cash in the stock market, and AAPL and the stock market are highly correlated. The vesting schedule essentially forces you to save that cash for a later date (in a volatile but usually highly accretive investment vehicle). You don't have the same kinds of situations as you get with a startup where your company folds but the rest of the market is unaffected.
- mym1990 4y ago
  I would say take what most 'financially savvy' people say with a grain of salt and go ahead and do your own research or find an actual professional to sort through the details. The average lifespan of a company on the S&P 500 is dropping fairly quickly, which puts the risk of a single investment going to 0(or on a long haul downward trend) higher.
  - gleenn 4y ago
    Obviously "doing your own research" is good but I think the question is totally reasonable in a tech forum where probably a very large percentage of people here have gone through this process. Also, they asked specifically about Apple. Companies that are sitting on massive amounts of cash and have trillion dollar valuations don't disappear over night, they're not gonna "drop out of the S&P" any time in the foreseeable future.
    - mym1990 4y ago
      What question? Did you even read the comment I was responding to(which was not the OP)?
    - mym1990 4y ago
      I guess not
  - pclmulqdq 4y ago
    Yeah, I should have said "blue chip" stock. Public companies include COIN and HOOD, which I would say are more like startups.
- __turbobrew__ 4y ago
  We are talking about stock/option grants though. You have to factor in what you think the grant will be worth over the vesting period. A lot can happen to a public stock over 4 years and your grant can easily be worth an order of magnitude less once it vests. Cash to a lesser extent has this problem as well that you don’t know how much a dollar will be worth in four years, but it most likely less volatile than the value of equity. I would value a 4 year 500k grant in apple stock much higher than a 4 year 500k grant in a crypto company because I believe the apple grant will better hold it’s value over the vesting period.
__turbobrew__ 4y ago
I would personally value apple equity at 70-80% face value vs cash. Apple has solid fundamentals and their equity is liquid. The iphone and m1 macs are still really strong product offerings. Apple also has priority access to TSMC which means they will have the best silicon on the market for the foreseeable future.
mdavis6890 4y ago
Public company stock should be valued near it's current market value, minus a bit to account for volatility. I would think 90-95% is about right.
- dgoldstein0 4y ago
  I think this really depends if you want to come up with it's expected value, or you care about e.g. the p50 or p25 or worse scenarios. Worst case is probably too negative most of the time, but occasionally you might choose to join a company that then implodes or has some really nasty problem surface that tanks the stock value. It really just depends on how risk-averse you want to be as to what metric personally makes the most sense.
  - pclmulqdq 4y ago
    It all depends on when you need the money. If you are expecting to have to spend the money right after the stock vests, it may be worth 50% of cash due to the chance of a bad market. If you are expecting to save the money for 10 years, it's probably worth as much as cash.

bigiain 4y ago

> When calculating expected value of private stock/options I multiply by a factor of ~10 at the end. For early stage startups? I just go ahead and value them at zero. Ownership of equity in pre B series tech startup is, for me, about the same as ownership in a lottery ticket. It has some value in that it's fun to dream about what might happen, but that's pretty much it. I am still likely to jump on start-up offers (I'm kinda waiting on two to form a little more fully right now) where I _know_ the salary will be below market rate, but where I also know the "mission" is something I care about and the team are people I want to work with. But I'm going to do that still valuing the equity at zero. If things work out like the pitch deck says, yeah maybe I'll make 7 figures out of it. But I'm not gonna assume that'll happen, even if the pitch deck success _does_ happen, I'd expect to have been diluted along the way to only end up with 6 or 5 figures.