4 ms·
1% equity in a company that exits for $10M or less probably isn't worth having. Since many companies exit for $10M or less, that means getting 1% equity usuall
by sillysaurus3 12y ago
1% equity in a company that exits for $10M or less probably isn't worth having. Since many companies exit for $10M or less, that means getting 1% equity usually isn't worthwhile.
1% equity in a $10M exit would net you $100k. Given a four year vesting schedule, that's $25k/yr. Since you're working for a startup, your salary might very well be much less than $25k/yr of what you're normally worth at other companies. Aggressively negotiating your salary at a non-startup company can get you that much and then some.
So it's about whether you believe the company will make a >$10M exit, knowing that most companies die and many exit for $10M or less.
It's also about other factors. For example, whether you get paid depends on liquidation preferences, and how much you get paid depends on dilution and taxes.
Also cost of living. I've heard that decent apartments in SF can go for $3k. (Zillow seems to confirm that many apartments are around $3k.) Compared to a $1,500 apartment in a place with reasonable cost of living, that's an extra $18k/yr that you'll need to pay just to live there. Actually, that's $18k/yr of post-tax salary, so more like $36k/yr of salary.
- SeoxyS 12y agoNot to mention that you'll probably have to pay for those options at a strike price equivalent to a valuation of $3M+. You only make money on the difference. You'd end up with a sub-100k pay day.
- artemk 12y agoThat's where the options vs RSUS comes in. There's a high chance of RSU at early stage start ups
- burger_moon 12y agoCan you explain this further? I'm not familiar with those terms?
- RickS 12y ago>The main difference between an RSU and a stock option is that the former may result in a direct cash outlay, whereas, in the latter case, you get shares. Of course, if you have a stock option you can choose to turn the stock into cash when you receive the option. If you have an RSU, depending on the agreement, you may not be able to receive stock, as the company may restrict you to receiving cash. via: http://finance.zacks.com/stock-options-vs-rsus-3356.html http://finance.zacks.com/stock-options-vs-rsus-3356.html
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- sliverstorm 12y agoI'm more familiar with RSU's, but my layman's understanding is: RSU is a direct grant of shares, not dissimilar from a cash bonus. Stock options are the opportunity to purchase shares at a set price, which as I understand it will be lower than market value. If stock price remains stable, you have essentially been granted the difference between the market price and the set price.
- kasey_junk 12y agoThe huge caveat to that is that most option contracts require an outlay of cash at exercise time and RSU's typically don't. If that exercise point is at an IPO or other exit event, it is largely irrelevant because the deal itself will typically finance the conversion of the options to stock. If you quit or get fired on the other hand, you are on the hook for the money to exercise the options. That is on top of your lowered salary and your vesting time period, in order to get any value out of the options you have to give the company you are leaving for one reason or another, real actual cash.
- pbreit 12y agoA sub $10m exit is rare in YC portfolio.
- sz4kerto 12y agohttp://upstart.bizjournals.com/companies/hatched/2013/12/16/paul-graham-reveals-y-combinator-stats.html?page=al http://upstart.bizjournals.com/companies/hatched/2013/12/16/... "The tally of 42 companies means about 6.7 percent of all Y Combinator-funded companies have hit the $40 million figure so far" A sub-10M exit might be rare, but sub-10M exit + failures together migth not be rare at all.
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- ceejayoz 12y agoSo's an over $10m exit.
- maaku 12y agoAs a rule of thumb, you should cut that 1% equity in half for such calculations, due to future dilution, liquidation preference on exit, etc.