7 ms·

Ask HN: What is a good “dollar value” equity offering nowadays?

I'm on the prowl for a new job and am expecting several offers in the coming weeks (hence the throwaway). I'd like to get a firm grasp on what to expect for equity. My role would be senior engineer, tech lead, or engineering manager. I'm currently a top performer at a well-known start-up, have a good resume, and interview really well. Besides some limited feedback from peers, most of what I have to go off regarding equity is here: https://www.wealthfront.com/tools/startup-salary-equity-compensation Unfortunately this data is segmented by company size as opposed to company valuation (or FMV) at the time of grant. Ideally, I'd like to get some idea of what a good "dollar value" equity offering might be, if you compute "dollar value" as: dollar value = %ownership * current valuation (not FMV) For example, 50,000 options out of 100,000,000 total issued would be 5 basis points. If the company's current valuation (not FMV) is $150m, that'd be $75,000 in "dollar value". I think putting options in these terms makes the most sense, as it becomes easy to value them against the company's growth. In the above case, if the company quadruples, I stand to gain about 4 x $75,000 (minus price to exercise). I'm very familiar with how options work, FMV vs actual valuation, strike price, vesting, etc... no help needed there. Just looking for some data points about how much "dollar value" in equity companies are offering, and can be negotiated for, nowadays. For example, how many RSUs are Google and FB giving out? How about start-ups? How much will it vary with company stage (seems like it should remain roughly constant)? Thanks.

sokoloff 12y ago
When you say "current valuation" do you mean "valuation at the most recent round"? (Of course, that might be not at all "current".) If the last round was 12 months ago, the last 409A was 6 months ago, and the next round closes in 2 days, I'd argue that the "current" valuation is the price in the next round not the prior round or the 409A. In terms of your example, 50K options out of 100MM total issued, you compute a dollar value of $75K. If you're trying to get at intrinsic value, that assumes that the 100MM is on a fully-diluted (not currently issued) basis, and that the strike price is $0. In particular, watch out for the "fully diluted" bit. HR isn't necessarily lying if you ask them how many shares outstanding and they tell you the answer to the question you asked. That's of some interest, but the fully diluted number is more interesting. To give actual data, we issue RSUs (strike of $0), vest over 4 years (1 year cliff), and grants are in the high 5-figure range for what I'm guessing is your level and from what I recall. (We pay very, very competitive cash salaries, hence the modest equity grant.)
- throwaway748937 12y ago
  When I say "current valuation" I really mean "best value": at what valuation could the company realistically raise money? For public companies, it would be the share price. For companies close to IPO, it would be very near the strike price. For start-ups, it's likely much higher than the strike price... more along the lines of the last round of funding (if recent and no big developments) or what a reasonable estimation would be if they raised right now. I do appreciate the high five figure datapoint you've provided.
  - sokoloff 12y ago
    OK, I was confused as to your specifying that it wasn't FMV. What you're describing I agree is the most useful value to use when thinking about this topic (but I think is also the FMV).
    - throwaway748937 12y ago
      I'm under the impression that "FMV" is the same valuation given at a 409A. The name for the other value -- the value that the company is likely to receive given a round of fundraising -- I'm unsure of. I call it "current valuation" or "best valuation" or "value that the company would receive were it to raise money".
      - sokoloff 12y ago
        Ah. A 409A is supposed to represent the FMV on that date. 5.99 months later, I'd argue that the FMV is more likely than not different. But I now understand what you first said. Best wishes on your search!
gumby 12y ago
I think your metric is backwards which is why you can't find the data you're looking for. First, it's basically impossible to impute a value for startup equity unless you're joining so late it's about to go public. In fact, you can't even do black scholes because the variability is enormous but the transaction set is low, so if you even try to plug it into B-S you get ridiculously high numbers. Sounds like you want to weigh working at a startup vs working at a boring large company like Google. Here's a better way to do the analysis. And remember big companies like Microsoft have to pay large packages to compensate for the boring work and to keep people from being peeled off to work at startups. in late 2010 Google had to give everyone a bonus and a 10% raise just to stanch mass quitting. The general rule of thumb is that the earlier you join, the higher %age you'll get, all other things being equal, in order to compensate you for the risk that the company will go bust. Sometimes it works out great (at my first startup the receptionist paid off her mortgage and could retire) sometimes not (a couple of startups later we all got wiped out). That's why the data you get answers segmented by company size (a rough proxy for riskiness and age of business). Thus: 1 - can the startup pay you enough cash to live OK (by your standards) for a few years? You don't have to live off savings (that's implicitly investing in the business) but you probably won't be out clubbing every week end either. If they can't pay that much you're unlikely to be happy. 2 - Is the work going to be fun? That means stimulating, you're learning, you're contributing, you like your coworkers. If those two are true, you should consider working there. There will of course be crappy times, but as long as you can still pay your bills and you still like most of your colleagues and are learning, it's worth it. Now what about the equity? Well you don't know really enough to evaluate so you can look at the generally collected % numbers and if the offer is in the neighborhood, you're probably OK. You should ask for %age, and you can ask about how they come up with the number, but it will be hard to evaluate. You have to work with people you trust, regardless! But remember even if you see the cap table, you may be surprised. That junior engineer? She's got more equity than you, an experienced guy, because she joined a year ago when the risk was enormous. And then a year later, after you've got professional VC money in? That Marketing VP may have a higher percentage than you, even though the risk is lower -- because he was brought on board as a way of bending the growth curve up (so your stock will be worth a lot more than if the company had saved the equity). Thus my net advice is not to worry about the precise equity number as long as they are in the general neighborhood of the the hard-to-use survey numbers. And don't forget: most startups fail anyway. If you're planning on working for one solely in the hope of massive riches, don't. One thing that cause the massive dotcom boom/bust 15 years ago was the massive influx of carpetbaggers looking for quick riches.

sokoloff 12y ago

When you say "current valuation" do you mean "valuation at the most recent round"? (Of course, that might be not at all "current".) If the last round was 12 months ago, the last 409A was 6 months ago, and the next round closes in 2 days, I'd argue that the "current" valuation is the price in the next round not the prior round or the 409A. In terms of your example, 50K options out of 100MM total issued, you compute a dollar value of $75K. If you're trying to get at intrinsic value, that assumes that the 100MM is on a fully-diluted (not currently issued) basis, and that the strike price is $0. In particular, watch out for the "fully diluted" bit. HR isn't necessarily lying if you ask them how many shares outstanding and they tell you the answer to the question you asked. That's of some interest, but the fully diluted number is more interesting. To give actual data, we issue RSUs (strike of $0), vest over 4 years (1 year cliff), and grants are in the high 5-figure range for what I'm guessing is your level and from what I recall. (We pay very, very competitive cash salaries, hence the modest equity grant.)

throwaway748937 12y ago
When I say "current valuation" I really mean "best value": at what valuation could the company realistically raise money? For public companies, it would be the share price. For companies close to IPO, it would be very near the strike price. For start-ups, it's likely much higher than the strike price... more along the lines of the last round of funding (if recent and no big developments) or what a reasonable estimation would be if they raised right now. I do appreciate the high five figure datapoint you've provided.
- sokoloff 12y ago
  OK, I was confused as to your specifying that it wasn't FMV. What you're describing I agree is the most useful value to use when thinking about this topic (but I think is also the FMV).
  - throwaway748937 12y ago
    I'm under the impression that "FMV" is the same valuation given at a 409A. The name for the other value -- the value that the company is likely to receive given a round of fundraising -- I'm unsure of. I call it "current valuation" or "best valuation" or "value that the company would receive were it to raise money".
    - sokoloff 12y ago
      Ah. A 409A is supposed to represent the FMV on that date. 5.99 months later, I'd argue that the FMV is more likely than not different. But I now understand what you first said. Best wishes on your search!

gumby 12y ago

I think your metric is backwards which is why you can't find the data you're looking for. First, it's basically impossible to impute a value for startup equity unless you're joining so late it's about to go public. In fact, you can't even do black scholes because the variability is enormous but the transaction set is low, so if you even try to plug it into B-S you get ridiculously high numbers. Sounds like you want to weigh working at a startup vs working at a boring large company like Google. Here's a better way to do the analysis. And remember big companies like Microsoft have to pay large packages to compensate for the boring work and to keep people from being peeled off to work at startups. in late 2010 Google had to give everyone a bonus and a 10% raise just to stanch mass quitting. The general rule of thumb is that the earlier you join, the higher %age you'll get, all other things being equal, in order to compensate you for the risk that the company will go bust. Sometimes it works out great (at my first startup the receptionist paid off her mortgage and could retire) sometimes not (a couple of startups later we all got wiped out). That's why the data you get answers segmented by company size (a rough proxy for riskiness and age of business). Thus: 1 - can the startup pay you enough cash to live OK (by your standards) for a few years? You don't have to live off savings (that's implicitly investing in the business) but you probably won't be out clubbing every week end either. If they can't pay that much you're unlikely to be happy. 2 - Is the work going to be fun? That means stimulating, you're learning, you're contributing, you like your coworkers. If those two are true, you should consider working there. There will of course be crappy times, but as long as you can still pay your bills and you still like most of your colleagues and are learning, it's worth it. Now what about the equity? Well you don't know really enough to evaluate so you can look at the generally collected % numbers and if the offer is in the neighborhood, you're probably OK. You should ask for %age, and you can ask about how they come up with the number, but it will be hard to evaluate. You have to work with people you trust, regardless! But remember even if you see the cap table, you may be surprised. That junior engineer? She's got more equity than you, an experienced guy, because she joined a year ago when the risk was enormous. And then a year later, after you've got professional VC money in? That Marketing VP may have a higher percentage than you, even though the risk is lower -- because he was brought on board as a way of bending the growth curve up (so your stock will be worth a lot more than if the company had saved the equity). Thus my net advice is not to worry about the precise equity number as long as they are in the general neighborhood of the the hard-to-use survey numbers. And don't forget: most startups fail anyway. If you're planning on working for one solely in the hope of massive riches, don't. One thing that cause the massive dotcom boom/bust 15 years ago was the massive influx of carpetbaggers looking for quick riches.