

Ask HN: What is a good “dollar value” equity offering nowadays? - throwaway748937

I&#x27;m on the prowl for a new job and am expecting several offers in the coming weeks (hence the throwaway).  I&#x27;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&#x27;m currently a top performer at a well-known start-up, have a good resume, and interview really well.<p>Besides some limited feedback from peers, most of what I have to go off regarding equity is here:<p>https:&#x2F;&#x2F;www.wealthfront.com&#x2F;tools&#x2F;startup-salary-equity-compensation<p>Unfortunately this data is segmented by company size as opposed to company valuation (or FMV) at the time of grant.  Ideally, I&#x27;d like to get some idea of what a good &quot;dollar value&quot; equity offering might be, if you compute &quot;dollar value&quot; as:<p><pre><code>    dollar value = %ownership * current valuation (not FMV)
</code></pre>
For example, 50,000 options out of 100,000,000 total issued would be 5 basis points.  If the company&#x27;s current valuation (not FMV) is $150m, that&#x27;d be $75,000 in &quot;dollar value&quot;.  I think putting options in these terms makes the most sense, as it becomes easy to value them against the company&#x27;s growth.  In the above case, if the company quadruples, I stand to gain about 4 x $75,000 (minus price to exercise).  I&#x27;m very familiar with how options work, FMV vs actual valuation, strike price, vesting, etc... no help needed there.<p>Just looking for some data points about how much &quot;dollar value&quot; 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)?<p>Thanks.
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sokoloff
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.)

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throwaway748937
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
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
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
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!

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gumby
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.

~~~
throwaway748937
I'm not trying to weigh working at a start-up vs. a late stage or public
company. I'm trying to get some data on what various companies are offering
for the equity portion of their compensation, and am using "dollar value" as
the way to measure this.

Imputing a value isn't that difficult. In fact, this happens each time the
company goes out to raise money. A lower bound to this would be the latest
409A valuation.

Granted, there are still plenty of variables that can affect the overall value
of the optoins, such as companies having different growth/exit trajectories,
and the difference between "strike price" and "current valuation", but "dollar
value" is probably the most reasonable way to compare apples to apples.

Several methods of determining how many options to grant employees are based
off of "dollar value"[1]. For example, if you are foregoing $100k of salary
over 4 years, it makes sense to obtain _at least_ that much in "dollar value"
of options. I'd like to see how much equity is actually being offered in
practice.

[1]: [http://avc.com/2010/11/employee-equity-how-
much/](http://avc.com/2010/11/employee-equity-how-much/)

~~~
gumby
Believing a 409A has any meaning beyond satisfying the IRS/sarbox ass covering
is, well, your business. In any case it applies at the instant the valuation
is done; typically (for all the ones I've read / paid for) uses black scholes
which rarely makes sense for an illiquid startup; and in any case has no
relation to what you might get out of your option package, which is ultimately
what matters, isn't it.

BTW for a private startup, RSUs are typically worse for the recipient than
ISOs. Only at the odd unicorn might they start to make sense.

But whatever floats your boat -- if you want to try to put a dollar value on
something ineffable, that's your business.

~~~
throwaway748937
I'm not meaning to be snarky here, but you're not really providing me with any
new information. I'm not particularly interested in what the exact dollar
amount that I'm statistically likely to earn after taxes is, for example.

What I'd like to know is the going rate for equity packages at start-ups. I'm
suggesting using "dollar value of shares granted" as the way to measure this,
and am providing what I believe is the best way to arrive at that: Use the
valuation that the company would receive were it to raise money. (A typical
lower bound for this would be 409A valuation, but likely would be much more).

I'm confident this way of valuing options grants is sensible. If you have a
better way of assigning a rough estimate to options' worth that would be
applicable across all stages of a company, I'd love to hear it.

~~~
gumby
But I _am_ I'm saying your attempt to assign a dollar value is indeed
nonsensical, in particular for early stage startups. That's why most people
simply use percentages as their measurement of the "going rate" for early
stage startups.

Your complaint is that you can't get data using a different method of your
preference. If you want to use your own metric it's up to you to deal with it.

Not everything can be captured simply by measuring it in dollars.

~~~
throwaway748937
Just to be clear: you believe equity %age vs number of employees is more
informative than %age vs company valuation?

~~~
gumby
I believe that too, especially in early stages.

But my point is that trying to convert your percentage to a dollar value in
order to compare offers is probably not going to result in any predictive
value.

