
Just how much is that 2% really worth? - taeric
http://www.tejusparikh.com/projects/equity_calculator/index.html
======
onion2k
My advice to people who want to work in a startup is always very simple:
_Ignore any equity._

If you'd take the job without any equity then take the job. If the equity is
part of your reason for taking the job, you probably shouldn't take it.

Base rate neglect[1] means we are _terrible_ at evaluating the probability of
equity being valuable. For every story about someone making millions out of
their equity when the startup they're working for exits there are _thousands_
of stories of people who walked away with nothing but a few years having fun
solving challenging problems. _That_ is the reason to work in a startup,
because that is the definite, concrete thing on the table. If you want to make
millions in software, get a job writing code at a bank and invest your salary.

[1]
[http://en.wikipedia.org/wiki/Base_rate_fallacy](http://en.wikipedia.org/wiki/Base_rate_fallacy)

~~~
eloff
I know you're not being serious about the bank thing, but I just want to say,
if you're a programmer and you love what you do, and you're good enough to be
choosy, don't work for anyone (especially banks!) whose main job is not
software. There are a few exceptional companies, but mostly it's a good rule
of thumb. Working for Dilbert's pointy haired boss is just not a recipe for
happiness - who cares if it pays well. Life is short, if you don't enjoy your
job, change your job!

At any rate that was advice given to me by my father, who worked in the IT
department of a large oil company, had a long line of pointy haired bosses who
took the credit for anything that went well, which was eventually gutted and
outsourced leaving just him and a couple others as insurance. I've regretted
it when I did not heed that advice.

~~~
adrianhoward
_" I know you're not being serious about the bank thing, but I just want to
say, if you're a programmer and you love what you do, and you're good enough
to be choosy, don't work for anyone (especially banks!) whose main job is not
software. "_

I'd disagree with that. Some of the most entertaining bits of work I've ever
done were for companies whose main job wasn't software.

The problem isn't companies who aren't focussed on software. The problem is
companies that don't value the great things that software-oriented folk can
produce. Unfortunately there are plenty of the latter in the software-focused
end of the spectrum too.

Don't work anywhere that treats you badly. Sure. Don't work anywhere that
doesn't value you. Sure. Don't work anywhere you don't enjoy yourself. Sure.

But I know some folk who are having _excellent_ fun at banks. Solving stupidly
hard problems that fascinate 'em, fostered by great management, and being
compensated _very_ well for their trouble.. I know others who have worked at
large tech focussed companies that have had bloody awful stories of management
idiocy. Hell — I've got more than enough horror stories from smaller tech-
focused organisations.

~~~
eloff
Yes, there are exceptions, and the converse doesn't hold. But it works as a
simplification when you're hunting for a job. You're right that the underlying
problem is finding work where you're valued and, I'll add, where you work with
great people. If pointy haired boss did the hiring, your coworkers are likely
going to be inept to add to your misery.

------
colinbartlett
I think people forget just how complex cap tables can get. Add in rules about
vesting and strike price, and dilution in future rounds and debt financing,
and the likelihood that lowly employees receive meaningful amounts at an
acquisition diminish further. Sure, big time paydays and public offerings are
possible, but these are the exception.

Bottom line: Insist to get paid what you're worth and take any options as a
free lottery ticket that will probably never get you anything.

~~~
zorpner
And equally importantly, get paid for the work you do (i.e. don't let anyone
convince you to work nights & weekends for a year to "build the company" based
on a hypothetical payout).

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mrb
There is a _blatant_ bug in the computation. Do not trust the site!

Enter $100k as the startup salary, and zero equity (0 shares, $0 strike price,
no funding round, any sale price for the liquidity event happening after 12
months).

Enter $150k as the big co salary, and the default 5.75% rate of return.

The result should be Total Big Co Earnings = $152,875 ($2,875 is the interest
gained on the $50k salary diff for 12 months), but instead it shows $196,947!

~~~
zeeboo
It appears to apply the interest rate monthly. I'd love to have a 5.75%
interest every month.

Here's the calculation. It's a little high because we should be getting 1/12th
of the 50k per month and compounding, but I'm assuming we got the full 50k up
front and got a 5.75% interest compounded per month.

    
    
        50000*(1.0575 ^ 12)
        97799.02314394798212000000
    

edit: I take it all back. It's super broken. Just mess around with the
interest rate and nothing makes any sense. For example, a 0% return still
gives you $195,833.33 big co earnings on a 150k salary!

edit 2: The bug is in this function and the one below it:
[https://github.com/vijedi/equity_calculator/blob/master/js/a...](https://github.com/vijedi/equity_calculator/blob/master/js/app.js#L161)

If your interest rate is zero, the calculated interest is 11 * the monthly
difference. Then it's added to your base big company salary, which is clearly
wrong. It should be 12 * the monthly difference added to the startup salary.

edit 3: Opened a pull request with what I think is the fix:
[https://github.com/vijedi/equity_calculator/pull/4](https://github.com/vijedi/equity_calculator/pull/4)

~~~
vi_jedi
I'm the guy that wrote this. Thanks for playing with it and fixing the issue.
I guess writing interest calculation functions late at night is a really bad
idea.

------
nilkn
This reminds me of the early-stage startup that offered me a $55k salary in a
big city and zero equity to be engineer #3. They told me that if after a year
I'd become an integral member of the team then we could discuss equity.
Meanwhile they tried to sell me on the job by saying that if the company
succeeded we'd never have to work again.

~~~
hkmurakami
I really don't understand what these companies try to accomplish by
essentially lying to you and trying to defraud you of your value. Do they
really think you'd sitck around for long under these terms after you find out
inevitably how badly you're getting fucked?

~~~
mattzito
A lot of the startups that I see that try this are doing it because they
really believe that they're bringing the value in this relationship - that
they're going to be so successful, there's so much money here, they have SUCH
a good concept, that the applicant should be _grateful_ to get in on the
ground floor.

Of course, 90%+ of the time they're totally wrong about everything about what
they're bringing to the table, and in the other times, they'll often
conveniently change things around to benefit them, like, "Well, you know, I
know we _said_ 4% of the company once we raised series A, but honestly, your
contributions have not been what we expected, and so you really only are
entitled to 1%"

To quote "The Spanish Prisoner":

Jimmy Dell: I think you'll find that if what you've done for them is as
valuable as you say it is, if they are indebted to you morally but not
legally, my experience is they will give you nothing, and they will begin to
act cruelly toward you.

Joe Ross: Why?

Jimmy Dell: To suppress their guilt.

~~~
Jemaclus
I got an offer last year from a company who offered me a 25% salary cut from
my current salary and some negligible equity percentage, and then got all
huffy when I tried to negotiate the salary. In their mind, the equity was
worth so much money, they could pay me peanuts and I should still take the
job. It was a huge turn-off. The guy basically told me to go off. "Why bother
with startups, then?" he says. Completely missed the point of equity/salary.

~~~
mattm
Also, if the equity is worth so much money, why are they even offering it to
you in the first place? You'd think they'd want to keep it all for themselves.

~~~
dkersten
I had a conversation one time that went sorta like this (I don't remember the
exact numbers):

Me: I'd rather be paid, say, $250k to do the work in a year and zero equity

Guy: But if the equity will be worth, say, $4 million in a year, why wouldn't
you do the work for $25k?

Me: If the equity will be worth $4 million, why are you arguing over it -
wouldn't it be better for you to pay me the $250k and pocket the remaining
$3.75 million?

Guy: But the $4 million isn't guaranteed! That mightn't happen.

Me: My fucking point exactly!

And even after saying that himself, he _STILL_ couldn't understand why I would
turn down the equity...

------
lhnz
Instead of working for a big company you could just freelance and temporarily
contract out to large companies. You get all of the $$$ but also the
flexibility for high-optionality events afforded to you from copious free time
to build startups and side projects (as well as time to network with others.)

In my opinion it is far better to secure a high salary and the free-time and
autonomy to work on your own higher-risk pursuits, than it is to secure a low
salary and share a tiny percentage of optionality and autonomy with others on
a high-risk pursuit.

The only exception I'd make is when you're truly enamoured with a vision, a
founder, prone to loneliness and need to belong, or don't wish to focus on
your economic livelihood at all.

At the end of the day the likelihood is that the high-risk pay-off never
comes. Just like almost everybody else you'll become old, have a family and
want to be able to provide for them.

~~~
ranran876
My impression (and I may be wrong) is that you need to be pretty connected or
have some a very niche skill-set to be able to freelance for a living.

I'm a full-time C++ programmer and I'd love to freelance, but I wouldn't know
where to even start.

Maybe this makes more sense for web developers

------
newcf
I'm not entirely sure the calculations work.. Maybe I entered data wrong, but
I was trying to model the acquisition/startup that I just went through. with
our numbers, and our dollars, and my shares.... I walked with a heckuva lot of
money, but that's not what the site said.

~~~
calebclark
There is a bug that triggers when you add a funding round. It takes your
equity percentage down to zero, regardless of the amount raised or pre-money
valuation.

~~~
drcoopster
That's not a bug.

~~~
SeoxyS
How so? I agree that as soon as you add a round of funding, the math gets
wonky.

For example, I'm trying to model what a ~5% ownership looks like, and as soon
as I add a round of funding that creates 10% dilution with no liquidation
preferences, the site says the final ownership percentage is zero. It doesn't
even matter what the exit is for at that point, without liquidation
preferences, the ownership should still be ~4.6%.

~~~
drcoopster
Because in real life, you still end up with nothing of value. :)

------
jaksmit
Even as a company founder, I don't keep half the stuff mentioned on here top
of mind, so I doubt that any employee is going to have enough information to
complete it correctly. e.g. to model what you "would have made" if you'd
joined Uber at X stage, you'd have to know the pre-money valuation of each
funding round they received, along with the investors' liquidation preferences
etc and who knows, they may take on even more funding before going public,
which would mean your shares would get diluted even further.

Overall, if anything, this just serves to illustrate all the complexities
involved in trying to model how much a startup's equity offer is actually
"worth" in the long-run and that trying to do calculations to model it against
an offer at a big company is totally the wrong way to go about it.

It just validates what Mark Suster says here:
[http://www.bothsidesofthetable.com/2009/11/04/is-it-time-
for...](http://www.bothsidesofthetable.com/2009/11/04/is-it-time-for-you-to-
earn-or-to-learn/)

don't join a startup because you could potentially make millions of $. Join if
you want to learn; any money you make would be if you got really lucky and is
a nice side bonus.

------
optimusclimb
I'm starting to feel like the entire equity offering model is broken.

While I agree that you should take a job at a startup for reasons intrinsic to
the job itself, and not just the comp (or possible comp) - it is still part of
the offer.

If someone is offering you a form of compensation, that means you should be
able to evaluate it. Otherwise the offer might as well come with a guarantee
of two unicorns after four years.

Additionally, almost EVERY startup trying to entice people to work for them
mentions the equity as part of the sales pitch. "Meaningful equity",
"Ownership in the company", "Shares of a pre-IPO company", etc, etc.

So if you're pitching people based off of an intangible, almost meaningless
number, that smells like a problem, to me.

I understand all of the complications, the effect of future rounds being an
unknown, etc...but is there a way to improve this?

Perhaps if, at the time of offer, and with each change in funding - there was
a clearly spelled out, given possible outcome at this time, here's the
breakdown of what you get - that could help?

I.e., If were were bought out at $100M right now, the founders would receive
$12M, and you would end up with $37k...maybe people could evaluate better how
"worth it" it is to them.

Additionally, when things happen like founders getting cashed out for some
sort of comfort effect, like "OK guys, you each at least got a million out of
this, run the company now with some security behind you"...employees should be
made aware.

I guess I just feel like there needs to be more transparency, but I'm not
savvy enough to know a good way to offer that.

~~~
dreese
I think that's why it's best to know the percentage of the company you are
being offered. Share count is meaningless without knowing total number of
shares.

Once you know the percentage (say 0.1%), you can figure out some other stuff.
Asking about the company's hopes to go public or be acquired, and at what
valuations, can lead to a lot of good discussions.

------
zhte415
Nice skit.

Small point: Fixed positioning of column on right (contaning calculations)
obscures the bottom few lines on desktop (the result), probably due to
expecting a greater vertical resolution. On mobile (Android) it completely
obscures all input forms.

~~~
maaku
Utterly unusable on Android*.

EDIT: Works on iOS.

~~~
crgt
Worked on iOS for me?

------
nwatson
(All this is from US tax viewpoint ...)

Also factor in the huge one-time payout and how that's taxed at a higher rate
than your normal big-company earnings. I know people who got hammered at
Federal + California + special-California/Federal-taxes at 50%+ tax rate, all
because the acquiring company decided to close a few days into 2013, when tax
rates went up considerably, with special surtaxes to boot. A few days earlier
would have cut the tax rate by a lot.

That tax is magnified if you don't pre-exercise for long-term capital gains
advantages -- the whole liquidity event becomes straight income.

------
vectorpush
Don't forget that equity doesn't vest immediately. If you take a pay cut in
exchange for equity but you leave or are let go before your cliff, you've
essentially forfeited a portion of your compensation package in exchange for
nothing. I guess this should be obvious, but it may not seem like a real
consequence when the founders are asking you about what kind of car you think
you'll buy when the start-up explodes.

------
josh33
Don't forget taxes will take a large chunk of any payout away. Sometimes as
much as 50% when you factor in state taxes.

~~~
acgourley
If you get an early stock grant and file your 83(b) you'll actually be taxed
as long term capital gains.

~~~
thecage411
Not necessarily, it only starts the long term capital gains clock: you still
need to hold the stock for a year and have the grant be at least two years in
the past to qualify.

Also, the company may not allow you to early exercise. Ask them before
accepting an offer!

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peterjancelis
I'd include in this calculator a negative value per 'passion' speech given by
the founders to convince the employees they are building something 'bigger
than themselves'.

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chrisbennet
If the founder is motivated by equity it would be disingenuous to expect an
employee to be equally motivated for a much smaller slice of equity.

I.e. if a founder can expect a payout of $X for working 16 hrs a day he
shouldn't be surprised if an employee; who can expect 1/100 of that, only
feels motivated to work 8 hours a day.

------
chiph
Underwater means no big payday. :(

~~~
georgemcbay
Or worse.

You can get screwed on AMT tax on fictional gains, you can also lose real
upfront money if you exercise at a strike price early for long term cap gains
[almost always a bad move for common stock employees, but lots do it because
of their borderline irrational hatred of the idea of taxes].

------
joshdance
When friends ask me where I work, and I tell them a startup, they always ask
if I got stock. I tell them yet, but it isn't worth anything until it is. I
agree with the idea that you should take the job if you would without equity.

------
Airic
Cool resource but it seems like there's a risk that an employee would
inadvertently reveal sensitive financing information by completing this form.

------
cgtyoder
The typical number of shares created for startups these days is 10M, so it
might be worth putting that in as the default number of shares issued.

------
smileysteve
Cool site. Re Onion2's top post, could add this into a 90%, 8%, 2% calculator
of different liquidation events.

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OhHeyItsE
I think it's even more complicated than this. But props on the design. Nice to
look at.

------
mahmoudimus
The most interesting thing is that this website is licensed under GPLv2. Seems
excessive.

------
Swizec
As I always like to say, equity doesn't pay rent in SF or put food on the
table.

------
dkador
Shouldn't this have a field for the salary you make at the startup?

------
good-citizen
pretty good job! my only comment is to make more standard options to select
from a list vs. typing in any value.

------
jhaile
Like the design. Good job!

------
ejhabammeg66
Good job!

