

Ask HN: How can I discover the current market value of private equity? - CompDecision

I have been offered a job at a privately held company that seems like it might be about to IPO, and the compensation package includes equity that, under some circumstances, could be a large portion of my compensation. I&#x27;m trying to figure out the current market value of that equity.<p>If I end up considering the equity as worth $0, like some people recommend doing for jobs in startups, taking the job would be a huge pay cut from my current position, and I would not accept the job offer.<p>What I know so far:<p>1. The stock prices at all rounds of funding, both the most recent and all previous ones<p>2. The revenue growth since the last round of funding<p>3. Employees are telling me that internal transparency about revenue has gone down recently, which they interpret as a sign of approaching an IPO<p>4. High-level employees have given me their personal estimates of the value of the stock today. Some of those estimates are too low for me to want to accept the job offer, some are high enough that I would want to accept the job offer.<p>How can I discover what this equity would sell for today? I&#x27;m trying to get information out of SharesPost and EquityZen, but that seems to be a very slow-moving process by design.
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hdmoore
The pre-IPO bids for Facebook at SecondMarket were substantially higher than
the original IPO (first-day trading price), less than a week before private
trading was halted. Even the private market has no idea what non-public shares
are worth. IMO, ask for an increase in salary, or tie the value of the stock
to a conditional bonus payout. Keep in mind that even if the company goes
public and the stock does well, you probably won't be able to sell for 12-18
months due to lockups, so the IPO price is less relevant to your compensation
than the long-term stock price. If you are smart (and have the cash), a 83(b)
election can be hugely beneficial for your taxes... unless the price at which
you do the election is far above the eventual market price of the stock, in
which case you are out quite a bit of money.

Edit: If the company truly feels that their stock can be substituted for
salary, then it shouldn't have more than a 12-month cliff for vesting.

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CompDecision
> The pre-IPO bids for Facebook at SecondMarket were substantially higher than
> the original IPO (first-day trading price), less than a week before private
> trading was halted.

How much higher?

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hdmoore
Roughly 10%, but I forget the exact numbers. It took over a year before those
private buyers could sell above cost.

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brudgers
Unless the executives strike you as people who _want_ to make you rich, I'd
take the people suggesting lower valuations more seriously. I'd also consider
lower transparency as neutral at best, worrying at worst.

I'd add that exercising options may not be viable in a liquidity event or if
you leave the company.

Good luck.

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raincom
I joined a pre-IPO company as a contract to hire, and then decided to not join
as full time. But I had buddies who joined full time. They all left the
company 8 months later after the IPO: the stock price fizzled out.

Just compare your salary and options, with what Google, Apple offer. And also
check whether the start up is type A (Uber, Dropbox, etc), type B (box, etc)
or type C (unknown potential).

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CompDecision
> And also check whether the start up is type A (Uber, Dropbox, etc), type B
> (box, etc) or type C (unknown potential).

What do these categories mean? How can I distinguish between them?

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akg_67
If a company has a public competitor/comparable, you may be able to use
comparables to estimate value of the company. Personally, if your only reason
to take the job is how quickly you can make a buck through IPO flip, you most
likely will be very disappointed.

 _seems like it might be about to IPO_

Seems by whom? What is the likelihood of IPO happening?

Every startup I have talked to in past 4 years, claims they are going for IPO
within a year or two. Not a single company among them have done the IPO yet. I
personally see claims of impending IPO just a recruiting tool. Any IPO claims
need to be discounted heavily. IPO is not easy to pull off! M&A is much more
likely than IPO.

 _under some circumstances, could be a large portion of my compensation_

What circumstances and the likelihood of those circumstances occurring? You
need to list each circumstance, and its probability of happening, and the
outcome.

 _If I end up considering the equity as worth $0, like some people recommend
doing for jobs in startups, taking the job would be a huge pay cut from my
current position, and I would not accept the job offer._

That is the baseline you should start with. Do a probabilistic analysis, the
likelihood of different event, expected outcome and benefit to you. If you
can't come up with a highly probable scenario, I wouldn't assume anything
beyond baseline scenario to play out.

 _The stock prices at all rounds of funding, both the most recent and all
previous ones_

Do you have actual number of shares at each funding round or how much the
company was valued at each funding round? It might be useful in valuing the
company if it is really going for IPO. As investors expect M&A to be more
likely event, most will have some sort of liquidation preferences attached to
funding. So outcome for you in case of M&A is much more diluted.

 _The revenue growth since the last round of funding_

Do you have actual revenue numbers or just claims by someone of revenue
growth? If you have actual revenue numbers they will be useful in valuing the
company, revenue growth not so much. Most of the time, these growth claims are
inflated so will need to heavily discount such claims.

 _Employees are telling me that internal transparency about revenue has gone
down recently, which they interpret as a sign of approaching an IPO_

Do these employees have direct exposure/visibility to sales and revenue
pipeline? How close are these employees to the pipelines where they can see
the actual product, sales and revenue flow? More visibility, more believable
unless they are working on convincing you of something. I have never met a
Sales VP who claimed sales are not going that well.

Has company retained investment banker yet or do employees see suit-types
(bankers, accounting, lawyers) showing up and hanging in the office or CEO
making frequent trips to Investment Banking companies and locations? These are
better indicators of IPOs. The pessimistic interpretation of reduced
transparency will be that company is struggling to generate revenues and
revenue growth and is in trouble.

For a complete picture of revenue and revenue growth you will need to talk to
different internal groups that touch customers such as sales, marketing,
service, account receivables, finance.

 _High-level employees have given me their personal estimates of the value of
the stock today. Some of those estimates are too low for me to want to accept
the job offer, some are high enough that I would want to accept the job
offer._

The ones giving you the low estimates are likely to be more realistic unless
personally they are impacted negatively by you taking the job. I will suggest
to take some of them out of the office individually for lunch or coffee and
see if you can dig in to the basis of their estimates and motives. I will
ignore the ones giving high estimates, they are optimistically blind. Any
employees with the midrange estimates who are closer to customers may be worth
talking to.

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CompDecision
Thank you, you've given me a lot of good questions to ask and things to
investigate.

