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Ask HN: Need help in understanding private equity offer

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Re: Ask HN: Need help in understanding private equity offer

#21

Post by s1artibartfast »

imheretolearn wrote: post #5
abrichr wrote: post #3

Without knowing the total number of shares, it's impossible to know what your friend's 10k shares would be worth. e.g. if there are 100M shares total, then his shares would be worth 10k/100M = 0.0001 of the valuation of $70B, i.e. $7M. In order to own these shares, he would have to exercise the options, meaning he would need to pay the strike price of $0.01 per share, i.e. 10k * $0.01 = $100. Also important to note i…

The total number of shares will be limited to 607,500,000

This is incomplete information. Shares will be limited in what context? Employee option pool, this round, ect.

As far as I know, early-stage companies don't put an upper cap on the number of shares that can exist in the future. Is this some sort of crypto company?

Re: Ask HN: Need help in understanding private equity offer

#22

Post by pgwhalen »

qeternity wrote: post #20
pgwhalen wrote: post #13

Earlier quoted context omitted.

I think you misspoke? No company in history has ever raise $100b in a year, but that’s about what SpaceX is valued at now.

OP clearly means they raised around a $100b valuation .

That’s why I assumed it and politely clarified.

Re: Ask HN: Need help in understanding private equity offer

#23

Post by bspear »

thoughtstheseus wrote: post #7

The $70 billion valuation is suspect. Far too high for nearly all early stage companies. SpaceX raised last year (?) around $100 billion for reference.

Think OP meant $70M not $70B if they just raised $17M in funding.

To calculate your gross $ value today, you need to know your # of shares (10K) divided by total fully diluted outstanding shares (607,500,000) multiplied by the valuation (probably $70M).

Strike price is your cost to exercise the options, which should be deducted from your gross value. You will likely also incur taxes unless you exercise right away via 83B election

Re: Ask HN: Need help in understanding private equity offer

#24

Post by tracker2020 »

bspear wrote: post #23
thoughtstheseus wrote: post #7

The $70 billion valuation is suspect. Far too high for nearly all early stage companies. SpaceX raised last year (?) around $100 billion for reference.

Think OP meant $70M not $70B if they just raised $17M in funding. To calculate your gross $ value today, you need to know your # of shares (10K) divided by total fully diluted outstanding shares (607,500,000) multiplied by the valuation (probably $70M). Strike price is your cost to exercise the options, which should be deducted from your gross value. You will likely also incur taxes unless you exercise right away via…

$70M valuation makes more sense.

Only 10K shares feels very low though if there are really 607M outstanding shares (seems too high). It's Seed-Series A, your friend should be getting at least 0.1% even as a junior IC: : https://topstartups.io/startup-salary-equity-database/

Re: Ask HN: Need help in understanding private equity offer

#25

Post by brudgers »

10k is 1% of a million.

So At a company exit at $6 billion (very unlikely), the shares would be worth about $120,000.

For perspective Twitter went public at $14 billion and Google at $23 billion.

So a Google size IPO would be less than half a million dollars.

That’s without additional dilution, liquidation preferences for preferred stock, and getting fired to increase returns for those first in line.

And less exercise price.

And capital gains taxes.

It’s not a bullshit offer, because the company hopes your friend believes in it.

That makes it horseshit.

Good luck.

Re: Ask HN: Need help in understanding private equity offer

#26

Post by brudgers »

brudgers wrote: post #25

10k is 1% of a million. So At a company exit at $6 billion (very unlikely), the shares would be worth about $120,000. For perspective Twitter went public at $14 billion and Google at $23 billion. So a Google size IPO would be less than half a million dollars. That’s without additional dilution, liquidation preferences for preferred stock, and getting fired to increase returns for those first in line. And less exercis…

I don’t usually comment on my own posts, but…

The important takeaway is the offer is a tell.

The founders are giving fair warning that they do not want your friend to get rich.

That’s different from not caring if your friend gets rich.

Quite different from being happy if your friend gets rich.

And the polar end of the goodwill spectrum from trying to make your friend rich.

Re: Ask HN: Need help in understanding private equity offer

#27

Post by icedchai »

imheretolearn wrote: post #5
abrichr wrote: post #3

Without knowing the total number of shares, it's impossible to know what your friend's 10k shares would be worth. e.g. if there are 100M shares total, then his shares would be worth 10k/100M = 0.0001 of the valuation of $70B, i.e. $7M. In order to own these shares, he would have to exercise the options, meaning he would need to pay the strike price of $0.01 per share, i.e. 10k * $0.01 = $100. Also important to note i…

The total number of shares will be limited to 607,500,000

This is impossible to guarantee. The company may need to raise more money, likely through equity, not debt. To issue more equity, they will need to issue more shares. That is just how it works.

Re: Ask HN: Need help in understanding private equity offer

#28

Post by thoughtstheseus »

qeternity wrote: post #20
pgwhalen wrote: post #13

Earlier quoted context omitted.

I think you misspoke? No company in history has ever raise $100b in a year, but that’s about what SpaceX is valued at now.

OP clearly means they raised around a $100b valuation .

Perhaps I was not clear enough ;). Thank you for clarifying, much appreciated.

Re: Ask HN: Need help in understanding private equity offer

#29

Post by thoughtstheseus »

bspear wrote: post #23
thoughtstheseus wrote: post #7

The $70 billion valuation is suspect. Far too high for nearly all early stage companies. SpaceX raised last year (?) around $100 billion for reference.

Think OP meant $70M not $70B if they just raised $17M in funding. To calculate your gross $ value today, you need to know your # of shares (10K) divided by total fully diluted outstanding shares (607,500,000) multiplied by the valuation (probably $70M). Strike price is your cost to exercise the options, which should be deducted from your gross value. You will likely also incur taxes unless you exercise right away via…

The value is $0 today because there is no market (it’s an early stage startup) where you could sell those shares(?)

The shares are a lottery ticket at best unless you have conviction in the companies ability to succeed and become more valuable overtime.

Re: Ask HN: Need help in understanding private equity offer

#30

Post by psyklic »

imheretolearn wrote: post #5
abrichr wrote: post #3

Without knowing the total number of shares, it's impossible to know what your friend's 10k shares would be worth. e.g. if there are 100M shares total, then his shares would be worth 10k/100M = 0.0001 of the valuation of $70B, i.e. $7M. In order to own these shares, he would have to exercise the options, meaning he would need to pay the strike price of $0.01 per share, i.e. 10k * $0.01 = $100. Also important to note i…

The total number of shares will be limited to 607,500,000

It seems strange to cap the number of shares, which makes me wonder if this is the number of shares in an option pool. If so, nothing can be inferred about percentage ownership, except that your friend would likely own a very insignicant number of shares. Note that a new company typically allocates 10M shares, so it's additionally unclear why now there are so many.
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