Ask HN: How do I gauge the value of stock options that I have been offered?

0) Make sure you understand 409a valuation and Alternative Minimum Tax. These two concepts will materially impact the post-tax value of late-stage private company options.

1) Clarify what the $1300 price is. Is it a 409a price, or the latest preferred share price, or something else? Also, get an exact number if $1300 is approximate.

2) Make sure your options are ISOs (and not NSOs). Ask for the count of total outstanding shares.

3) Try to get a history of the company's recent 409a valuations. This will give you some idea of how fast the fair market value is growing. Fair market value at time of exercise affects the taxes you owe.

4) If you leave the company, check how long you have to exercise your options or lose them. The standard is 90 days - this is something to be aware of so it doesn't surprise you.

Let me compare it with something else - say you already belonged to a gym but your employer as a christmas gift gave you a totally transferrable 50% off gift certificate (but that there's no particularly liquid market for, it's not like it has an obvious market price you can sell online) to a more expensive gym that is far from you, that you don't like for some reason because its focus doesn't match yours (maybe it's always fairly bustling and you like fewer people distracting you, whatever, in fact maybe you like going at times that that gym is closed!), and that is still more expensive after 50% off than your annually paid-up membership 15 minutes from your house and that you like: then you would be happy to give it to someone you know for, say $10 or if it'll make them happy or as a favor or for a sandwich. It really is something you value at closer to $0, and I judge that you would be glad to part with it for that amount or for free in that case.

I judge you wouldn't actually part with your options for $10 or $50 even if hypothetically it's legal and trivially easy for you. This is just my impression. I don't think you would do it. If you reflect on the two scenarios above (the first and the second paragraph of this comment) I think in your heart of hearts you see the difference. It's not a small difference.

A few questions you can and should ask:

1 - What was the last valuation based on outside investors, and how long ago was it?

2 - How many preferences are in the cap table? (If a group of investors put in 100 million with a 2X liquidation preference then they are guaranteed to get 200 million before others get anything)

3 - Related to 2, ask at what exit value all shareholders get treated the same.

4 - Ask about how soon you would have to exercise upon leaving. (Frequently 90 days)

5 - See if the stock is trading in any secondary markets, or if there is news of public market investors remarking their shares.

6 - Ask about growth projections. (EBITDA for PE funded companies, Revenue for VC backed)

7 - Ask if future rounds will be needed. (If the business isn't close to cash flow positive and there are a lot of growth projected, this will take a lot of money)

Net - there is a price the investors put per share on their stock. Yours should be at some discount to that. So if the investors value it at $1300 then you should come in less, much less. (And if it's too much less than the strike price, you are betting on a lot of growth)