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

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

#41

Post by spektom »

kspaans wrote: post #16

Knowing the number of options isn't nearly as useful as knowing what percentage of the company you will own. This lets you calculate the various ways the value of your equity will change as the business gets more investment, sells, or goes public. The company should tell you are offered 200 shares of, say, 2 million outstanding shares. If the valuation you say is accurate, it looks like they are giving you options fo…

> If the valuation you say is accurate, it looks like they are giving you options for around 0.026% of the company

Don't forget about dilution - outstanding shares is only a portion of currently issued shares. With 3 dilutions or more this percentage is going to be much smaller.

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

#42

Post by nthState »

chillydawg wrote: post #19

Ask for more cash and hand back the options, invest the cash in your retirement or property or whatever. You don't have enough years to play the same lottery as VC's. The mere fact you are asking how to value these means you are probably in no position to do so, therefore you are probably getting a terrible deal.

@chillydawg, Based on the options they have been offered (200 * 1300 = 260,000), What reasonable amount of money do you think they should ask for on-top of their salary, if they forego the options?

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

#43

Post by calcsam »

I actually built an app to do this kind of calculation. It walks you through each of the calculation steps and variables involved, along with context:

http://www.optionvalue.io/

The main pieces of information you need to know are:

* Total number of outstanding shares

* Strike price

The main thing you'll need more detail on (though perhaps you have it) about is whether the $1300 number is the per-share value (= $1B / number of shares) or a per-share strike price (the amount you have to pay to exercise each share).

The base assumption you'll want to make when doing the calculation is that the company exits at the current valuation. Obviously it could exit for a lot more or a lot less, but the last VC valuation is a reasonable E(x), and while you can add an asterisk around how VC shares work vs employee shares, it should be accurate +-10-20%.

The other big thing you'll want to know is how long it could be until the company IPOs or exits and you can actually get cash. A good optimistic scenario, if they are a SaaS startup, is to ask them about 2015 and 2016 revenue and figure out how long it would take them to get to $200M revenue at current growth rates.

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

#46

Post by calcsam »

daveguy wrote: post #18

If they are currently valued at $1300 each with a private company valuation of $1B that means: You have to pay $1300 per share to acquire them and have no ability to sell them. If the company goes public or acquired the company will have to be valued more than $1B for the options to be worth anything to you. Honestly you shouldn't ever consider options to be worth anything more than the paper they're printed on until…

The main thing we need more detail on is whether the $1300 number is the per-share preferred share value (= $1B / number of shares or a per-share 409a valuation / strike price.

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

#47

Post by dajohnson89 »

oroup wrote: post #25

$1300 is really an unusually high strike price. While in theory there is no difference between 200 options at $1300 per share and 20k options at $13 per share, the former is very unusual and I'd at least want to know the story. If the company is to IPO there will almost certainly be a stock split. One way to force small stakeholders off your cap table is to do a reverse stock split because fractional shares are typic…

I thought exactly this. $1300 per share seems like an obvious way to keep the small fry out.

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

#48

Post by gorbachev »

Those options represent a .026% ownership stake of the company.

However, it's not quite a simple as that, because some of the investors almost certainly have more preferential shares of the company, so what those options really represent is 0.026% of anything after those investors take their cut. mathattack's answer starts getting at it in a little bit more detail.

You should value them at $0 for purposes of evaluating the job offer. The only way you could tell what they can/could be worth is having a peek at the future at the time the company is about to exit.

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

#49

Post by caseysoftware »

Effectively zero for the foreseeable future.

The "valuation" of a company is a tricky figure because it can be based on a variety of things.

While the company is still private, it's based on the latest investment round which is whatever the investors agreed to. I can buy 0.0000001% of your company for $1 but it doesn't mean your company is "worth" $1T anywhere but in my head.

In the public markets, it's usually related to current and future estimate sales. There's still no equation, just a gut feeling.

And wow. That's an amazingly high strike price.

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