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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?

#11

Post by origami777 »

tazoo wrote: post #6
origami777 wrote: post #2

Would love to see what others more experienced have to say. The two considerations I'd have myself are 1) do I have enough cash to actually buy those ($1300 is a steep strike price) and 2) is the company still growing fast and is that based on things I feel good about or hype.

The company is still growing fast. Incredibly fast actually.

Are they really 1300/option? That'd mean you'd need a whole lotta cash to buy those.

Great to hear about the growth!

Edit: not trying to second guess you I'm more shocked that options that high exist. Seems like it'd be really tough for some employees to buy them.

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

#12

Post by itamarst »

As someone said, it's a lottery ticket. But to fair you have much better odds than with a normal lottery ticket.

You should educate yourself about how they work, though, e.g. in the US if you're not careful you can end up paying massive amount of taxes due to AMT if you exercise the options but don't sell resulting stock.

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

#13

Post by brianwawok »

tazoo wrote: post #5
itake wrote: post #4

Really depends on how much risk you're willing to take. I personally don't value stock options and would look purely at compensation that can be used today.

I am fine with purely the base compensation.

Then value at 0 and accept. Maybe pleasant surprise

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

#15

Post by tazoo »

valarauca1 wrote: post #7

How do I gauge the value of stock options that I have been offered? Faith. Most metrics are generally useful for tax purposes and tax purposes only until the company IPO's and 6-12 months (or longer) later you can cash out your options the company's stock has no market value. Will you work at the company for the full vesting cycle? Will you tolerate the culture that long? Will the company still exist in 4 years? Will…

The company could IPO within 4 years, but I would put that at maybe a 20% possibility.

But you are right. This is a fast moving industry. The company could fold tomorrow. I could move to another startup or company.

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

#16

Post by kspaans »

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 for around 0.026% of the company. Probably about right if you are a late hire (say employee number between 10 and 100). Hopefully your salary is enough to be able to afford ~$65,000 worth of option exercises every year, should you be interested in purchasing them! The link below also has tax consequences, which depend on the type of option, and how much the value of the shares change between now and when you exercise the options.

Ideally the company will also tell you roughly how much the company would need to sell for in order for you to see a return. They can tell you this indirectly by saying what kind of liquidation preferences other investors have.

For a more detailed writeup, see https://github.com/jlevy/og-equity-compensation

Good luck!

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

#18

Post by daveguy »

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 an IPO or acquisition.

Options (before IPO) are mainly a gimmick by management to keep people from jumping ship (they are typically dependent on continued employment). They cost the company virtually nothing. After IPO they have easily determined value.

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

#19

Post by chillydawg »

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.

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

#20

Post by mdellabitta »

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…

> Hopefully your salary is enough to be able to afford ~$65,000 worth of option exercises every year, should you be interested in purchasing them!

Just dropping a quick clairification: OP should not assume it's necessarily a good idea to buy the options as they vest, and should not assume that they'll have to put up cash to excercise them in the future.

Probably covered by your link, but I wanted to point this out explicitly because people have been burned by these assumptions in the past.

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