Understanding startup equity basics (for job seekers)
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There are few factors here - what percentage of the company's total share count do your options (vested and unvested) represent. How big of a liquidity preference are you sitting behind. What are the odds the company clears this liquidity preference. What is the likely valuation of any successful exit (i.e., one the clears the liquidity preference, and in the case of options, clears the strike price of the options issued). What are the odds of such an exit. And finally, what are the change of control terms.
In terms of what fraction of the company do your options represent, you'll have to ask how many shares are outstanding and then make a guess as to how many more will get issued between now and success. Remember, each financing results in lots more shares being issued.
What is the liquidity preferences your options sit behind. Usually options convert to common, so that means you are the lowest person on the totem pole. If the company has raised $100MM, there is very likely at least a $100MM preference. That means that if the company exits for $90MM the common shareholders (that's the employee option holders) will get nothing.
In terms of valuations, you can figure out what your options are worth at various exits above the liquidity preference, but only if you know the terms of later financing rounds. Generally, I'd recommend exercising at least 1 share of options as soon as possible so that you have shareholder information rights which should tell you what these terms are so you can calculate the option value.
More importantly, what are the odds of such exit. Generally, a company has more options to exit for $100MM than it does for $1B than it does for $10B. Of course, if the company is wildly successful, the higher the odds of a bigger outcome. The question is, what threshold of success is needed for the options to have enough value.
Finally, you should consider the change of control terms. If a company is acquired, do your shares vest immediately, or are they converted to shares of the acquiring company? What happens if the acquirer fires you? If you are early enough you might be able to negotiate for better change of control provisions. You want to avoid a scenario where the company has a successful exit and the acquirer is not incentivized to keep all the employees that have meaningful option stakes. This is usually less a problem in software developer roles, and more of an issue for sales and executive staff (CFO, CSO, etc.) but it doesn't hurt to have better terms.
In any case, employee stock options are complicated, and often the terms matter more than the price. There is a quote, can't remember who said it, "You name the price, I name the terms."
>If the company has raised $100MM, there is very likely at least a $100MM preference. That means that if the company exits for $90MM the common shareholders (that's the employee option holders) will get nothing.
In this case, won't blocking rights prevent that exit in most cases? Investors with liquidation preference might not want an exit that comes in lower than their cost basis...
It is also possible for investors to block an exit that can be great for founders and employees. For a $1B fund, a $150MM exit on $10MM raised doesn't move the needle, but it could be life changing for the founders and early employees. Good investors will care about this and try to figure something out. Others might just block the transaction.