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

General rule of thumb for any early stage startup, is if you are not a founder, or C level employee getting multiple single digit equity percentages, use this equation:

$VALUE_OF_EQUITY_GRANT * 0 = 0$

seriously. value it at 0

There's guides out for evaluating startup equity. Here's a couple. https://www.holloway.com/g/equity-compensation https://manual.withcompound.com/manual-company-equity/unders...

I don't agree you should assume equity as worthless. Especially for larger vc funded startups. But equity can get complicated, and it's possible for a company to have an exit and for you to lose money. But the majority of early stage start ups will fail.

Though the $120k offer seems much better. Could you negotiate equity or improve salary? 100k*.07 means they are giving you the option to buy 7k worth of equity a year. You are giving up 60k a year in lost salary to do that. So your equity would need to about 10x before you make up the lost salary.

Here is an optimistic way to calculate. If there are 55M shares outstanding, then 400,000 options represents about 0.7% of the company. You need to make your own estimate for how much the company is worth right now. If the company raised around $10M total, then knowing nothing else, a reasonable guess is that the company is worth about $40M total. That would make the underlying stock of your options worth about $280k, you can subtract the cost to exercise, maybe it ends up being a bit lower like $240k. It's over four years, so that's roughly $60k a year.

So, even in the optimistic case, your option package isn't that great. Your company is offering a pretty low cash comp, and unsurprisingly, they're also offering a low option comp. A good company would offer more to someone even with zero years of experience (assuming you're a software engineer). And this is an optimistic evaluation where you really believe in the startup. Your comp is low, ask for a bigger raise or just switch jobs unless you really like it there.

Explorative notes because this provoked some thoughts and opinions of my own.

1) Value them like a lottery ticket. Now what? They are worth nothing or something. You won't know until they are actually drawn in 4 years. Waiting is fun, right? You're happy to wait for your bonus?

2) Do you enjoy working there? Right now they are chains binding you to the business. Is that an issue? If you get bored and it becomes just a pay check, can you start a suitable side hustle so you stay awake?

3) They're worth nothing at all. The business goes bust in two years. What opportunity cost did you pay? What other actual paying positions did you pass up?

4) Is the business sane enough to last another 5 years? 6 years? Other than your salary, would you actually invest in the business if you could on the market? Are its fundamentals valid? Does it actually produce cash flow? It seems like it is progressing. You worm for them. Are they progressing in your perception? Could you convince me to invest? What would you say?

Your current employer is giving you an effective 8 year vesting schedule, no one would JOIN a company on those terms. Alternatively, you can look at it like they don't value your first 4 years of contributions at all towards to the value of the company.

Echoing the $0 valuation comment, which you should heed: $60k guaranteed per year is astronomically difficult to match with illiquid equity. You need only search for "equity" here on HN to read the multitude of warnings against overvaluing (read: valuing at all) your equity.

Your cash comp is low...they can't pay market rate after 4 years? The options are probably worthless, go for the salary at a new place. You missed out on $60k x 4 years.

I suspect you should take the $120k because that will diversify your risk. Also over the next four years you can bank $$$ in your country risk free, and you get on the salary ladder for a future better job (you often only get paid a bit more than your last job). You already have vested options, so you already have exposure to the upside if your current company wins. The actual likelihood of a future win is low, so value extra options at a low amount.

Make sure you understand preferential shares (VCs get paid first, so company needs a big win for you to get anything), and understand how much you are likely to be diluted over time. Also make sure you understand the benefit of cash now to invest in a home or in funds. My equity is locked up and it truely truely sucks.

The other thing to do is ask for $120k, plus options on top of that. You can’t lose by asking if you have another job lined up. But be prepared to walk, and don’t threaten them with your other job, as I have read multiple times that isn’t a good idea (read advice from clued up people, not me).

Two articles to help you think about it like a VC:

https://avc.com/2021/11/seed-rounds-at-100mm-post-money/

https://techcrunch.com/2017/06/01/the-meeting-that-showed-me...

If you don't believe the company will be successful then you're admitting the options are worthless. The whole point of stock options is to align incentives but if you don't think the company will be successful then it doesn't matter how you crunch the numbers. You might as well go get a job with a high salary.

$0.07 is the FMV for the Common, which of course is not liquid and you don't know what preferences the Preferred Shares have, so its really worth some amount less than $0.07... so less than 28k.

> We raised totally about $10M > My cash comp is around $60k.

Why are they only paying you 60k if they have 10M in the bank? Get a raise.

Don't. Options are a lottery ticket, and if this were a hot startup they'd be paying you $100k+ in addition to those options. Get out.

For perspective, I make more than you (in cash) as a community manager / content-marketing person at a pre-A startup.

Seems like you should have been fully vested from any original grants by now. So, 8 year vesting, plus the low salary? Hope you are learning things that will position you for success in your next role.

I joined a startup with a multi billion dollar evaluation.

Went public, stock tanked. I'll be lucky if I make 100k off those shares, which isn't terrible, but point is anything could happen.

Do you think your startup will make hundreds of millions in a few years? It'll take them 6-12 months after that milestone to actually go public, too.

Controversial take: as an insider, you are in a strong position to determine the value of the options. Is your company under- or overvalued? Is your product better or worse than people think? Is the company culture and morale greater or lesser than average? Are you excited to get up in the morning or do you dread each moment of work? Do you care about the content of your work, the field that your in, solving your customers problems, or are you interested only in your own engineering problems? Are business decisions made primarily by ego, the boss's gut, office politics, or do good data and clear explanations win arguments regardless of who makes them?

Startups are high risk, especially if you have all your eggs in 1 basket. Whether it's reasonable to take the risk depends on data points that only you can ascertain.

The hard part is being honest with yourself. If you've invested 4 years into this job, you surely have emotional attachments to it that transcend economics. Feelings of loyalty are good and normal. One key question to ask is how much loyalty do the founders feel to you? Would it be hard for them to replace you? Do they treat you with respect and camaraderie or like a machine that produces algorithms? Are they competent, inspiring people that you learn from, or "idea guys" who are good at pitching but not much else? If you were the CEO, would you hire them?

Just a few of the questions I would ask myself in your shoes.

Take the other offer. We're talking twice your current base vs imaginary money.

Everyone is saying $60k is low but OP never said where they are. $60k could be quite good depending on location

Leave yesterday.

Zero dollars