Startup job offer with equity valued using 409A ~8 months ago

Question

I've received a job offer from a mid-stage startup that raised at the start of this year. The package includes ISOs, with a strike price and a share value based on a 409A at the time of the raise.The private market has obviously changed a lot since then, with many people saying that valuations have dropped by 50% or so. I believe the strike price is now higher than the FMV of the shares. The company is unwilling to negotiate the value of the strike price. The next 409A will be at the start of 2023.What are my options here? I think the strike price determined by the next 409A would be more favorable for me.

p1esk · Accepted Answer

It sounds like you&rsquo;re treating startup shares as something more than lottery tickets. Pretend you&rsquo;re getting zero shares, and there&rsquo;s 50% chance the startup will fail within the next couple of years. Do you still want to work there? For me the answer was yes, and I work for a startup - with no illusions.

toast0 · Answer

The last 409A price, when it's fresh (for the current tax year) and there has been no funding activities or other definitive material effects (such as a pending merger) is de jure the FMV.
Asking for options granted at a strike price other than FMV is bad for everyone. Negotiating on strike price is kind of silly anyway. In a succesful exit, the strike price is going to be pennies on the dollar (I had a cost basis of like 9 cents per share on shares I sold for $33-60 dollars), if you halve that, it's still nothing. If it's a mediocre exit, then it makes a meaningful difference, but still pretty small. For an unsuccesful exit, it makes little difference unless you exercised.
You could ask them to do a new 409A valuation, but they're time consuming and expensive, so it's likely not worth the trouble. If you want to negotiate for something, negotiate for your options to be canceled and reissued in February if the Jan 2023 comes back lower.

gjvc · Answer

for god's sake.the winners in the vast majority of startups are the founders and board, not the regular staffers. remember also that the people in startups have self-selected themselves out of larger, more-structured companies. This, combined with sturgeon's law, should not, by default, make a startup attractive place to be for an "individual contributor" type, financially or otherwise.The fact that they are unwilling to negotiate is a signal that they don't understand that "everything in life is a negotiation". Beware.You'd likely have better EV in a larger company, and far more opportunities for development and travel, if they are a multi-national. This startup-warrior mentality needs to die. PG et al made good on it 20+ years ago, when the internet was a different place and market dynamics were quite different.Your life, your choice. Remember, nobody cares more about your financial future than you. Good luck in whatever direction you go. Remain sceptical.

orbz · Answer

Namely they can&rsquo;t negotiate the strike price for obvious legal reasons. Keep in mind the 409A valuation is not what the investors in the previous round paid, it&rsquo;s usually based more on the formula grounded in reality and less on hype. I would not be surprised if the upcoming 409A valuation rises if the company is growing.