To continue that very last sentence, you are doing yourself a disservice, or like a lot of startups I think people just legitamately don't know how to value stocks and I think there is definitely a predatory nature to that. Perhaps I'm reflecting on my own experience too much, but at my first startup I never asked the simple question "Assuming this company IPOs or gets bought and exits, what is the most this stock would reasonably be worth?". Investors and company leaders know what success looks like, and you multiple that company success by the percentage of stock you'd have when acquired and that's the actual payout you should expect if successful. Now go ahead and multiple by probability of success, and you have what you should expect. I was so proud of myself for negotiating for once, getting both a higher salary and higher amount of stock, but in the end, the company sold in a decent exit, and I pocketed a whopping extra $20K. A rounding error in salary given the risk and below-market salary. I definitely learned the hard way.

When calculating expected value of private stock/options I multiply by a factor of ~10 at the end. There are so many unknown unknowns that significantly decrease the value of your equity. The equity agreements I have seen also give ultimate discretion to the board on how your equity is executed. You don’t have control over triggering events and also there are usually quite a few clauses with “at the discretion of the board of directors”.

When negotiating offers for non-public companies I provide a sliding scale of cash vs equity. 1 dollar of cash is worth to me 10 dollars in equity of a private company. So if my total comp goal is 300k per year you can give me 250k of cash and 500k of equity, 200k cash and 1000k equity, or just 300k cash.

Most companies will baulk at this, but in my experience you have none of the power when holding private equity and so you need a really large multiplier to make it worth the risk.

Equity in a public company is a totally different story because the company valuation is controlled by the stock exchanges and you can cash out you equity at any time.

> When calculating expected value of private stock/options I multiply by a factor of ~10 at the end.

For early stage startups? I just go ahead and value them at zero. Ownership of equity in pre B series tech startup is, for me, about the same as ownership in a lottery ticket. It has some value in that it's fun to dream about what might happen, but that's pretty much it.

I am still likely to jump on start-up offers (I'm kinda waiting on two to form a little more fully right now) where I _know_ the salary will be below market rate, but where I also know the "mission" is something I care about and the team are people I want to work with. But I'm going to do that still valuing the equity at zero. If things work out like the pitch deck says, yeah maybe I'll make 7 figures out of it. But I'm not gonna assume that'll happen, even if the pitch deck success _does_ happen, I'd expect to have been diluted along the way to only end up with 6 or 5 figures.

How would you value apple equity vs cash? I recently got a decent offer with a total comp higher than my current all cash salary, but rejected it as it seems that equity even in Apple is not a sure bet at the moment. Even with the generous offer that was greater than my current salary that they gave me a few months ago, it would still be worth less than my current job after the recent market dip. I asked for more equity to buffer for a potential market downturn, and they insisted that Apple stock doesn't go down lol. Unfortunately I was correct. I've been in the industry for 25 years - what do they take us for?

Most financially savvy people would say that public company equity is almost like cash. If you are saving money for retirement, you are going to put most of your cash in the stock market, and AAPL and the stock market are highly correlated. The vesting schedule essentially forces you to save that cash for a later date (in a volatile but usually highly accretive investment vehicle). You don't have the same kinds of situations as you get with a startup where your company folds but the rest of the market is unaffected.

We are talking about stock/option grants though. You have to factor in what you think the grant will be worth over the vesting period. A lot can happen to a public stock over 4 years and your grant can easily be worth an order of magnitude less once it vests.

Cash to a lesser extent has this problem as well that you don’t know how much a dollar will be worth in four years, but it most likely less volatile than the value of equity.

I would value a 4 year 500k grant in apple stock much higher than a 4 year 500k grant in a crypto company because I believe the apple grant will better hold it’s value over the vesting period.

I would say take what most 'financially savvy' people say with a grain of salt and go ahead and do your own research or find an actual professional to sort through the details. The average lifespan of a company on the S&P 500 is dropping fairly quickly, which puts the risk of a single investment going to 0(or on a long haul downward trend) higher.

Obviously "doing your own research" is good but I think the question is totally reasonable in a tech forum where probably a very large percentage of people here have gone through this process. Also, they asked specifically about Apple. Companies that are sitting on massive amounts of cash and have trillion dollar valuations don't disappear over night, they're not gonna "drop out of the S&P" any time in the foreseeable future.

I guess not

What question? Did you even read the comment I was responding to(which was not the OP)?

Yeah, I should have said "blue chip" stock. Public companies include COIN and HOOD, which I would say are more like startups.

I would personally value apple equity at 70-80% face value vs cash. Apple has solid fundamentals and their equity is liquid. The iphone and m1 macs are still really strong product offerings. Apple also has priority access to TSMC which means they will have the best silicon on the market for the foreseeable future.

Public company stock should be valued near it's current market value, minus a bit to account for volatility. I would think 90-95% is about right.

I think this really depends if you want to come up with it's expected value, or you care about e.g. the p50 or p25 or worse scenarios. Worst case is probably too negative most of the time, but occasionally you might choose to join a company that then implodes or has some really nasty problem surface that tanks the stock value. It really just depends on how risk-averse you want to be as to what metric personally makes the most sense.

It all depends on when you need the money. If you are expecting to have to spend the money right after the stock vests, it may be worth 50% of cash due to the chance of a bad market. If you are expecting to save the money for 10 years, it's probably worth as much as cash.

Yes, valuations have gone through the roof, but the equity grants have not kept pace. This is a huge disservice to candidates. Got especially bad in 2021. Really important for people to research startup pay before signing: https://topstartups.io/startup-salary-equity-database/

To the OP: if you believe your comp bands are competitive, why not share in the posting itself?

> To the OP: if you believe your comp bands are competitive, why not share in the posting itself?

Leaving that out makes it clear that the post was made in good faith. If I thought the submission was just a job ad in disguise, I might have flagged it.

I think the GP is saying "Why don't you put your salary band into the job ad", rather than "why didn't you link the job ad itself here".

Which is 100% valid! Beyond being mandatory in more and more jurisdictions, having the salary range be posted has made me more likely to apply. Extremely confidence inspiring when it actually is market rate.

I know recruiters/C suite people think they can jedi mind trick people into taking super low offers that way, but really almost all really good candidates will be able to get jobs elsewhere anyways so you're just wasting a bunch of people's time cuz they're not going to take the offer.

Ah, thanks, that does make more sense!

Even without getting into the magnitude of the difference, and just talking about the direction, I think a lot of folks at private startups expect external candidates to value $1 of their stock (based on their last 409a) more than $1 of stock in a public company. I don't have a strong opinion on how big the liquidity premium for equity in a private tech startup should be, but I feel pretty strongly that it shouldn't be negative.

Yeah, this expectation is nuts, and it's why people who work for startups tend to be true believers in the mission. The startup has literally priced in the belief of the employees.

Honestly, I think most startups are betting that employees don’t know any better. This was true up to maybe 5 years ago, but sites like levels.fyi have really made this trade off clear to potential employees. Half the time when I talk to a potential hiring manager at a private company, they really don’t know what the equity is worth or how it’s structured.

I’d argue that an effective 20-30% discount on 409A for employees in series C+ is about right. On a successful, but expected, exit - this gives the employee some premium compared to working at a public tech company in exchange for deferred compensation and liquidity risk.

> Honestly, I think most startups are betting that employees don’t know any better.

Yeah, that's probably accurate. For whatever reason, many seem to view equity as a "check the box" formality rather than a material part of your compensation. I mostly avoided non-unicorn startups during my last job hunt for that reason, but the few that I got around to talking numbers with offered <$50k in equity over 4 years (and in the form of options to boot); the equity comp for the role I ended up taking is around an order of magnitude higher.

What does current price/share have to do with value of a stock option? The price/share is what I PAY to acquire the stock ... if I buy it at that strike price and it's valued at that price I have zero net gain. I've had various conversations where people making offers in more mature companies try to correlate my potential stock option grant X price/share as some measure of worth. It's only the gain that matters.

PSA: For those who don't fully understand the second paragraph above, be sure to google 'liquidation preference' before you're next evaluating an offer that includes equity or options in a private company.

But also know that if liquidation preferences are coming into play for the company’s exit, it’s almost certainly a giant failure and any late joining employees aren’t getting anything significant.

If the startup is not growing extremely fast, the stock will likely not be worth very much regardless of how “clean” the terms are on the preferred stock.

If you expect stock to be a big part of your compensation then leave after 2 years of the company’s growth is not sustained and rapid.

It's not a giant failure if liquidation preferences are in play. Liquidation preferences help in literally every scenario that is not an IPO. It is very common that a startup exits in an acquisition, and usually when that happens, small common shareholders get a lot less than the "value" of their stock. The liquidation preference protects you (or pays out a bonus) in that case.

It has a huge effect on the EV of a startup investment, and that's why VCs and founders use them.

Help who? I’m specifically talking about an employee getting standard common stock.

If liquidation preferences are coming into play, you’ve already lost as a common shareholder. But you should never be in that situation to begin with. If a company is struggling or growing slowly, quit and join one that isn’t.

Liquidation preferences advantage you compared to common stockholders in any situation that isn't an IPO. In a slightly disappointing acquisition (the most common outcome for a "successful" startup), it saves your butt. If you have double-dipping shares or a higher liquidation preference, you are going to make a lot of money in a bad acquisition situation.

Liquidation preferences are cheap insurance against bad outcomes. Most startups have bad outcomes. However, people getting common stock are hurt by every share with a liquidation preference. It is in your interest, as a startup investor (or employee), to get a liquidation preference if you can.

There is not a single respectable startup in existence that will give a random employee options or stock with liquidation preferences. For 99.9% of startups that would involve making a new class of shares for you, which ain’t gonna happen.

Investor is of course completely different for many reasons and I’m not speaking to that. And anyways unless you are leading the round, which you aren’t, you are just getting whatever preferences the lead is getting anyways.

Nobody would give you preferred stock, which is why you need to demand an absolutely absurd premium on the amount of common stock that they offer.

Also, it generally doesn't need a new class of shares, just a vote by the board.

Edit: Just to clarify, if you want to hire a mercenary, you can't do it expecting that they will take the same value of your stock that your true believer investors took without any of the guarantees that your investors got. They are investing time into your company and you need to make it worth it.

This just doesn’t make sense though. A company is going to have some standard bands of compensation, and if you demand something way outside of the bands based on your own feelings of stock value, they aren’t going to hire you no matter how great you are. Part of the reason companies can give generous stock grants are precisely because they are the lowest tier of stock.

This also is a stupid thing to bargain: if the company keeps growing, preferred and common will be worth the exact same thing. So instead of trying to extract better preferences on the stock (which you won’t), join a fast growing company and leave if it stops growing fast.

> A company is going to have some standard bands of compensation, and if you demand something way outside of the bands...

If you're joining early enough to get enough equity to matter, you're early enough that they don't have standard bands. You can absolutely negotiate.

> if the company keeps growing, preferred and common will be worth the exact same thing.

Only if it ends in an IPO. An acquisition, even a "successful" one, can easily end up with the preferences kicking in.

Some companies do tender offers (stock buyback) to give employees liquidity, but unfortunately the c suite and investors (those who typically have a more favorable liquidity preference) can cause the tender offer to be oversubscribed if they enter more sell orders than there are buy orders. Usually this means common stock owners do not get to participate. Preferred stock can also be converted to common, but not the other way around.

Tender offers will only happen when somebody wants to buy stock, which means they think the stock price is lower than it will be in the future, which means they expect the company to grow or keep growing.

The companies where liquidation preferences are going to screw you are not going to be having tender offers, because by definition nobody wants to buy the stock! If they did want to buy the stock at above the current price then liquidation preferences aren’t coming into play.

(Note: I’m sure there are examples where a company did have a tender offer at some decent price before falling off a cliff and having a bad exit where the common stock was wiped out… but that is not common at all)

I've never been at a company that was quite so liberal with their term sheet. Small or large, nobody wants to talk about it. My last place had a bunch of bickering in their allhands for a few months over total diluted outstanding and similar relevant equity metrics being kept secret.

You're not going to be able to hire someone senior without telling them how much they are making. This trick only works on college students and people who are really passionate.

Startups have a lot of toxic expectations around keeping those term sheets secret for no good reason.

You're either undervaluing common stock or vastly overvaluing preferred stock. Probably the latter?

If you join with options for preferred stock (assuming anyone is going to do such a thing), you're probably getting a 1x liquidation preference. But preferred stock has a higher fair market value than common stock. So the strike price will be higher. Probably close to the liquidation preference.

Which means, you're asking for something that will net you $0 if the liquidation preference kicks in. And you'll earn less in the upside case because your exercise price would be higher.

Oh no, that calculation was for equity, not for an option. An option would have totally different pricing models, and it would likely be closer in value due to the strike prices. However, options are probably overvalued a LOT by startups. They think they are like equities, when they are a lot more like... options.

Also, 10x is a little off, but I also work on infrastructure and infrastructure companies tend to get acquired rather than IPOing.

Edit - as for the actual terms of the stocks in question, it was never what you were thinking (1x preference), but I probably can't say what it was.

This.

The social media analytics company I left last year offered me 7 stock units (in RSU) for $20,000 as bonus. I declined. They are not in IPO yet. The confidence of the CFO saying, "[...] of course they will appreciate even higher" is laughable.

Giving an overblown estimate as bonus is doing disservice. The hard work is real, the valuation is not.