Re:Just how much is that 2% really worth?
by tomp on Thursday July 03, 2014 @01:58PM
(#7984615)
The risk profiles and the investment profiles of most investors are completely different from those of most employees, so there is no way that equity has (proportionally) the same value for employees and investors.
Besides what other comments already mentioned (liquidation preferences and portfolio diversification), one must also take into account that (1) investor's equity is safe, while the employee's isn't (if you're fired before the vesting begins), and (2) investors have much more say at influencing the company's future (via more board seats and more voting rights). Also, most employees have much less capital than investors, so the monetary equivalent of the NPV of equity would be much more meaningful to them than to the investors (given that most people are risk-averse).
All in all, as an employee, I would value equity between 4-10 times less than the investors would.
Besides what other comments already mentioned (liquidation preferences and portfolio diversification), one must also take into account that (1) investor's equity is safe, while the employee's isn't (if you're fired before the vesting begins), and (2) investors have much more say at influencing the company's future (via more board seats and more voting rights). Also, most employees have much less capital than investors, so the monetary equivalent of the NPV of equity would be much more meaningful to them than to the investors (given that most people are risk-averse).
All in all, as an employee, I would value equity between 4-10 times less than the investors would.