How to make sense of your equity offer<\/h2>\r\n\r\n\r\n\r\n
Before taking the job, make sure you ask these three important equity questions:<\/p>\r\n\r\n\r\n\r\n
1. What percentage of the company\u2019s equity am I getting?<\/strong>\u00a0<\/h3>\r\n\r\n\r\n\r\nThe raw number of options the company is offering you doesn\u2019t mean much since companies have different amounts of shares. The best way to compare offers is to look at the percent of ownership you\u2019re being granted.\u00a0<\/p>\r\n\r\n\r\n\r\n
Make sure the company includes all outstanding shares (including preferred stock<\/a>, restricted stock, etc.) when calculating this percentage\u2014not just what\u2019s left in the option pool<\/a>. Otherwise, your actual percentage could be smaller than what they say, and you might not be comparing offers apples to apples if two different methodologies are used.<\/p>\r\n\r\n\r\n\r\nAlternatively:<\/em><\/p>\r\n\r\n\r\n\r\n\r\n- Ask how many fully diluted outstanding shares there are and do the math to determine your percent ownership:<\/li>\r\n<\/ul>\r\n
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\r\n- Or, determine the projected notional value of your option grant:<\/li>\r\n<\/ul>\r\n\r\n
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2. How do you decide how many options each employee gets?<\/strong><\/h3>\r\n\r\n\r\n\r\nMake sure the company has an established method for figuring out how many options to offer instead of coming up with a number willy-nilly. Bonus points if they continually reevaluate their process<\/a> to make sure it\u2019s fair. The later stage the company, the more built out the system should be. Ideally, the company maps each role to a level and a corresponding equity and salary band.<\/p>\r\n\r\n\r\n\r\nNo system? Then your offer might not be very fair. You\u2019ll want to do more due diligence with the first question.<\/p>\r\n\r\n\r\n\r\n
3. Do you offer employee liquidity and\/or refresh grants?<\/strong><\/h3>\r\n\r\n\r\n\r\nIn other words, will you be able to sell shares before an exit (like an IPO)? If the company intends to remain private for a while, ask if they will hold tender offers<\/a> (opportunities for shareholders to sell shares of equity). Note: approach this topic delicately. You don\u2019t want to come across as money-hungry, but it\u2019s fair to want to know whether your shares will actually amount to anything<\/a>.<\/p>\r\n\r\nIf the company is unwilling to budge on your equity offer and you feel it is too low, ask whether they offer equity refresh grants after a certain amount of time or in certain situations, like if you get a promotion. A refresh grant gives you a separate set of options that vest over a new period of time.<\/p>\r\n
How to calculate the value of your equity offer (free equity calculator)<\/h2>\r\n\r\n
Once you have all the necessary numbers, it\u2019s much easier to compare multiple offers (or compare your new job offer to your current equity package). Our free equity calculator can help you understand the potential financial outcome of your offer.<\/p>\r\n\r\n\r\n\r\n
To use this calculator, you\u2019ll need the following information:<\/p>\r\n\r\n\r\n\r\n
\r\n- Last preferred price<\/strong> (the last price per share for preferred stock)<\/li>\r\n
- Post-money valuation<\/strong> (the company\u2019s valuation after the last round of funding)<\/li>\r\n
- Hypothetical exit value <\/strong>(the value the company could exit at)<\/li>\r\n
- Number of options in your grant<\/strong> (the total number of options offered to you)<\/li>\r\n
- Strike price<\/strong> (the price per share to exercise your options)<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n
You should be able to find most of this information in your offer letter<\/a>, but if you don\u2019t, don\u2019t be afraid to ask the company.\u00a0
<\/p>\r\n\r\n\r\n\r\n
Alternatively:<\/em><\/p>\r\n\r\n\r\n\r\n Make sure the company has an established method for figuring out how many options to offer instead of coming up with a number willy-nilly. Bonus points if they continually reevaluate their process<\/a> to make sure it\u2019s fair. The later stage the company, the more built out the system should be. Ideally, the company maps each role to a level and a corresponding equity and salary band.<\/p>\r\n\r\n\r\n\r\n No system? Then your offer might not be very fair. You\u2019ll want to do more due diligence with the first question.<\/p>\r\n\r\n\r\n\r\n In other words, will you be able to sell shares before an exit (like an IPO)? If the company intends to remain private for a while, ask if they will hold tender offers<\/a> (opportunities for shareholders to sell shares of equity). Note: approach this topic delicately. You don\u2019t want to come across as money-hungry, but it\u2019s fair to want to know whether your shares will actually amount to anything<\/a>.<\/p>\r\n\r\n If the company is unwilling to budge on your equity offer and you feel it is too low, ask whether they offer equity refresh grants after a certain amount of time or in certain situations, like if you get a promotion. A refresh grant gives you a separate set of options that vest over a new period of time.<\/p>\r\n Once you have all the necessary numbers, it\u2019s much easier to compare multiple offers (or compare your new job offer to your current equity package). Our free equity calculator can help you understand the potential financial outcome of your offer.<\/p>\r\n\r\n\r\n\r\n To use this calculator, you\u2019ll need the following information:<\/p>\r\n\r\n\r\n\r\n You should be able to find most of this information in your offer letter<\/a>, but if you don\u2019t, don\u2019t be afraid to ask the company.\u00a0\r\n
<\/p>\r\n\r\n\r\n
<\/p>\r\n\r\n2. How do you decide how many options each employee gets?<\/strong><\/h3>\r\n\r\n\r\n\r\n
3. Do you offer employee liquidity and\/or refresh grants?<\/strong><\/h3>\r\n\r\n\r\n\r\n
How to calculate the value of your equity offer (free equity calculator)<\/h2>\r\n\r\n
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