{"id":5953,"date":"2020-02-10T00:00:00","date_gmt":"2020-02-10T00:00:00","guid":{"rendered":"http:\/\/www-staging.carta.com\/sg\/blog\/evaluate-job-offer-public-equity-vs-private-equity\/"},"modified":"2021-03-05T06:56:29","modified_gmt":"2021-03-05T06:56:29","slug":"evaluate-job-offer-public-equity-vs-private-equity","status":"publish","type":"post","link":"https:\/\/www-staging.carta.com\/sg\/blog\/evaluate-job-offer-public-equity-vs-private-equity\/","title":{"rendered":"How to value a job offer from a public company vs. a private company"},"content":{"rendered":"\r\n

It\u2019s hard to evaluate job offers. Even if you were to disregard your feelings about the job responsibilities, title, company mission, and people (which you definitely should not do), there are so many things that go into your total compensation package\u2014base salary, bonuses, stipends, and more\u2014that it\u2019s hard to figure out how much they\u2019re actually offering. And with companies constantly one-upping each other to fight for the best talent, it\u2019s only getting harder to accurately compare offers from a monetary standpoint.<\/p>\r\n\r\n\r\n\r\n

And then there\u2019s the equity part of your offer, which further complicates things. Over the years, countless smart, qualified, and diligent candidates have blown the negotiation process when applying for a job at a privately-held, fast growing startup. Here\u2019s how they should be thinking about their offers:\u00a0<\/p>\r\n\r\n\r\n\r\n

Public equity vs private equity<\/h2>\r\n\r\n\r\n\r\n

First, some quick definitions.

Private company equity<\/strong> represents shares you get from a private company. Generally, it\u2019s hard to pin down what private equity is worth (since the stock isn\u2019t trading publicly) or when you\u2019ll be able to cash out (if you\u2019re able to cash out at all). But that risk can come with great reward. More on that later.<\/p>\r\n\r\n\r\n\r\n

Public equity,<\/strong> on the other hand, is actual stock in a publicly traded company (like Google or Apple). With publicly traded stock, it\u2019s easy to know how much it\u2019s currently worth\u2014you can simply look at how much it\u2019s trading for on the market. You can also usually sell it whenever you want. The downside: it might not grow in value as fast as private equity.<\/p>\r\n\r\n\r\n\r\n

Why it seems like the public company\u2019s offer is better<\/h2>\r\n\r\n\r\n\r\n

When you get an offer from a large, public company, you usually calculate your total annual comp like this:\u00a0<\/p>\r\n\r\n

\"\"<\/figure>\r\n

 <\/p>\r\n\r\n

Public companies usually offer RSUs<\/a> (or something similar), which are generally pretty liquid\u2014they turn into shares as soon as they vest and can be sold either immediately or after a blackout period for cold, hard cash.\u00a0<\/p>\r\n\r\n\r\n\r\n

When you get an offer from a private company, on the other hand, the offer is usually expressed like this:\u00a0<\/p>\r\n\r\n

\"\"<\/figure>\r\n

 <\/p>\r\n\r\n

To make it easier to compare offers, you might simplify the math in your head to:<\/p>\r\n\r\n

\"\"<\/figure>\r\n

 <\/p>\r\n\r\n

…and then all your enthusiasm for the private company instantly evaporates because the figure you come up with is invariably substantially<\/em> less than the public company\u2019s offer.<\/p>\r\n\r\n\r\n\r\n

Usually, it\u2019s not the cash part of the offers that\u2019s so dissimilar (although startups still generally pay a bit less in bonuses than their big-company counterparts… or pay no bonuses at all). The gap is almost always in the equity piece, and the gap is often large<\/em>: at first glance, the public equity may be \u201cworth\u201d 3-5x(!) more<\/strong>.<\/p>\r\n\r\n\r\n\r\n

At this point, you might think the startup is crazy\u2014and maybe even feel personally attacked\u2014for a few reasons:<\/p>\r\n\r\n\r\n\r\n

    \r\n
  1. You typically can\u2019t sell private equity unless there\u2019s a liquidity event<\/a> like an IPO or a tender offer or an acquisition<\/a>.<\/li>\r\n
  2. You have to pay money to exercise your options<\/a> (buy your shares) and may have to account for taxes<\/a>.<\/li>\r\n
  3. Startups are inherently risky. The company could fail, and your equity could be worth nothing.<\/li>\r\n
  4. Despite all of this, the private company is still probably offering a smaller cash compensation package than the public company.<\/li>\r\n<\/ol>\r\n\r\n\r\n\r\n

    Sometimes you and the company salvage the relationship and work through the math together, but often, your System 1<\/a> reaction to the offer pervades. The barrier proves insurmountable, and you go with the public company\u2019s offer\u2026 unless you look at private company compensation packages another way.<\/p>\r\n\r\n\r\n\r\n

    How to evaluate job offers from private companies<\/h2>\r\n\r\n\r\n\r\n

    In many cases, the private company isn\u2019t purposely undervaluing you or trying to play sketchy negotiation games. Startups can represent tremendous potential for upside and allow you to share in the wealth that may be created by the effort you put into the company.

    But you can\u2019t participate in that upside without taking on some risk. And risk materializes in the equity portion of your offer.

    Imagine two hypothetical companies:<\/p>\r\n\r\n\r\n\r\n