How to find out if stock options in a job offer are competitive?
November 10, 2011 8:15 AM Subscribe
I've been offered a job by a Silicon Valley startup. The salary and benefits are good, but how do I know if the stock options are "market rate" for this position?
To put this into perspective, it's a mature, well-funded, pre-IPO startup with lots of customers, great management and brilliant employees. I know what salary is typical for the position, but how can I find out whether the amount of stock options they're offering is competitive?
I'm a savvy investor and I know how to value the options themselves, it's just that I've never worked in this role for a startup so I don't know whether the options portion of the compensation package is in line with what similar companies offer. Since I can't be more specific about the company or job title, any general advice would be helpful.
To put this into perspective, it's a mature, well-funded, pre-IPO startup with lots of customers, great management and brilliant employees. I know what salary is typical for the position, but how can I find out whether the amount of stock options they're offering is competitive?
I'm a savvy investor and I know how to value the options themselves, it's just that I've never worked in this role for a startup so I don't know whether the options portion of the compensation package is in line with what similar companies offer. Since I can't be more specific about the company or job title, any general advice would be helpful.
Basically, if there's a 10% chance you'll be able to sell your options for $100,000, they're worth $10,000.
Well, yes (blah blah blah expected utility blah blah blah), but where do you get the number 10%? How could someone reasonably estimate those chances?
posted by madcaptenor at 8:45 AM on November 10, 2011
Well, yes (blah blah blah expected utility blah blah blah), but where do you get the number 10%? How could someone reasonably estimate those chances?
posted by madcaptenor at 8:45 AM on November 10, 2011
Have you seen this question at answers.startups.com? It covers a bit of the same ground as yours. If you don't get the advice you need here, you could always register there and ask your question again.
posted by Busy Old Fool at 9:12 AM on November 10, 2011
posted by Busy Old Fool at 9:12 AM on November 10, 2011
Never factor stock options from a startup in your financial planning. They're a lottery with a very small chance of ever paying out. Evaluate the job by the salary and any other concrete immediate perks, and think of the options as a fun bonus if they ever end up being worth anything at all.
posted by L'Estrange Fruit at 9:26 AM on November 10, 2011 [7 favorites]
posted by L'Estrange Fruit at 9:26 AM on November 10, 2011 [7 favorites]
Ignore the stock options. If you would like the job at the salary and benefits offered, go for it. If the company eventually goes public and your options are worth something, consider yourself lucky. Personally, I'm 0 for 6 on options, and one of those companies even made it public and made me a paper millionaire when the stock peaked. Unfortunately, we were out of business before anything vested.
posted by COD at 9:34 AM on November 10, 2011 [2 favorites]
posted by COD at 9:34 AM on November 10, 2011 [2 favorites]
L'Estrange Fruit has got it. Remember that episode of The Simpsons where the startup CEO was handing out stock options in toilet paper form?
posted by speedgraphic at 9:35 AM on November 10, 2011
posted by speedgraphic at 9:35 AM on November 10, 2011
There is a difference between planning on a lottery ticket hitting, and figuring out how big a piece you get of the lottery ticket you and your friends are buying. OP is asking about the later.
Shouldn't good recruitment people (not the ones who placed you there) be able to offer a clear sense what % of equity is fair given how early you are in the start-up and how many people are already on staff? Also dealing with the eventual dilution as outsiders invest?
posted by JPD at 9:56 AM on November 10, 2011
Shouldn't good recruitment people (not the ones who placed you there) be able to offer a clear sense what % of equity is fair given how early you are in the start-up and how many people are already on staff? Also dealing with the eventual dilution as outsiders invest?
posted by JPD at 9:56 AM on November 10, 2011
JPD: Except lottery tickets have a fixed value attached to them, whereas stock options most certainly do not.
posted by speedgraphic at 10:02 AM on November 10, 2011
posted by speedgraphic at 10:02 AM on November 10, 2011
The only think that matters is the % of equity that the options represent. So if they tell you a number of shares, ask what % this represents of all shares outstanding. The strike price is not decided by the company (it should be a independent fair market valuation known as a 409a after the section of the tax code that requires it). The % depends mostly on the position you're being hired into and the stage of the company. The later the stage (i.e. the closer to IPO) then the smaller the grant of equity - because the risk is much lower. Here are a set of reasonable % that would be typical of Silicon Valley later stage startups:
CFO 1.00%
VP Sales & Mkt 0.60%
VP Engineering 0.80%
Principal MTS 0.26%
Senior MTS 0.22%
MTS/Director 0.19%
Staff Engineer/Eng Manager 0.18%
Senior Engineer/Eng Group Lead 0.16%
Engineer III 0.13%
Engineer II 0.11%
Engineer I 0.10%
Technician 0.06%
Office Manager 0.10%
Admin 0.06%
You should also ask about their anticipated exits and have the hiring manager explain how much it would be worth to you.
posted by Long Way To Go at 10:15 AM on November 10, 2011 [7 favorites]
CFO 1.00%
VP Sales & Mkt 0.60%
VP Engineering 0.80%
Principal MTS 0.26%
Senior MTS 0.22%
MTS/Director 0.19%
Staff Engineer/Eng Manager 0.18%
Senior Engineer/Eng Group Lead 0.16%
Engineer III 0.13%
Engineer II 0.11%
Engineer I 0.10%
Technician 0.06%
Office Manager 0.10%
Admin 0.06%
You should also ask about their anticipated exits and have the hiring manager explain how much it would be worth to you.
posted by Long Way To Go at 10:15 AM on November 10, 2011 [7 favorites]
JPD: Except lottery tickets have a fixed value attached to them, whereas stock options most certainly do not.
You missed what I was trying to say. Regardless of whether the options end up having a value or not it is perfectly rational to ask "What % of the equity is the market rate for someone in my role entering the firm at this time." OP is not asking us to value his stock options.
posted by JPD at 10:26 AM on November 10, 2011
You missed what I was trying to say. Regardless of whether the options end up having a value or not it is perfectly rational to ask "What % of the equity is the market rate for someone in my role entering the firm at this time." OP is not asking us to value his stock options.
posted by JPD at 10:26 AM on November 10, 2011
Quora is a very good forum for asking these sorts of questions. Look at the Startups topic.
posted by asphericalcow at 10:30 AM on November 10, 2011 [2 favorites]
posted by asphericalcow at 10:30 AM on November 10, 2011 [2 favorites]
You should ask what the total management/employee option pool is in terms of total shares and the % of the company ownership that the pool represents on a fully diluted basis. You may want to ask to exclude significant founders from the pool if they are gigantic shareholders. It may also be helpful to ask what has been granted vs. reserved for prospective hires. (I'm not sure vested vs. unvested matters as much here.)
You should then ask or figure out how many employees there are and you should be able to figure out roughly where you lie relative to the mean, and consider if that sounds reasonable based on your position, etc.
If you think it sounds unreasonable, it may also provide you with good negotiating ammunition to make a case for a larger grant.
posted by jameslavelle3 at 10:34 AM on November 10, 2011
You should then ask or figure out how many employees there are and you should be able to figure out roughly where you lie relative to the mean, and consider if that sounds reasonable based on your position, etc.
If you think it sounds unreasonable, it may also provide you with good negotiating ammunition to make a case for a larger grant.
posted by jameslavelle3 at 10:34 AM on November 10, 2011
Also it really depends on what 'later stage' is. I've been offered much less equity than Long Way To Go mentioned for senior engineer/director-level positions at late-stage startups (note: I didn't negotiate these offers so they may have gone higher). Anywhere over .1% for an engineer past series B-ish is really very good, is my impression, but then, everyone seems to disagree. Some people I know past series A aren't really offering much more than this, so you might halve or less what LWTG listed and be in the ballpark of normal.
posted by ch1x0r at 4:47 PM on November 10, 2011
posted by ch1x0r at 4:47 PM on November 10, 2011
This thread is closed to new comments.
posted by michaelh at 8:19 AM on November 10, 2011