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I don’t really understand the vesting schedule. All options have a vesting schedule, otherwise can you quit on Day 2 and still get them? Probably not.
All options are also required by law to have a strike price, you should figure out what your strike price is.
Additionally, there’s a dilution factor, a company that exits at 5x with no additional raises is better than a company that raises 1-2 rounds and then IPOs at a 5x. I would expect roughly a 15% dilution each round.
This is some BS they are selling you
First, there is a vesting schedule, it is just a 1 year vest, which is very good but doesn't matter that much if they are private because wit is illiquid until they IPO or acquired. That is when the option have real value.
Second, you need to understand how they are valuing the options. Options don't have a clear value like a RSU (which is just the current value of one unit of stock). Options value is based on the volatility of the stock, strike price, and the length of the option. Google Black-Scholes options value and then some benchmarks for the volatility of startups at whatever stage this one is at. You can then model the value of the options. You can ask the recruiter how they value the options but they are likely inflating them.
Third, you should consider labor and capital as interchangeable investments. Don't invest your labor under materially worse terms than someone who invest new capital. That means your options should be priced and valued at whatever the last round valued the company. Yes, those VC hope for a 5X return in 3 years but the current price reflects the probably of that return, as well as the probably that the value goes to zero, and everything in between. Those investors are smart and aren't going over pay. The company isn't going to sell shares for less than it can get from other investors. That raise is the closest thing to a market price you are going to get. Believe in markets.
Maybe, maybe if it right before the next raise, you can take a bit of a discount to reflect the derisking that has occured but otherwise just rely on the investors to set the price and ask to be treated equally.
Mentor
Don’t you have a friend in VC?
I don't. Care to share insights?
Can you ask for rsu instead?
The prices are illustrative. Was trying to show what happens if the value goes up in Y2 and Y3 (e.g. New fundraising rounds). Impact is less shares will be awarded when that happens.
I think the difference between this structure and the typical 4-year vesting structure is that in the former, the number of shares you get can vary year to year (meaning improvements in valuations are a gain to you for existing shares, but detrimental to future shares);
In the latter, you know how many shares are going to vest every year and this number is fixed (meaning improvements in valuations are a gain to you, and doesn't change the number of shares).
I think this is what L1 was referring to, using the Microsoft example
It now seems to me that this is an unconventional offer on options.
First, the vesting period is very short at 1 year as rightly pointed out. (plus point)
Second, having no strike price means it is somewhat like giving shares of the startup. (plus point I guess? No need for out of pocket)
Third, the offer is based on a % of salary, so if valuations increase, you get less shares in future issuance (this is the critical factor that to me seems like a disincentive to drive growth?)
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@OP, you typically get stock refreshers during comp refreshes or promotions, so you’ll always have an equity component. You’re getting a bad deal here.
Let me try to frame it another way, see if this makes it a better comparison:
Context: current comp @$100k, but startup is willing to pay $80k only, so bridge the gap with options
Typical offer: $20k annual delta to be recovered over 4 years, so $80k options with 4-year vesting (based on the number of shares corresponding to $80k at time of grant)
Offer in question: $20k options annually, 1-year vesting (based on number of shares corresponding to $20k every year)
The offer in question is inferior to the typical offer because if valuations change anytime between year1-4, the employee loses out. Does it make sense?
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This is really sketch! I’ve negotiated multiple offers in tech when leaving and was always given strike + valuation and a standard vest.
Not atypical for startups to limit your upside, but I’ve only seen unicorns do this (eg Stripe). Would not take this offer.
Hey dude know this is late, but is this Stripe? I know only stripe or Lyft do this. What's the cash/equity split for TC? I'm in the process, been told the cash portion is gonna match my current salary and stock is a later discussion
Congrats, nope it's not. A smaller shop. Great that they match your cash, I got a cut. Match only in TC terms. Equity is 0.25 of base