The equity (%) without the actual cash value of the options is basically a vanity number - it does not mean much and is not comparable between the companies.
Whilst I agree equity % alone doesn't give you a picture of the value of those options, what it does communicate is whether it's the kind of company that actually gives out meaningful equity, which is useful information. It tells you if the company is actually serious about making a big exit a life-changing event for all early employees.
The odds of a company making it that big are so low though, you're chasing lottery tickets with that outlook, which I suppose is still useful information.
I actually recommend chasing lottery tickets to people who are in common jobs like customer support or social media engagement.
You could do those jobs practically anywhere, but fast-growing tech startups tend to pay relatively well (at least as well as established players) and throw in a lottery ticket.
If you enjoy wearing a variety of hats, like you'll need to in a smaller company, you might as well do a couple years each at a bunch of different startups and collect lottery tickets along the way.
People don't tend to get rich in support jobs, but a bonus of even a few tens of thousands of dollars can be a game-changer, and on the off chance you catch a ticket that ends up being worth a couple hundred grand (what happened to me that made me start recommending this!), it'll change your life!
Rarely will a customer support role be offered shares that are worth more than a couple grand at the time of grant, and it's not always worth sticking around the whole vesting period, but if you get in late enough that the company has proven product/market fit (Series A and following, at least a few dozen employees, 3+ years), it probably won't go all the way to zero.
Unless they have extended their exercise window beyond that standard 90d, those lottery tickets may cost a lot is money to retain after leaving for another job. So much so that companies exist solely to extend loans for them.
You don't get to just collect multiple lottery tickets without either going out of pocket or watering down your share significantly.
The thing is, most support agents only get a few shares.
Both of the last two companies I worked for, it cost me about $1,500 to exercise the shares I'd vested after about 2 years, and their 409a FMV was about $26k at the time I exercised them.
One of those companies has since gone public and my piddly little $1,500 became worth over half a million dollars.
It's absolutely a lottery, but if you get in places at the right times, I think it's worth collecting tickets rather than doing the same work for similar pay where you don't get tickets.
Haven't heard of this reasoning before, but it makes a lot of sense to me. Unless those roles still pay much better in big tech, but I think you're right - any gap in cash comp is probably small, which makes startups more attractive
Note that I specifically didn't say that the % tells you if the amount actually is life changing, just that it tells you whether the founders are serious about giving early employees a shot at such an outcome.
The signal is about the founders themselves, which is an important consideration when joining a startup.
Number of shares and current strike price + latest valuation, along with any practices for minimising tax burden, are still hugely important pieces of information. My point was simply that even just the percentage tells you something about whether it's a good company to join.
If they ever did a 409a, they have to share that information with employees, which at least lets you estimate the current upper bound on the cash value of your options. Sure, very far from money in the bank, but knowing the current upper cash bound can still be used to compare different offers.
A 409a should be a true measure of the value of a company, but in reality it is something that can be manipulated. There is a balance between valuation for the purposes of funding and raising your stock value so high that it can impact hiring as a function of perceived upside. Getting wrong on the high side can effect the next round, devalue shares issued existing staff causing a repricing or the need to issue more shares to existing staff to keep them around.
Percent isn't a useful metric by itself, but it's often more useful than number of options or grants. Often that's what is pitched to prospective hires. Or, worse, an ill-defined number of shares and a highly optimistic valuation of an illiquid entity.
Perhaps less relevant as the fundraising proceeds and the valuation approaches the targeted IPO price. But early on, the valuation will probably change drastically from Seed to C and securing an appropriate % is a good strategy. Many people don't know what that is -- for instance I accepted my first seed stage equity offer of 0.5% (negotiated up from 0.25%) but I now know that I was slightly lowballed. But you still make a good point. 1% from two 23yo first-time foundres with little experience, vs 0.5% from established founders with prior exits, solid networks, and reputable VC's presumably greatly increases your odds of a high valuation exit, so perhaps even seed / A stage its worth weighing that more than the percent.
Why? Assuming we’re talking about normal employee options, if you’re early and get a big % that gets diluted, someone with a smaller % later can end up with more shares.
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