Calculating Startup Compensation

Affirm var$
Mar 4 9 Comments

I want to know how TC should be calculated when at a startup. Here's an example:

Salary: $100,000
Equity: 40,000 shares (let's say strike is $1, valued at $2)

Is TC calculated as:
1) $100,000 + $20,000 ($2 value * 10,000 shares vested/year = $120,000?

2) $100,000 + $10,000 (($2 value - $1 cost) * 10,000 shares vested/year = $110,000?

3) Another way?

Disclaimer: these aren't real numbers, just an example for ease of calculation

comments

Want to comment? LOG IN or SIGN UP
TOP 9 Comments
  • Autodesk FzD73g
    3) TC: 100k

    Shares don’t matter unless you get bought out or go public. And I don’t think Affirm is anywhere close to being public(?).

    As for strike price, if you do go public, it would be the $value at grant-$1 per share.
    Mar 4 3
    • PayPal ex FANG
      Exactly this
      Mar 4
    • Zillow Group / Eng anKW36
      Large pre-IPO companies usually have “tender offers” once a year. You can usually liquidate a fair bit of your stock that way, at FMV.
      Mar 4
    • Salesforce / Mgmt GQch66
      100% this. Until you know full details of dilution, liquidation preferences, etc, ignore anything that's not salary.
      Mar 5
  • Axon
    uanekN

    Axon

    PRE
    Axon, Uber, Facebook
    uanekN more
    Could you sell the shares at $2? If not, consider it $100k max. You may lose money buying the 40k shares.
    Mar 4 0
  • Roku ________
    2
    Mar 4 0
  • Wayfair / Product rrbo311
    If you know the last fundraise you can probably extrapolate an exit is worth 3x to 6x (depending on how fast it is growing). It's not all IPO to consider, but the risk variability is definitely much higher than these big companies with RSU packages. Also make sure you know the rules in the stock option agreement if you leave - many require exercise within 90 days which can make multiple years of work worthless and or super risky if you decide to move on. Few people talk about that. Similarly - altho unless you're an exec you probably have no leverage, the liq pref an acceleration is a big thing to try and understand. Most rank and file won't have single trigger which means it's all up to the founder and acquirer - a terrible position to be in.
    Mar 5 0
  • Palo Alto Networks ftyrio
    Another way ... Use https://comp.data.frontapp.com to calculate TC based on exit assumptions. Obviously, it may not happens, but it gives an idea. You’ll need the fully diluted number of shares also.
    Mar 5 0
  • Oracle / Mktg sortaRlvnt
    Startups so rarely go public that you should value shares at near $0, if not $0 exactly
    Mar 4 0

Join verified employees in our anonymous social network! Download the app!

close