Evaluating a series B startup offer.

KPMG / Mgmt
Bad_Kitty

KPMG Mgmt

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LinkedIn, McKinsey
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May 3, 2018 12 Comments

Company is offering (say) 10K ISOs at a strike price of $1. They say preferred shares were valued at $3 at the last round, and they expect to exit at a 20X valuation increase, (with 2-3X potential upside on top of the 20X) by the time they IPO (in ~4yrs). Also saying that preferred shares have only 1X preference and no double dip participation, and they expect to raise 2 more rounds prior to IPO. However, they will not tell me the number of outstanding shares to be able to calculate my "ownership". Revenue wise, they will need to grow at least 20X to justify the 10B IPO valuation they are expecting (valuation will still be a very high revenue multiple). Alternative is public co with RSU value today approaching the same $ value as the ISOs would be at the targeted IPO valuation of of the startup.
Am I crazy to even consider this? Thoughts?

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TOP 12 Comments
  • Google haNt23
    If your main concern is compensation, then public co is almost always the right choice. Growing 20x may be possible, but is a lot less likely than your big co staying at least the same size. As an aside, not revealing outstanding shares is a red flag for me.

    All that said, reasons to go work somewhere like this: because you want to.
    May 3, 2018 1
    • KPMG / Mgmt
      Bad_Kitty

      KPMG Mgmt

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      LinkedIn, McKinsey
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      OP
      Yup. Feels like a red flag to me too, but im not sure why, since they are sharing all this other info.
      May 3, 2018
  • Lyft exHr77
    $500m / $3 = 167m shares. 10k / 167m < 1 basis point of ownership. The math is easy. Either your recruiter doesn’t understand the math, or they are hiding something.
    May 3, 2018 0
  • Jet DLL
    Wow 20x at exit. Why not 200x? See that’s the problem. Look at recent tech IPOs and base your model on that. If it was me: I’d assume $15-20 a share best case.
    May 3, 2018 2
    • KPMG / Mgmt
      Bad_Kitty

      KPMG Mgmt

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      LinkedIn, McKinsey
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      OP
      Yeah. Why not 200X indeed. They are not shy about their IPO valuation ambition. You are spot on about realistic future share value, in which case it makes no sense. Just wondering if positing such lofty potential value is standard op procedure for startups in closing a hire?
      May 3, 2018
    • Jet DLL
      Yes. Standard procedure.
      May 3, 2018
  • HPE NXMA62
    KPMG, what would your role be?
    May 3, 2018 0
  • Upstart / Eng
    kr580a

    Upstart Eng

    BIO
    Devops guy
    kr580amore
    They revealed all the details while keeping the most interesting parameter for themselves. I guess they test your ability to find information on these internets you know.
    (they are most probably the Delaware co and as such you can buy the ”outstanding shares” info for $20 from Delaware state. Don't have the link atm, but finding it should be trivial)
    May 3, 2018 0

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