Said I joined a company at a 100 million dollar valuation with 1% equity. So right now my paper money should be 1 million dollars.
Then a funding round happens where the VCs fork over 50 million dollars and the company is now valued at 500 million dollars.
This should mean the company valuation grew by 5x (500 million / 100 million) and the dilution from the funding round is 10% (50 million / 500 million). Now my equity is worth 4.5 million dollars (1 million dollars x 5 x 0.9) instead of 5 million dollars right?
I’m seeing a bunch of people trying to look at their old Uber, Lyft, Pinterest, and Slack offers to try to figure out the opportunity cost of not joining, but the calculation should be pretty simple right (disregarding refreshers/bonuses/base of course)?
Even if there are stock splits or more shares being issued, the math above should hold right? Or am I completely missing something about how equity works?
How to value an equity grant:
Roll d100. (Not the right kind of geek? Sorry. rand(100) then.)
0~70: Your equity grant is worth nothing.
71~94: Your equity grant is worth a lump sum of money which makes you about as much money as you gave up working for the startup, instead of working for a megacorp at a higher salary with better benefits.
95~99: Your equity grant is a lifechanging amount of money. You won’t feel rich — you’re not the richest person you know, because many of the people you spent the last several years with are now richer than you by definition — but your family will never again give you grief for not having gone into $FAVORED_FIELD like a proper $YOUR_INGROUP.
100: You worked at the next Google, and are rich beyond the dreams of avarice. Congratulations.
Perceptive readers will note that 100 does not actually show up on a d100 or rand(100).