Need some advice. Suppose there are two companies A and B. Company A (public) offers $100k base salary + $200k RSUs, while company B (private) offers $130k base salary + $200k in stock options. Company B is fast growing, though it’s a gamble how much more. Does this sound like a fair deal? What are things to consider and be careful of?
Go for the RSUs
RSUs are liquid. Sell them when you get them and invest or do whatever. Stock options are toilet paper until ipo or aquisition.
What if the option strike price is at 50% discount from the latest market valuation that’s been published? Is that legal and common?
Yes, assuming the “latest market valuation” is what the investor paid. It’s normally a 3:1 ratio to strike price that decreases as you near IPO.
3:1 as in, the strike price is something like $1 while the market valuation is $3? What I’ve been told is it’s 2:1. Is that bad?
Do private companies that offer options usually give a lot more options than what I quoted? If so by how much usually?
RSU. No brainer
I was told the FMV of the stock is double that of the strike price. This means there’s more leverage to grow value of the options. That’s what they told me.
The 409a/common FMV needs to be the same as strike price. The preferred price (what investors paid and you see in news articles) is probably the one that’s 2x that of the common price/strike price. So really, assuming you went liquid at current valuation, you need to cut your $200K options in half to pay for the strike price first. Effectively you are getting $200k RSU vs $100k options ($200k - $100k strike) at today’s price. If company B’s value goes up by 50% you are now getting the same ($300k-$100k strike.)
I've had companies tell me it has been a while since the last 409a valuation, so if I get in now before the next my strike price will half what the true valuation will show. That is all salesmanship though.
How did you put a $ value on the options? Usually, options are worth zero when granted and only valuable when the diluted value goes up AND they become liquid. It's a huge risk. Lots of things can go wrong. But when they hit big, the money is life changing. aka FU Money. So you get more options / RSUs each year? If so, how many? When do your options expire? If you leave, do you get to keep the options or do you have to exercise within 30 days? How far from an exit is the startup? Are you positive it will exit and your options will be valuable? It's a HUGE risk, but there are a lot of people on Blind who've made millions on options. And a lot who've made zip. And some that have done both.
It’s basically a gamble. You are getting $150K/yr liquid at company A vs $130K + $25K stock (at today’s valuation- 50k-25k strike) at company B. So your TC at company B, assuming valuation stays flat, is marginally higher. You can create a risk model if you’d like but probably you need to justify at least 10-15% annual stock growth advantage for company B. You likely won’t get that, it’s more likely to really take off and hit big or struggle hard, flatline or go down. Consider how much you believe company B will grow, if there will be an exit, if you can afford the exercise price of your options if you leave before liquidity event and they only give you 90 days to exercise (sounds like the total strike price will cost $25k/yr), and the fact that you must wait for such income, and it will be “lumpy” in one tax year vs spread out.
In long run, I will go with options anytime as they have potential of higher returns and lower tax implications https://support.carta.com/article/527-equity-101-part-1
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I’d take rsu