Do all startup offers price in next round valuation growth?

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EhDq81

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EhDq81
Dec 27, 2021 19 Comments

I got an offer from a series C startup. The offer says I will get stock options to buy 30k shares over 4yr, with strike price of $4 and preferred price as $10. This seems extremely low, but the way they pitched the offer goes like “we are very confident that the valuation goes 5x in the next 12months, and by that, your shares will effectively be $1.4m!”

I called this BS but a chat with a couple of my friends who got multiple startup offers tells me this is a norm, for example Confluent, when they were still offering options vs RSU.

Wondering what others’ experience is like.

PS: it’s a L6/E6 equivalent offer

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TOP 19 Comments
  • They all say stuff like this, it’s up to you how you want to value it when negotiating.

    - If the last funding round happened multiple years ago and their revenue or other metrics have increased significantly since then, it’s probably valid that their stock is worth more than the last funding round. You should try to come up with your own estimate of its value which should be lower than theirs.
    - If they have no revenue, or they do not tell you the numbers, it’s very difficult to believe anything other than their last round unless you’re willing to just believe them, which would make you a bad negotiator.
    Dec 27, 2021 2
    • Meta
      EhDq81

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      EhDq81
      OP
      True true. They raised the last round a couple of years ago, it they were pretty vague about specific biz numbers..this got me questioning
      Dec 27, 2021
    • I would ask for the numbers. They have the slides prepared for investors, it’s a question of whether you can convince them to show you. As always, a competing offer is helpful here. They may ask you to sign an NDA and only tell you verbally if they’re paranoid.
      Dec 27, 2021
  • Cruise
    ε

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    ε
    About half of my startup offers tried to play the "our stock is worth 2-3x 4 months after last round" game. You just have to be firm with them and negotiate.
    Dec 27, 2021 2
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      EhDq81

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      EhDq81
      OP
      Thanks for tips! I was backchanneling with folks in the company. They told me for startups in this stage, they already have a fixed option range for each level. Do you mean if Im firm with them, it’s possible they would give me 2-3x more options instead of playing this BS game?
      Dec 27, 2021
    • Cruise
      ε

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      ε
      Depends on the startup and how much they want you. Most will go up 50-100% more than the initial offer.
      Dec 28, 2021
  • Uber
    ublindd

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    ublindd
    People who called BS probably never had startup offers. This is the norm for most startups unless they are very close to IPO and issuing RSUs, in which case their offer should look FAANG-like. If you look at crunchbase history of recent moderately successful startups, they have been raising a new Series pretty much every year multiplying their valuation. So they factor that in while making you an offer which isn't necessarily unfair if it actually happens.
    Jan 23 1
  • New
    hugh jarse

    New

    hugh jarse
    your poll is wrong. this is both a norm AND it’s bs
    Dec 28, 2021 0
  • New
    hugh jarse

    New

    hugh jarse
    low offer for L6
    Dec 28, 2021 4
    • Meta
      EhDq81

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      EhDq81
      OP
      Ah I see your points, but is there startup offering 1m worth of stock based on current valuation?
      Dec 28, 2021
    • New
      hugh jarse

      New

      hugh jarse
      we need way more info to evaluate the shape of the offer. but just the info you’ve provided i would pass without regret
      Dec 28, 2021