AI startup offer
Is it worth joining this startup 220MM post money valuation Series A Strike price $3.1 Fair market value $10.2 (preferred shares) Options given 45000 Very low dilution. Has very strong potential to grow 3X-4X the next year. I am concerned if joining this might be risky from AMT when exercising options Is the option grant fair ? What else should be aware of
That is a really high valuation for a Series A company. You’ll leave after 3 years and won’t be able to buy your shares. Unless there is a 10 year exercise window for former employees, don’t join. 3-4x growth means little. It’s already baked in. 220M implies revenues of 50M st public company multiples. No one is going to buy this company at 500m and you’re taking too much risk at this high valuation. Move on.
It was in stealth for a long time 2 yrs or so and generated rev. Outlook of company is to go big rather than an acquisition. I was trying to value my options as FMV * options = approx 450k with an upside of 3-4X in a year
Rule of thumb: reduce 10% for every year from IPO. So if 3-4 years out, reduce 30-40% AT LEAST. The 409A value, as rule of thumb, is 20% of Preferred equity value (this is the value that gets thrown about). But preferred get paid first so their equity is worth more. My personal rule of thumb for a 20-50M revenue company is 40% (ie 60% haircut).
I have no idea what you guys are talking about. Is there any books that I can read so I understand some of these and can potentially asses an offer if I were to end up with one from a startup?
Just google it :) Basically, a VC says “here’s $10M for 20% of your company.” That implies the company is worth $50M. Now it hires you as a VPEngg and offers 1% equity. That equity today is worth $500K, right? And you hope to make it worth $5M. But it’s not worth $500k, because the $50M is paper value and illiquid. It’s also the value of the investors’ shares (Preferred), not employee shares (Common). Your $500K is really worth $100-250K. The IRS recognizes the 409A value, which typically is ~20% of Preferred. 50% is probably as high as I’d value Series B/C equity. For companies like Uber/Lyft, Id value it at 75-90% of the last legitimate price.
You haven’t said anything about yourself. If you are joining as CEO, likely unfair; if joining as fresh grad, likely much more than fair.
Joining as a senior engg (7yrs exp).