Calculating startup equity
I'm trying to estimate the percentage equity (stock options) I've been offered at a series B startup where they refuse to tell me the # of outstanding shares. Are the calculations in the case study below valid? I've never interviewed with startups in the past so this is all new to me... Thanks in advance! Here's what I know: - 1x common = preferred - Series A: $9mil funding @ $50mil valuation Strike price $1 , preferred price $3 - Series B: $50mil funding @ $200mil valuation Strike price $4 , preferred price $10 My calculations: - Series A: Investors got 18% of company ($9mil/$50mil valuation), getting 3mil shares ($9mil/$3 preferred). Total # shares is 16.7mil (3mil/0.18) in pool. - Series B: Investors got an additional 25% of company ($50mil/$200mil valuation), getting 5mil shares ($50mil/$10 preferred). Total # shares is now 20mil (5mil/0.25). Were 3.3mil (20mil-16.7mil) new shares issued here - is this what is referred to as dilution? I've been offered 50k options - can I think of this as 0.25% (50k/20mil series B shares) of the company?
Your calculation is very close to the real number of outstanding shares. Because some investors might’ve paid a lower price for preferred shares. So in theory the total number of outstanding shares might a bit higher. But 0.25% post B is good number. 2 concerts though: - They won’t tell you the # if outstanding shares. The company should be transparent to its employee and this # deserves to be known. - They diluted more in B round than A round. It could be they raised to higher valuation than actual was for round A and B round had a harder time getting good terms. Do more due diligence and btw don’t listen to people who has never been to a serious startup, like the Bloomberg guy.
Run a pitchbook report on the startup for actual #s. Basic rule if thumb for startups is: $x TC in cash 2-4x in stock options over 4 years using share price of last funding round depending on level and difficulty in filling role
It’s possible that the person you’re asking about number of shares outstanding doesn’t know for sure, or it’s not relevant as they may issue more shares or dilute. Your calc is reasonable. Perhaps a better way to think about it is if you are a key player among the first 100 employees of a company with promise off making a huge exit, it could be worth some $$. %equity isn’t relevant compared to the potential exit size and the founder’s vision for the exit ($10mil vs $10bil ?)
Value it somewhere between $0 and -infinoty as far as you are concerned. Unless it's the next FANG and/or you are a cofounder, you are losing money.
Actually, I was at a startup with very similar numbers and in terms of tisj adjusted return, you lose out. While you could earn more, but won't.