Equity review help!!

Apr 19 18 Comments

Got an offer from a private company good growth, VC backing, $25mil in revenue for 2022 on track for $45 mil next year.

The equity portion of the offer makes no sense. The valuation seems high and the revenue goal ambitious.

Need help ladies and germs! What questions would you be asking here?!

Below is the language in the contract:

Employee Stock Option Plan

• The Company is targeting US$100mn of revenues by 2024, which is expected to correspond to an equity valuation of c.US$1bn. At this valuation, participation point corresponds to c.$10K, in which case the Recipient would be paid c.US$400,000 ESOP based on 40 participation points

• The ESOP will be payable in cash immediately following the Triggering Exit Event, provided that the equity value
for the Company implied by the transaction or the IPO is at least US$400mn for an exit on or before 31 December
2024 (Thereafter, the minimum equity value threshold shall increase by 15% per annum)
• The Recipient shall be awarded 20 participation points in
*** ESOP, participation points will be doubled (40
participation points) in case the
Recipient is still employed at **** at the time of the Triggering Exit Event
• Vesting schedule:
Notwithstanding the time elapsed from the date of employment, the recipient shall receive the full ESOP award provided that he is still employed at the Company at the time of the Triggering Exit Event
• The ESOP shall be subject to:
Dilution in case of future capital increases. Please note that no capital increases are expected to be necessary to realize the Company's business plan.
which is based on organic growth. A capital
increase would only be contemplated in case of a significant acquisition, which would substantially increase the exit valuation Good Leaver/Bad Leaver terms, which shall be outlined in detail in the agreement

#startup
#techcareer
#jobs
#tc
#offers

comments

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TOP 18 Comments
  • Amazon
    AndyBezo

    Go to company page Amazon

    AndyBezo
    So in essence you are only being paid a maximum of 400k even if the company becomes a unicorn.

    It is absolutely not worth it. There is a high chance that the startup goes bust.

    Also, I’m okay if you believe in the startup but it should be a milti-million payout for you to play the lottery. You can easily join a big company and have a guaranteed 400k rather than take a bet and then hope for 400k.
    Apr 19 4
    • Amazon
      AndyBezo

      Go to company page Amazon

      AndyBezo
      It says the recipient will be awarded 20 participation points (and another 20 if they are still employed when an exit event happens). So the recipient gets a maximum of 40 participation points.

      Also, at a 1 billion valuation, 40 participation points are worth 400k.
      Apr 19
    • Apple
      gbhgvhh

      Go to company page Apple

      gbhgvhh
      Oh shit wait I read that as $100m valuation not revenue, what the fuck.
      Apr 19
  • **UPDATE**

    Had a long discussion with the executive team about the valuation and equity. Currently waiting to hear back from the BoD for $1.8 million equity at a $1 billion valuation. Weird way of doing things. Got a look at their business a bit more looks good on track for $30 mil revenue which is double last years.

    Should I be worried they low balled with $400k?

    I have other offers ranging from $290-350k TC
    7d 5
    • New
      sum-sum-TC

      New

      sum-sum-TC
      I would go for it under the right circumstances. It sounds like you want to take this risk but you don’t want to regret it later. All I can say is, take this risk only if you would be ok if your payout never happens.
      6d
    • Tesla
      headbe

      Go to company page Tesla

      headbe
      The lotto ticket at current revenue with 10x multiple is $150k itself so I'd say that's a fair trade. Just depends whether you think the upside is worth the wait, illiquidity and risk
      5d
  • New
    tribute

    New

    tribute
    What the fuck is participation point and stuff, hearing it for the first time
    Apr 19 1
  • Tesla
    headbe

    Go to company page Tesla

    headbe
    This equity portion seems worthless unless company can keep doubling and exit in 2026 at $4B valuation or smth.

    What's the base?

    I would value the equity package at $200k/4 assuming 10x fwd revenue is reasonable which i think is reasonable given the growth rate. Assuming this is high margin >50% gross business.

    So if you are Sr swe and base is $250k this comp not bad. If base is low you're going full lotto that doesn't even print that much--800k after tax with a 4B exit (that's like a 20x from today).
    Apr 19 2
    • Yea this is 100% correct. The salary is lower than all my other offers $150k.

      I don’t understand why they’ve given the valuation based on 2024 revenue.

      How would you negotiate this? What questions would you have?!

      Thank you!!!
      Apr 19
    • Tesla
      headbe

      Go to company page Tesla

      headbe
      Ask for more base but probably startups wanna conserve cash
      So ask for more equity if you believe in em so at least the lotto will pay if it pays.
      I would ask for double the equity

      And what is the roadmap or LTV/CAC and MRR retention that they see that gives them confidence in 100% yoy growth
      Apr 19
  • New
    sum-sum-TC

    New

    sum-sum-TC
    Sounds like a red flag but I’m no expert
    Apr 19 0