Do you do it strictly based on 409A? Take into account investor valuations? Listen to the recruiter's grand vision of a multi-billion IPO? I came from FANG where RSUs are totally predictable income. Most of my coworkers came from there as well. But based on 409A the equity this startup offers is nowhere near FANG. Do people use other criteria to evaluate, or am I simply sacrificing big on TC?
It's not that hard, you could probably just speak to your HR about it
409’s usually well below valuation. Use the last valuation round to estimate, or the next one if its in progress.
How does one do that?
What do you mean? If the company is valued at $10m and you have a 0.1% grant then your equity is worth $10k.
409 FMV is the strike price to exercise your options. The common stock price is probably the best valuation given that's what your options will convert to. You should ask your HR ppl what that is. Using the investors valuation doesn't take into account liquidity preference or other terms. For tax purposes, when you exercise, the tax you owe is the cap gains on the delta between your strike price of your original Grant and the current FMV
Thats the most conservative way to evaluate. 409 valuation generally are on the low low end of valuation for tax purposes. Btw carta, do you generate tax docs if I exercised my shares last year and paid some cap gains tax?
Are you speaking as an employee or employer
A good strategy would be to find out what the last round of preferred was sold at. That is the price investors are paying to invest in your company. A good measure of the value as of today. That said, think of the options as a gamble based on the confidence in the company you are joining. You get to lock in a price to buy shares at a lower price regardless of how successful the company is in the future.
How did you get access to 409A?
That is the risk part joining a startup. Equity can be zero.