Simple arithmetic for pre/post IPO RSU valuation
Nov 6, 2020
6 Comments
I am at a pre-IPO unicorn and trying to determine how I should negotiate for future positions, whether it be salary or equity heavy. It seems like the math should be simple, but I'm confident I'm missing something.
Assumptions:
- I have 1000 RSUs
- Last private market valuation was $1B at $10/share
- Goal is to IPO at a market cap of $10B.
Does this mean that the share price of my RSUs would simply 10X ($10B/$1B)? This seems too simplistic so I'm guessing there's something I am missing, but maybe it is that simple...
comments
It's foolish to just assume 10x because that's what they hope the IPO will happen at. Frankly, these shares are worth very little. You're not going to be able to use them to negotiate much on an offer.
Going into negotiations, I want to be aware of some of these details so I can try to increase my equity exposure. Or, if they won’t provide more details, just go for an increase in in compensation that is all cash. I do know that there is a decent chance these will be worth 0 in the end, but if I can get enough equity that I could be financially independent in 3-5 years, it may be worth the risk.
Fair price = IPO price * chance of IPO + sale/liquidation price * chance of sale/liquidator - discount for time
Sale/liquidation price is higher for investors because they are first in line. For employees (common stock holders), that price is often $0 if the company sells at or below their last valuation.