I am an early employee at a growing (but not famous) startup, and my equity (half vested/half unvested) is now roughly valued at $4M (preferred price, I obviously have common stocks which come at a higher risk). I was approached last week by an investor (VC) who is proposing to buy my common equity, or a portion of it, at a discount factor of 70% of the current preferred price, effectively valuing my equity at 3M. I also exercised most of those common options so by now I have a nice long term capital gain if I sell, so I was thinking of selling about 1/4 of it (I could just sell 1/2 of it at most, since the other 1/2 is still unvested), and keep the rest growing since the company still has a 5X potential in my opinion. The problem is I don’t like this 70% and I wonder how much room for negotiation I have to bring the price of my shares closer to the preferred ones. Has anyone faced anything similar? Do I have chances of negotiating or should I just accept or show them my middle finger? Btw, the company management is aware of this offer and they are ok with it. Thanks TC for blind etiquette: 270k cash (+ equity explained above, vesting at about $500k/yr with the current preferred valuation but obviously still illiquid)
If you believe in the growth potential, why would you sell at all? Should only sell if you need the money now.
Because I would still have 3/4 of it (assuming I stay at the company) and selling that 1/4 would essentially almost nullify the opportunity cost of not having gotten a faang salary for 3 years.
Your salary is very high though
I'd sell 1/4. 600k is some FU money, or runway for a future venture. None of us know where the economy will be in 5 years, and if things go well, you still have the rest of the equity. If it 5Xs and you fully vest, that 1/4 is the difference between 15M and 20M, and tbh what would you even do with an extra 5M at that point? - vs having some certainty now.
That’s what I’m thinking as well. Thanks for your perspective. The only caveat of that plan is that the rest of the equity would be there just if I stick to the company, whereas if I don’t sell my 1/4 I can leave while letting it grow.
Agree. Sell 1/4 and hold tight onto the remaining amount.
You did well!
Thanks, but divided by the years and the opportunity cost, the compensation might be just very marginally higher than a good faang career, with a much higher risk. So, moral of the story is: never ever do startups unless it’s yours! If I could go back in time, I’d have joined faang instead of the startup
Wow, interesting self analysis. Did you feel like you learned more or gained more connections to doing a future startup? That is much more valuable to me in an early career. Btw, how early did you join, and at what initial % equity grant?
70% of preferred is not bad for common stock. It is extremely rare for someone to offer you 100%.
Consider that we are not talking about early stage here. The startup is at Series D. 70% is more like Series B. But I get what you’re saying, it’s certainly true.
If a VC is willing to buy, you have to wonder what they know. Could be a gamble on their part but maybe they’ve got a pretty good reason to think it’s a deal. However, given your knowledge of the company, if you don’t see much long term upside, sell.
Hi Ip. How many YOE do you have and what role you have at this startup?
My first question: how valuable is 3M to you today vs 10m in 5 years?
It wouldn’t be all 3M because that counts the unvested equity, so let’s call 1/4 at long term capital gain about $600k post tax, keeping 3/4 invested in the company. Those 600k would effectively double my current liquid net worth.
If this 600k can change your life meaningfully today the sale is probably worth it (as in buying a house, Getting rid of a deadweight loan etc.) Separately, has your company done secondaries ? How many years till you think your money can be mostly liquid(IPO or acquisition). This is a major factor for decision.