How to evaluate Series C offer with Options?

Uber
Jfyv57

Go to company page Uber

Jfyv57
Jan 12 11 Comments

Hey Blind family. I have been loving my job for the past few years at Uber, but recently went looking for a change: I want to work somewhere much smaller with greater risk (and hopefully reward)

I found one Series C whose mission speaks to me strongly and I did well on the interview too. The problem is that I only have experience with RSU offers which make it easy to evaluate TC since you can more or less just add Cash + RSU = TC

In this case, they are offering options with a strike price. In my mind, the equity portion of my offer is worth $0 on day one. Since I’m paying $1 from my pocket to get $1 worth of stock.

They are offering $200k cash and $200k stock options a year, which leads me to think that my TC is now 200k, but will be 400k if the company doubles with no equity dilution.

I kind of assumed the stock options would be quite a lot more than what an RSU offer might be since there was more risk involved and because you have to buy the shares rather than get them outright.

I know some folks on Blind understand options deeply and can probably help me better understand what to ask for and if this offer makes sense.

TC: 400k, YOE: 7

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TOP 11 Comments
  • Cloudera
    hamsterstr

    Go to company page Cloudera

    hamsterstr
    Forget dilution as a word, it's being misused and misunderstood. Unless you plan on controlling the company to go private, public or sell as a sole decision maker, it doesn't matter. Current valuation, your option strike price are things which matter. Any new rounds dilute your ownership stake, but NOT value. Your options become more valuable, any splits in strike price are reflected with a simple grade 2 arithmetic and do not change your option grant value (other than increase it).
    Jan 12 4
    • Investment Bank
      Glinda

      Investment Bank

      PRE
      HP
      Glinda
      Cloudera, I have been working in software M&A for over 20 years and have been part of thousands of exits, but obviously you know more about the possibility of dilution than me. There are no a absolutes.
      Jan 12
    • Cloudera
      hamsterstr

      Go to company page Cloudera

      hamsterstr
      Reiterating the point - for the OP to take on stock options as a TC, the new rounds will not be important. They would be validating the growth and % ownership of voting rights was never an issue, as long as company value increases.
      Jan 12
  • Investment Bank
    Glinda

    Investment Bank

    PRE
    HP
    Glinda
    If the company has an exit event you may see huge gains from your options, but you are equally as likely to receive little to no profit if the shares are diluted due to more fundraising rounds or the company stays private.

    My partner has been waiting for a decade to see a return on options he purchased. At this point, a bankruptcy would be welcome so he can take a capital loss.

    @Microsoft is correct that the strike price is generally less than the fair market value. Private companies that offer shares file an annual report stating the current FMV, IRS Form 409A.

    Visit the Carta website. It has a lot of good information on private shares.
    Jan 12 1
    • New
      WannaMetaG

      New

      WannaMetaG
      Fund raising rounds will dilute, however value should typically go up assuming the company's earnings and valuation is going up with each round. If it is not, time to bail anyways.
      Jan 12
  • In general the strike price of the options is less than the market value. The strike is the FMV while it’s expected you’ll be able to sell at the preferred price (the valuation in the headlines)
    Jan 12 3
    • Correct. These are questions you should ask the company, at series C there should be a difference in the two prices
      Jan 12
    • New
      WannaMetaG

      New

      WannaMetaG
      What Microsoft said, typically there is a difference between strike price and preferred price/what investors paid last.

      One note, you can't evaluate a startup offer based on today's value. You need to get a sense of what it will be when there is an exit, that is the true value of the options you are joining the company for. Look at how many multiples of today's earnings they will be when there is a potential exit (easier for later stage startups than earlier ones) and factor that into the stock price.
      Jan 12