My standard experience has been
-"This offer includes X,000 share/option units"
-"great, how much is that worth in dollars?"
-"well, we can't tell you, but there are Y00,000 shares in total, and the last investor paid $Z million for W% of the company".
"OK, that's very useful. If I assume my shares are as good as the investor's shares, I can estimate my shares' market value. Did the investor get anything else of economic value for his investment? A liquidation preference? Right to invest in future rounds? A board seat? Sweetheart deals with his favourite companies? "
- "Let me check that with Finance"... ... ... "I'm sorry but I can't tell you that"
- "OK, I understand that's confidential. Can I at least get the same deal as him? I'll trust you to give me my extra benefits when they accrue, and I waive the board seat and the backhand deals"
- "Absolutely not."
- "Well then, it's very hard for me to put a value on these shares/ options. Even though I'm willing to take some level of risk in my compensation, and value these close to market value, you won't give me enough information to let me value them at anything other than $0"
- "I've checked with $BIGWIG and actually we can make an exception in this case: we can offer you (X + 1),000 shares/ options. How does that sound? "
- "..."
I know what options are. I trade options on the public market frequently and make some beer money.
But when it comes to my stock options in the private startup I work at, I'm lost, mainly because the share price is shown as one of two numbers: Fair Market Value, and Issue Price.
Let's say I joined after a funding round where the company earned a $5B valuation. I'm given the option to buy 10,000 shares at $4/share, which is the "Fair Market Value" price. But the investors paid $16/share. How much are my shares actually worth? $4 or $16? I THINK the answer is actually "neither", since my shares have no liquidity without using a private equity trading firm like Forge. But is the $5B valuation determined from the FMV or the issue price?
But ignoring that, let's say we IPO with a $25B valuation. Ignoring dilution, if my shares were worth $4 before, they're now worth $20/share, and I've profited $160K. But if my shares were actually worth $16, they're now worth $80, for a profit of $800,000.
Which is it really?
If it was at least as you describe, that'd be one thing, but not even that is guaranteed. At the time an exit event actually does happen, you might've been diluted out of existence.
I've personally been fucked out of shares once already. It's much, much worse than a lottery ticket. It's basically a dream.
