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0 points001sky11y ago0 comments

As a general thought, you should only value cases of equity when the company is $100MM + up in exit mode or your have more than fractional percentages. I think that's what the earlier poster was trying to communicate.

Almost more important: in the 9 of 10 chance that the company fails, what is being done to maximize the marketability of the staff? YC adds a lot of brand value to "failed" projects. Just one example of how the whole picture needs to be taken into account. If you lose $15K a year taking a haircut, but your next job search sees $30K in extra value from your past experience, how does that add up?

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abalone11y ago· 1 in thread

If that were true then angel investment would never make sense. In practice, you can value equity at any stage of a company. What matters is the company and its potential, not just the percentage.

001skyOP11y ago

Not sure I follow you. Angel investing may or may not make sense (for the average punter). But for those who do it sucessfully, it seems rare to take <fractional> percentages. Maybe you can give some worked examples using math? I've updated my comment to be more clear below:

As a general thought, you should only value [as part of your employment] cases of equity when [either, (a)] the company is [potentialy worth] $100MM + up in exit mode; or [b] your have more than <fractional> percentages [ie, granted stakes >1%].

In other words, unless you expect the stake to be worth a substantial six-figure sum. In order for this to be true, the equity stake needs to be in the upper six figure under some reasonable probability. So, a 600k stake with a 1/3 chance of you "winning" it is only worth $200K. Once you spread this out over the time to get it, it boils down to a number closer to say 50k/year for 4 years.

Now, that is a nice bump in salary. But in order to get this in a realistic sense with a 0.6% stake, you need a 1 in 3 chance of exiting out of a $100 million dollar company.

Since a 1/3 chance of a 100 million exit is unrealistic for an average portfolio company, you need to correct the math a bit more. Since a 1/10 chance is a more likly number, lets divide our $50k/ye by 3, and we get something in the $15 to $20K range per year.

In other words, we get a number which is about a 10-12% boost on a $150K base salary. This is nice, but not worth taking larger paycut/mispricing for. So using this back of the envelope framework, small fraction percentages of ownership don't as a rule compensate for salary mispricing, when that mis-pricing is order of magnitude 10% or greater. Which just brings us back to the initial point but hopefully with more clarity.

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