Quora: Formula for Option Grant Size at a Startup?
Yes, there is a formula for calculating a fair pre-IPO option grant size. Photo by Nataliya Vaitkevich.
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
QUORA QUESTION: Is there a generic formula I can apply to determine fair pre-IPO stock option grants based on the company's size and # of fully diluted shares?
I am a tech worker who has spent all of my career with post-IPO companies and am negotiating an offer with a well-established startup of approximately 250 employees. I am not taking on a senior role.
This is a simplified version of part of the process I follow with my Stock Option Counsel clients who are evaluating private company equity offers. It works best with a mid-stage startup which has had a recent funding round from a well-known VC (a.k.a. someone whose investment decision you would trust).
Recent VC Company Valuation / Fully Diluted Shares = Current "Value" per Share
Current Value per Share - Exercise Price per Option = Intrinsic Value per Option
Intrinsic Value per Option * Number of Options = Intrinsic Value of Equity Offer
Intrinsic Value of Equity Offer / Number of Years of Vesting = Annual Value of Equity Offer
Annual Value of Equity Offer + Value of Benefits + Salary + Bonus/Commission = Total Annual Compensation
Use Total Annual Compensation to evaluate the offer or compare to market opportunities.
Certain legal terms may change the risk and, therefore, the appropriate number of shares. For more on ownership limitations, see Ownership - Can the Company Take Back My Vested Shares? For more on how companies decide the right offer for startup employees, see Bull’s Eye: Negotiating the Right Job Offer.
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
