Our Approach To Equity

Methodology


Equity is the most variable element of your compensation.  One of the most commonly held frameworks in equity valuation - called the Efficient Capital Markets hypothesis - states that the current price of a stock reflects all known information about that stock.  Which means, essentially, if you don’t know more than the cumulative knowledge of everyone else who knows something about a particular stock, the price of that stock today is all that we can know with confidence.

We take that framework to heart, and when it comes to equity, we focus on providing an apples-to-apples comparison.  That means translating all equity offers into their dollar value using the equity price at the time that the equity options have been offered, then comparing those dollar values against each other.


Publicly-Traded Equity


For publicly-traded equity, it doesn’t get more complex than that.  As part of our multi-year offer evaluation, we’ll consider vesting schedules to ensure that you have an accurate understanding of when that equity will become available to you.  And if you’re working at a publicly-traded company that isn’t offering standard RSUs, we’ll work with you to help you understand what the company is offering and how to value it, but for most public companies, valuing equity is fairly straightforward - their stock price is listed publicly and updated constantly.


Privately-Held Equity


For privately-held equity - meaning a company that is not listed on a stock exchange where you would be able to buy or sell shares for cash - the calculations become a good deal more complex.  They often also involve a good deal of legal and financial expertise, because companies offer more types of equity (warrants, options, RSUs) than publicly-traded companies do.  In addition, venture capital-backed companies sometimes go through multiple dilution rounds as they raise additional financing, and the liquidation preferences of the investors may also distort the final value of your equity in some situations.


Instead of trying to pinpoint a precise dollar value, our approach to privately-held equity focuses more on probabilities and ranges of outcomes.  We orient those probabilities around the growth of the company, rather than on its exit outcomes, because as an employee you will be able to track the company’s internal growth metrics - like users, revenue, or bookings - more easily than you’ll be able to track exit scenarios like acquisitions or IPO stock pricing.


Unless you’ve joined a very late-stage privately-held company, which more closely approximates public companies than smaller startups, you should think about the equity in a private startup this way:


  • Most of the time, that equity will be worth very little.
  • Occasionally, that equity will be worth something significant, but not life-changing.
  • Very, very rarely, that equity will be highly valuable.


Many privately-held companies continue to delay their exit scenarios - either acquisition or IPO - which also means you should take into consideration when you will be able to translate that equity into cash.  Unlike in publicly-traded companies, you won’t be able to sell your vestings immediately, and many employees who’ve joined startups early will end up holding their equity for five or more years before they have an opportunity to sell.


No matter your situation, equity is a complex topic.  When it comes to offer negotiation, we provide the market data and fundamental analysis to allow you to do apples-to-apples comparisons across different offers and companies.  We’ve found that those are the most effective techniques to make sure you’re being paid fairly.