How to compare the value of your startup options offers?
Whether you are deciding between job offers, or hold options as startup employees, understanding how to calculate the value of options is crucial. TLV Partners’ Shahar Tzafrir is calling for entrepreneurs to be more transparent with their workers and explains to employees what to lookout for
Tzafrir believes the following list of parameters must be assessed when trying to calculate the value of options:
- The number of share options that was offered and the total number of shares in the company.
- The value (PPS) of each share in the most recent funding round.
- The cost of realizing an option at the moment.
- Is there a difference in the price of realizing an option between Israeli and American employees?
- What was the latest 409A and who calculated it?
- What is the vesting period and what is the vesting cliff?
- How much money has the company raised to date?
- How many shares have been allocated to the employee stock ownership (ESOP) program and what is the current number and percentage of unallocated shares in the ESOP, and has the ESOP been approved by the required authorities and registered with a trustee?
- What is the approval process for option allocation?
- How many board members are required for approval, is there a commitment that the option allocation is certain to be approved and the approval by the board in the coming meeting is only formal? And when is the next board meeting?
- Will the employee receive confirmation once the allocation is approved?
- When does the vesting period begin?
- From what stage is the external trustee updated on the new allocation?
- What is the company’s full options plan and can it be changed along the way?
- How is the options program different from standard programs?
- Can an employee sell or assign their rights for the options before realizing them, after realizing them, while being employed, after leaving, and how long after leaving can the options be realized?
- What is the stock acceleration in the type of shares which the employee has been allocated and under what conditions and what are the liquidation preferences? A future change in that and in the amount of funds being raised is dramatic.
Tzafrir concluded his thread by stressing that “I’m not writing this from my position as a VC, but due to my frustration regarding the superficial discussion on the matter and the lack of transparency in job offers when it comes to options. My recommendation, trivial as it may be, is to go work at a place with a vision and values you believe in and with colleagues you will have fun with in the morning. A place that will challenge you and teach you. At the same time, remember that all of us: Investors, entrepreneurs, and employees in the office next to you, are all capitalists. Maximize every financial condition you can. But place plenty of weight on the place you will be working at and the people you will be working with. What you’ll do. How much you’ll enjoy yourself. And regarding options: Try to understand as much as you can, and know that it is difficult to calculate their value and that some of the information is dangerous for companies to reveal.”