Just how much is that 2% really worth?

http://www.tejusparikh.com/projects/equity_calculator/index.html

by taeric • 12 years ago

346 145 12 years ago

tejusparikh.com

chiph• 12 years ago

Underwater means no big payday. :(

georgemcbay3• 12 years ago

Or worse.

You can get screwed on AMT tax on fictional gains, you can also lose real upfront money if you exercise at a strike price early for long term cap gains [almost always a bad move for common stock employees, but lots do it because of their borderline irrational hatred of the idea of taxes].

jhaile• 12 years ago

Like the design. Good job!

colinbartlett• 12 years ago

I think people forget just how complex cap tables can get. Add in rules about vesting and strike price, and dilution in future rounds and debt financing, and the likelihood that lowly employees receive meaningful amounts at an acquisition diminish further. Sure, big time paydays and public offerings are possible, but these are the exception.

Bottom line: Insist to get paid what you're worth and take any options as a free lottery ticket that will probably never get you anything.

zorpner• 12 years ago

And equally importantly, get paid for the work you do (i.e. don't let anyone convince you to work nights & weekends for a year to "build the company" based on a hypothetical payout).

geertj• 12 years ago

Cap tables are indeed very complex. Often there's also a preference on preferred stock, meaning that the preferred gets a minimum return (often 300% or 400%) before the common gets anything.

Fully agreed with the other comments: ignore equity in early stage startups and go for a market rate salary.

The one situation where I would take a lower salary is if there's concrete plans that a company will go public within 12 months, and you're going to be in a senior enough job that you'll be in the know about it.

lightblade• 12 years ago

I wonder what if I used the stock options money to purchase lottery tickets, would I have more chance of winning big? Since stock options vests over 5 years and lottery tickets draws every week, I tend to think you have better chance winning the lottery than winning on your options.

newcf5• 12 years ago

I'm not entirely sure the calculations work.. Maybe I entered data wrong, but I was trying to model the acquisition/startup that I just went through. with our numbers, and our dollars, and my shares.... I walked with a heckuva lot of money, but that's not what the site said.

calebclark• 12 years ago

There is a bug that triggers when you add a funding round. It takes your equity percentage down to zero, regardless of the amount raised or pre-money valuation.

x3c• 12 years ago

Raise an issue in bug tracking. Name it the Zynga bug.

drcoopster2• 12 years ago

That's not a bug.

carrotleads• 12 years ago

What are you doing here on HN. Shouldn't you be on a beach?

Don't tell us you have the startup bug!

newcf5• 12 years ago

Ha! I hear you.. beach is good.... it was a truckload,not a boatload? :) I still have to work, but , you know.... I can do what I want when I want.. ok... I need to stop getting braggy.. sorry ...

Yeah, I think it was with the equity addition.... Once I did that, my delta went in the negative, and it would have beeen better to stay corporate ;)

newcf5• 12 years ago

OH, and TOTALLY have the startup bug.. I got lucky with a ton of blessings on the first one... I know it doesn't happen often.. but apparently it happens

russianbandit• 12 years ago

Mind sharing which start-up?

newcf5• 12 years ago

Unfortunately I can't... lots of people "didn't" do too well, since it was a little early exit.. I was in early enough that I did well..

onion2k• 12 years ago

My advice to people who want to work in a startup is always very simple: Ignore any equity.

If you'd take the job without any equity then take the job. If the equity is part of your reason for taking the job, you probably shouldn't take it.

Base rate neglect[1] means we are terrible at evaluating the probability of equity being valuable. For every story about someone making millions out of their equity when the startup they're working for exits there are thousands of stories of people who walked away with nothing but a few years having fun solving challenging problems. That is the reason to work in a startup, because that is the definite, concrete thing on the table. If you want to make millions in software, get a job writing code at a bank and invest your salary.

[1] http://en.wikipedia.org/wiki/Base_rate_fallacy

nullspace• 12 years ago

Very true, and thanks for the link.

I think that this also applies the other way around. If you're a founder building your early team, you should not hire people who want to join because of the equity. You should be bringing in people because they want to work on the problem for the salary that you can give them or promise to give.

If you hire someone who has an expectation that he will make a million dollars in 4 years - it can lead to a lot of bitterness while you are building the product - especially when you are having a few bad months. Have seen this happening a bunch of times.

Equity != Money, equity ~= the percentage of ownership and responsibility.

Edit: Salary AND relatively high ownership of the company / product. Some people don't mind taking risks if they have an opportunity to build and own something great.

ssumit• 12 years ago

@equity ~= the percentage of ownership and responsibility.

I think this holds in starting but ownership and responsibility is more on people's attitude. The equity will also remains the same(in %).

I like your point about not joining/hiring to make few millions in 4 years. It probably is a driving factor in start but wont sustain for 4 years. Again people's attitude.

dragonwriter• 12 years ago

equity ~= the percentage of ownership and responsibility.

The entire point of the corporate form is separating degree of ownership from degree of responsibility.

nawitus• 12 years ago

If you want to make millions in software, get a job writing code at a bank and invest your salary.

Really? Even if some 'banks' pay better, these banks tend to be located in a handful of cities in the world - but there are startups in a lot of more locations.

And it doesn't seem clear that finance firms pay that well: > The average base salary for a software engineer at a finance firm is $92,000, not far ahead of the average base salary of $87,000 for a software engineer at a tech company, according to salaries self-reported by employees on the jobs and careers site Glassdoor.com. http://www.marketwatch.com/story/silicon-valley-vs-wall-stre...

Wilduck• 12 years ago

I think you may be missing the point. The way to make millions was less about "work at a bank" and more about "invest your salary". With any decent salary and good financial planning, a few million dollars by retirement is easily within reach.

pnmahoney2• 12 years ago

The best in finance have most of their compensation on a perfomance-bonus basis.

so for a highly sought after trading associate (real example, really high valued financial institution), get 100k base but also getting forward guidance for a 200k bonus at an absolute minimum - e.g. if not turning out to be completely incompetent.

dreese9• 12 years ago

I think about startup employee equity like this:

Salary = compensation for doing the job

Equity = compensation for taking the risk of working at a company with a high chance of failure

Therefore, in the future, an employee with lots of equity should still be paid a normal salary/raise/bonus because the equity isn't "current" compensation for doing the job, but a reward for taking a risk long ago.

But ignoring equity entirely is silly. Much better to say that you should consider salary and equity separately. One is for doing the job and the other for doing it now when uncertainty and the possibility of failure are high.

Also, some people (like me) would trade an increase in equity for a smaller salary, so it's not a perfect separation. I had a job offer once that gave me two options to choose from, which was really cool.

kristiandupont• 12 years ago

Equity = compensation for taking the risk of working at a company with a high chance of failure

But if you are getting a normal salary, what is this risk?

htormey2• 12 years ago

"Much better to say that you should consider salary and equity separately. One is for doing the job and the other for doing it now when uncertainty and the possibility of failure are high. Also, some people (like me) would trade an increase in equity for a smaller salary, so it's not a perfect separation. I had a job offer once that gave me two options to choose from, which was really cool."

So the two options you were given was more cash less equity or more equity less cash. Doesn't that negate your point that you should consider salary and equity separately? I don't really see from a financial perspective how you can seperate the two when considering a job as both relate to the risk you are taking.

rhizome3• 12 years ago

I had a job offer once that gave me two options to choose from, which was really cool.

In which they suckered you into a false dilemma. You should always reply to those stupid negotiating tactics with "Both. Higher salary and more options."

IgorPartola7• 12 years ago

So why the hell do startups bother offering equity? It seems like for the founders there are only downsides in offering it, while for the employees there is no upside at all. Perhaps a better model for a two founder startup looking for a first employee is to just find a third partner who will only take equity (that is in double digit percentages), then actually start paying only salaries to person 4+.

diego2• 12 years ago

That's the same as asking why do startups bother with starting a company. If the startup succeeds, you want employees to be aligned with the company success and motivated to stay and vest. If the company doesn't succeed, the equity is worthless.

icedchai• 12 years ago

it's like a lottery ticket. odds are it probably won't be worth anything, might be worth a lot.

krschultz• 12 years ago

For retention. If the company actually starts taking off, the equity keeps people there. If they don't have equity, every person with a decent title at a fast growing startup will jump ship to other competitors immediately and get a big (cash) raise. The equity keeps people in the fast growing startup longer. Golden handcuffs and all that.

binarysolo• 12 years ago

Because early on when you only have 500k-1M in the bank, you can't get the tier-1 150k+/year engineers and preserve your runway easily. Also, base+equity allow people a bit more of a trial period and spreads out the risk more. Lastly, retention is super important and you want to align risks/rewards. The idea is that you are giving people stock and diluting your share because you have conviction that post-dilution your sum will be a LOT more. :)

FWIW, I joined a startup as that third partner (domain expert + execution guy), taking 10% of the equity while collecting 70k/yr (my base rate is north of 200k/yr otherwise). It would have brutalized the startup's seed money and jeopardized them if I somehow didn't perform and deliver.

majani• 12 years ago

in my case I built the product and got sales going on my own. Lived EXTREMELY frugal for the next two years and stashed away six figures of profits. At that point I decided to bring people on at market rate salaries. Investors were impressed and since the need was on their end, they gave me quite a sizeable first round of investment, which I used to hire more people at market rate

birken• 12 years ago

Equity clearly has some value though, based on the fact that in any successful startup investors pay a lot of money for it.

If you are considering taking equity, you should treat it like a potential investor would. Ask hard questions. Look at the balance sheet. Look at the company deck. Look at the previous funding rounds. Research the backgrounds of your potential coworkers. (If the company wont share this information with you... don't work there).

Now even with this, you might say that a person would be terrible at evaluating that equity, and that is probably right. But investors are terrible at evaluating equity as well (considering that most funded startups also fail). But you do the best you can. Of course you need to decide whether you are interested in having a high-risk investment as part of your income, because if not you should not work at an early stage startup anyways. But don't ignore it completely.

scrozier• 12 years ago

Yes, but investors spread their risk, as an essential part of their strategy. Employees have no such opportunity.

silverlake• 12 years ago

Aren't common shares far down on the equity totem pole? Investors get preferred shares w/ liquidation preferences. Employees get diluted to nothing.

imrank1• 12 years ago

In my experience companies won't share what the percentage is of the stock you are getting. They just say you are getting X number of shares and won't tell you anything else. How do you verify what they are saying is correct?

cgriswald• 12 years ago

Okay, so let's look at it as an investment.

Take an established company. If you invest in this company and it has problems, not only could your investment vanish, but you may also be out of a job. There's a lot of risk there for you as an employee that isn't there for the average investor. To me it seems the thing to do is accept the options but cash them as soon as possible while still being smart about it.

Take a startup. You have the same problem as above, but the startup is much, much more likely to fail and those failures are likely to be more catastrophic. If you're not comfortable with that level of risk you just shouldn't do it at all. If you are, then I think you have to take the same approach as with the established company: sell as soon as you are able to sell.

And this is, in fact, what my ex and I did. She worked for a startup. She received options when she started and as bonuses. We were given a few liquidation opportunities (stocks sold to private investors through the company) but otherwise were not allowed to sell while she still worked there. During those opportunities we sold the maximum we were allowed to sell (which was always some percentage of our holdings).

This got our money out of the high risk investment and doing other things. In the long run, the company ended up going public and we could have done much better by holding out, but we still did quite well and reducing our risk at the time was the smart move.

I am not a financial advisor, this is not advice, blah blah blah...

tomp• 12 years ago

The risk profiles and the investment profiles of most investors are completely different from those of most employees, so there is no way that equity has (proportionally) the same value for employees and investors.

Besides what other comments already mentioned (liquidation preferences and portfolio diversification), one must also take into account that (1) investor's equity is safe, while the employee's isn't (if you're fired before the vesting begins), and (2) investors have much more say at influencing the company's future (via more board seats and more voting rights). Also, most employees have much less capital than investors, so the monetary equivalent of the NPV of equity would be much more meaningful to them than to the investors (given that most people are risk-averse).

All in all, as an employee, I would value equity between 4-10 times less than the investors would.

btilly• 12 years ago

The difference between an employee and an investor is that the investor puts their eggs in many baskets, and an employee puts all of their eggs in one basket. So investors get diversification of risk while employees do not. Therefore consistently accepting low probability but potentially high return choices on average works out well for investors and not for employees. And in fact investors push this way - their incentive is always to "swing for the fences" because their business model is based on the one or two investments that work out which pay for the failures.

If you are considering working for a startup, the value of your equity should not be a primary consideration. Instead you should be so deciding because you enjoy the fact that the organization is small, you can have an impact, competence can result in rapid promotion, you have the opportunity to learn many skills. If you want to be in it for THOSE reasons, then seriously consider it.

When you are in any negotiation you should make all decisions about equity from the point of view of never expecting it to be worth a dime - because it probably won't be - but be ready to trade salary in excess of your actual needs for it because you recognize that the person on the other side is trying to reward you, and rewarding people like you with money makes the company less likely to succeed.

If you work from those principles, then you are likely to choose a job which is a good fit and where you have a good impact. If you instead work from everything as a straightforward economic transaction then startups can't consistently reward you like an established company will.

But I can see you jumping up and down about the potential payoff from equity. If you are a person whose day to day life can be motivated by that, then go off and read http://www.bothsidesofthetable.com/2009/11/04/is-it-time-for... and decide whether you are ready to start your own company now, or want to gain skills before doing it in a bit. Seriously, the difference between "last founder" and "first employee" is so huge that people who can derive their day to day motivation from equity should be founders.

(Obligatory disclaimer: I have worked for a number of startups, been paid out non-life changing amounts more than once, and have never tried being a founder.)

eloff2• 12 years ago

I know you're not being serious about the bank thing, but I just want to say, if you're a programmer and you love what you do, and you're good enough to be choosy, don't work for anyone (especially banks!) whose main job is not software. There are a few exceptional companies, but mostly it's a good rule of thumb. Working for Dilbert's pointy haired boss is just not a recipe for happiness - who cares if it pays well. Life is short, if you don't enjoy your job, change your job!

At any rate that was advice given to me by my father, who worked in the IT department of a large oil company, had a long line of pointy haired bosses who took the credit for anything that went well, which was eventually gutted and outsourced leaving just him and a couple others as insurance. I've regretted it when I did not heed that advice.

georgemcbay3• 12 years ago

Well onion2k's premise was that you wanted to make millions in software. If that is your #1 priority, then working in finance is probably your best bet (unfortunately, IMO).

Working for a "pure" software company is great advice if you are optimizing for overall happiness, but not so much for maximizing your income.

7Figures2Commas• 12 years ago

Lots of "software" companies are just as political as big corporations, and startups in particularly are often much more chaotic/stressful and offer far less job security.

Notwithstanding the fact that a ton of companies that would like to believe they're "software" companies really aren't, the high turnover at Silicon Valley firms suggests that working for these types of software-centric employers isn't the happiness panacea you make it out to be.

adrianhoward• 12 years ago

"I know you're not being serious about the bank thing, but I just want to say, if you're a programmer and you love what you do, and you're good enough to be choosy, don't work for anyone (especially banks!) whose main job is not software. "

I'd disagree with that. Some of the most entertaining bits of work I've ever done were for companies whose main job wasn't software.

The problem isn't companies who aren't focussed on software. The problem is companies that don't value the great things that software-oriented folk can produce. Unfortunately there are plenty of the latter in the software-focused end of the spectrum too.

Don't work anywhere that treats you badly. Sure. Don't work anywhere that doesn't value you. Sure. Don't work anywhere you don't enjoy yourself. Sure.

But I know some folk who are having excellent fun at banks. Solving stupidly hard problems that fascinate 'em, fostered by great management, and being compensated very well for their trouble.. I know others who have worked at large tech focussed companies that have had bloody awful stories of management idiocy. Hell — I've got more than enough horror stories from smaller tech-focused organisations.

CodeMage• 12 years ago

[...] if you're a programmer and you love what you do, and you're good enough to be choosy, don't work for anyone (especially banks!) whose main job is not software.

I cannot agree enough with this. I know it's anecdotal, but I've had more than ten jobs in my career so far and the only exception to what you're saying was an initiative by a highly technical and visionary director (later VP), which was scrapped as soon as he left the company.

The point I'm trying to make is that it sure is possible to have a really fun and challenging job as a programmer in a non-software company, but it's a stroke of luck you should never, ever rely on and it won't last. At least, that's according to my experience so far.

graylights• 12 years ago

I disagree and I would change your statement: Don't work for anyone whose success is not tied to the success of their software.

Plenty of non-software companies can live or die on the quality of their algorithms. It could be a small development team but it can be challenging and rewarding. Plus it will give you a bigger perspective.

The key is to work somewhere that you are valued.

paulhauggis• 12 years ago

I disagree. I have only worked for companies whose main business was not software and it was great: high salary and great hours. Since we weren't under the gun to get the next release out, we could tke our time and do things right.

wahsd• 12 years ago

It has always struck me as little more than a fraud when employees are hired with promises of equity and then additional rounds or other trickery simply dilute their share and contributions to approaching zero and they walk away having put their work, effort, and innovation into making the parasites of our society wealthy just for investing.

Afton• 12 years ago

making the parasites of our society wealthy just for investing.

Are they less parasitic if they just sit on their money, or are they parasites just for having the money in the first place?

simonreed• 12 years ago

If you want to make millions in software, get a job writing code at a bank and invest your salary.

This is actually a very good piece of advice.

peterjancelis• 12 years ago

I'd include in this calculator a negative value per 'passion' speech given by the founders to convince the employees they are building something 'bigger than themselves'.

zhte415• 12 years ago

Nice skit.

Small point: Fixed positioning of column on right (contaning calculations) obscures the bottom few lines on desktop (the result), probably due to expecting a greater vertical resolution. On mobile (Android) it completely obscures all input forms.

maaku• 12 years ago

Utterly unusable on Android*.

EDIT: Works on iOS.

crgt• 12 years ago

Worked on iOS for me?

nilkn• 12 years ago

This reminds me of the early-stage startup that offered me a $55k salary in a big city and zero equity to be engineer #3. They told me that if after a year I'd become an integral member of the team then we could discuss equity. Meanwhile they tried to sell me on the job by saying that if the company succeeded we'd never have to work again.

hkmurakami• 12 years ago

I really don't understand what these companies try to accomplish by essentially lying to you and trying to defraud you of your value. Do they really think you'd sitck around for long under these terms after you find out inevitably how badly you're getting fucked?

mattzito• 12 years ago

A lot of the startups that I see that try this are doing it because they really believe that they're bringing the value in this relationship - that they're going to be so successful, there's so much money here, they have SUCH a good concept, that the applicant should be grateful to get in on the ground floor.

Of course, 90%+ of the time they're totally wrong about everything about what they're bringing to the table, and in the other times, they'll often conveniently change things around to benefit them, like, "Well, you know, I know we said 4% of the company once we raised series A, but honestly, your contributions have not been what we expected, and so you really only are entitled to 1%"

To quote "The Spanish Prisoner":

Jimmy Dell: I think you'll find that if what you've done for them is as valuable as you say it is, if they are indebted to you morally but not legally, my experience is they will give you nothing, and they will begin to act cruelly toward you.

Joe Ross: Why?

Jimmy Dell: To suppress their guilt.

Iftheshoefits3• 12 years ago

I think you underestimate the number of programmers who are willing to work under such conditions for the "glory" they perceive the position to bring (and, of course, there is no shortage of people who actually think their lottery ticket is worth far more than it really is).

In an area where there is a high concentration of people who are young (naive) and (relatively) debt/responsibility free it's easy, almost trivial, for a founder to exploit them. I perused Angel List some time ago. The salary offerings were hilarious. It's very clear to me (mid-30s guy with a family and mortgage) that they are targeting a certain age and social group.

WalterSear• 12 years ago

They try to sell it because they believe it themselves.

This is almost worse than them lying, insofar as incompetence can be more damaging than selfishness: you can negotiate with a selfish person to get something for giving them what they want. You can't get anything out of someone who can't deliver.

grandalf4• 12 years ago

That's not really much different than the standard one year cliff.

jacquesm2• 12 years ago

Of course it is. All things being equal, if you're still employed a year later your stock vests. In his situation he'd have to start negotiations about his equity. That's a huge difference.

pyrrhotech• 12 years ago

Is that even minimum wage in SF? My neighbor is a toll booth colector and makes double that amount

OhHeyItsE• 12 years ago

I think it's even more complicated than this. But props on the design. Nice to look at.

good-citizen• 12 years ago

pretty good job! my only comment is to make more standard options to select from a list vs. typing in any value.

josh33• 12 years ago

Don't forget taxes will take a large chunk of any payout away. Sometimes as much as 50% when you factor in state taxes.

acgourley• 12 years ago

If you get an early stock grant and file your 83(b) you'll actually be taxed as long term capital gains.

thecage411• 12 years ago

Not necessarily, it only starts the long term capital gains clock: you still need to hold the stock for a year and have the grant be at least two years in the past to qualify.

Also, the company may not allow you to early exercise. Ask them before accepting an offer!

lhnz• 12 years ago

Instead of working for a big company you could just freelance and temporarily contract out to large companies. You get all of the $$$ but also the flexibility for high-optionality events afforded to you from copious free time to build startups and side projects (as well as time to network with others.)

In my opinion it is far better to secure a high salary and the free-time and autonomy to work on your own higher-risk pursuits, than it is to secure a low salary and share a tiny percentage of optionality and autonomy with others on a high-risk pursuit.

The only exception I'd make is when you're truly enamoured with a vision, a founder, prone to loneliness and need to belong, or don't wish to focus on your economic livelihood at all.

At the end of the day the likelihood is that the high-risk pay-off never comes. Just like almost everybody else you'll become old, have a family and want to be able to provide for them.

ranran876• 12 years ago

My impression (and I may be wrong) is that you need to be pretty connected or have some a very niche skill-set to be able to freelance for a living.

I'm a full-time C++ programmer and I'd love to freelance, but I wouldn't know where to even start.

Maybe this makes more sense for web developers

joshdance• 12 years ago

When friends ask me where I work, and I tell them a startup, they always ask if I got stock. I tell them yet, but it isn't worth anything until it is. I agree with the idea that you should take the job if you would without equity.

dkador• 12 years ago

Shouldn't this have a field for the salary you make at the startup?

Swizec• 12 years ago

As I always like to say, equity doesn't pay rent in SF or put food on the table.

vectorpush• 12 years ago

Don't forget that equity doesn't vest immediately. If you take a pay cut in exchange for equity but you leave or are let go before your cliff, you've essentially forfeited a portion of your compensation package in exchange for nothing. I guess this should be obvious, but it may not seem like a real consequence when the founders are asking you about what kind of car you think you'll buy when the start-up explodes.

Airic• 12 years ago

Cool resource but it seems like there's a risk that an employee would inadvertently reveal sensitive financing information by completing this form.

jaksmit• 12 years ago

Even as a company founder, I don't keep half the stuff mentioned on here top of mind, so I doubt that any employee is going to have enough information to complete it correctly. e.g. to model what you "would have made" if you'd joined Uber at X stage, you'd have to know the pre-money valuation of each funding round they received, along with the investors' liquidation preferences etc and who knows, they may take on even more funding before going public, which would mean your shares would get diluted even further.

Overall, if anything, this just serves to illustrate all the complexities involved in trying to model how much a startup's equity offer is actually "worth" in the long-run and that trying to do calculations to model it against an offer at a big company is totally the wrong way to go about it.

It just validates what Mark Suster says here: http://www.bothsidesofthetable.com/2009/11/04/is-it-time-for...

don't join a startup because you could potentially make millions of $. Join if you want to learn; any money you make would be if you got really lucky and is a nice side bonus.

mahmoudimus• 12 years ago

The most interesting thing is that this website is licensed under GPLv2. Seems excessive.

mrb• 12 years ago

There is a blatant bug in the computation. Do not trust the site!

Enter $100k as the startup salary, and zero equity (0 shares, $0 strike price, no funding round, any sale price for the liquidity event happening after 12 months).

Enter $150k as the big co salary, and the default 5.75% rate of return.

The result should be Total Big Co Earnings = $152,875 ($2,875 is the interest gained on the $50k salary diff for 12 months), but instead it shows $196,947!

zeeboo• 12 years ago

It appears to apply the interest rate monthly. I'd love to have a 5.75% interest every month.

Here's the calculation. It's a little high because we should be getting 1/12th of the 50k per month and compounding, but I'm assuming we got the full 50k up front and got a 5.75% interest compounded per month.

    50000*(1.0575 ^ 12)
    97799.02314394798212000000

edit: I take it all back. It's super broken. Just mess around with the interest rate and nothing makes any sense. For example, a 0% return still gives you $195,833.33 big co earnings on a 150k salary!

edit 2: The bug is in this function and the one below it: https://github.com/vijedi/equity_calculator/blob/master/js/a...

If your interest rate is zero, the calculated interest is 11 * the monthly difference. Then it's added to your base big company salary, which is clearly wrong. It should be 12 * the monthly difference added to the startup salary.

edit 3: Opened a pull request with what I think is the fix: https://github.com/vijedi/equity_calculator/pull/4

vi_jedi• 12 years ago

I'm the guy that wrote this. Thanks for playing with it and fixing the issue. I guess writing interest calculation functions late at night is a really bad idea.

benmanns• 12 years ago

I think the 5.75% return is over the 48 month vesting duration, on the extra money you would have earned (and invested). So, the excess (per year) would be something more like (50(1.0575^3)+50(1.0575^2)+50*(1.0575^1))/4. (Though it seems I'm a little off, so maybe they do the calculation monthly or biweekly).

Edit: Search http://www.tejusparikh.com/projects/equity_calculator/js/app... for bigCoInterest.

optimusclimb• 12 years ago

I'm starting to feel like the entire equity offering model is broken.

While I agree that you should take a job at a startup for reasons intrinsic to the job itself, and not just the comp (or possible comp) - it is still part of the offer.

If someone is offering you a form of compensation, that means you should be able to evaluate it. Otherwise the offer might as well come with a guarantee of two unicorns after four years.

Additionally, almost EVERY startup trying to entice people to work for them mentions the equity as part of the sales pitch. "Meaningful equity", "Ownership in the company", "Shares of a pre-IPO company", etc, etc.

So if you're pitching people based off of an intangible, almost meaningless number, that smells like a problem, to me.

I understand all of the complications, the effect of future rounds being an unknown, etc...but is there a way to improve this?

Perhaps if, at the time of offer, and with each change in funding - there was a clearly spelled out, given possible outcome at this time, here's the breakdown of what you get - that could help?

I.e., If were were bought out at $100M right now, the founders would receive $12M, and you would end up with $37k...maybe people could evaluate better how "worth it" it is to them.

Additionally, when things happen like founders getting cashed out for some sort of comfort effect, like "OK guys, you each at least got a million out of this, run the company now with some security behind you"...employees should be made aware.

I guess I just feel like there needs to be more transparency, but I'm not savvy enough to know a good way to offer that.

dreese9• 12 years ago

I think that's why it's best to know the percentage of the company you are being offered. Share count is meaningless without knowing total number of shares.

Once you know the percentage (say 0.1%), you can figure out some other stuff. Asking about the company's hopes to go public or be acquired, and at what valuations, can lead to a lot of good discussions.

smileysteve• 12 years ago

Cool site. Re Onion2's top post, could add this into a 90%, 8%, 2% calculator of different liquidation events.

cgtyoder• 12 years ago

The typical number of shares created for startups these days is 10M, so it might be worth putting that in as the default number of shares issued.

nwatson• 12 years ago

(All this is from US tax viewpoint ...)

Also factor in the huge one-time payout and how that's taxed at a higher rate than your normal big-company earnings. I know people who got hammered at Federal + California + special-California/Federal-taxes at 50%+ tax rate, all because the acquiring company decided to close a few days into 2013, when tax rates went up considerably, with special surtaxes to boot. A few days earlier would have cut the tax rate by a lot.

That tax is magnified if you don't pre-exercise for long-term capital gains advantages -- the whole liquidity event becomes straight income.

chrisbennet• 12 years ago

If the founder is motivated by equity it would be disingenuous to expect an employee to be equally motivated for a much smaller slice of equity.

I.e. if a founder can expect a payout of $X for working 16 hrs a day he shouldn't be surprised if an employee; who can expect 1/100 of that, only feels motivated to work 8 hours a day.

ejhabammeg66• 12 years ago

Good job!

Just how much is that 2% really worth?

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