[jalonso510]

You're right that options are granted at the 409a price (the common stock price) instead of the price investors pay in the financing, but as companies become more mature, the common and preferred prices usually begin to converge somewhat. In a seed financing you might see common stock valued at 10% of the preferred price, but in a late stage, billion dollar company there will be much less of a discount applied.

Employees granted options recently after the highest valuation financing would probably be completely underwater if the company is really worth $2b.

[mattzito]

Right, but if the 10bn funding was at a high multiple relative to revenue, the 409a will probably still be a lot lower. I'm not saying that it would be at 2bn, but the GP was talking about people being granted options at 10bn, and potentially they're being granted at a much lower value.