[lacker]

Here is an optimistic way to calculate. If there are 55M shares outstanding, then 400,000 options represents about 0.7% of the company. You need to make your own estimate for how much the company is worth right now. If the company raised around $10M total, then knowing nothing else, a reasonable guess is that the company is worth about $40M total. That would make the underlying stock of your options worth about $280k, you can subtract the cost to exercise, maybe it ends up being a bit lower like $240k. It's over four years, so that's roughly $60k a year.

So, even in the optimistic case, your option package isn't that great. Your company is offering a pretty low cash comp, and unsurprisingly, they're also offering a low option comp. A good company would offer more to someone even with zero years of experience (assuming you're a software engineer). And this is an optimistic evaluation where you really believe in the startup. Your comp is low, ask for a bigger raise or just switch jobs unless you really like it there.

[gruez]

>You need to make your own estimate for how much the company is worth right now. If the company raised around $10M total, then knowing nothing else, a reasonable guess is that the company is worth about $40M total. That would make the underlying stock of your options worth about $280k, you can subtract the cost to exercise, maybe it ends up being a bit lower like $240k.

If those options are ISOs, then their exercise price is almost certainly going to be equal to the 409A valuation, which means they're worth $0 upfront[1] and gain value as the company grows more valuable. Since you only make money if the company's value goes up, it's almost impossible to accurately assign a value to it.

[1] I use "worth" loosely here. More accurately they have intrinsic value of $0 upfront (maybe a bit more because the company has grown since the last 409A), and some hard-to-determine time value. see: https://en.wikipedia.org/wiki/Option_(finance)#Basic_decompo...

[lacker]

* their exercise price is almost certainly going to be equal to the 409A valuation, which means they're worth $0 upfront*

I don't think this is generally the case; typically the 409A valuation is using accounting rules that are different from how you would personally judge the value of the stock, and the founders are trying to minimize the 409A valuation, so typically 409A valuations are much lower than people would buy the stock from you if there were a market for it. But you have to make your own judgment of how much you think the stock is worth.

But essentially, my point is that even with quite optimistic assumptions, the OP is not getting a good deal, and I think we clearly agree on that, it's just a question of "how bad" a deal the OP is getting.

[rkk3]

> Here is an optimistic way to calculate.

No its a harmfully naive analysis, your "calculations" put the common shares at 10x their stated FMV.

[nostrademons]

Something's screwy about that 409A, it puts the valuation of the company at $3.85M on $10M in invested capital, i.e. the company is worth about 1/3 what investors have put into it. Would be consistent with a down round and failing company, though.

I'd run. If the numbers there are correct, neither management nor investors really have any confidence in the company. As an employee you shouldn't either, particularly for that far under market in cash comp, and if somebody is willing to double your cash compensation, take it.

[rkk3]

> Something's screwy about that 409A, it puts the valuation of the company at $3.85M on $10M in invested capital

That is not the valuation of the company, not all shares outstanding are common, some are preferred which are going to have a substantially higher FMV for an early stage.

I don't know what a "normal" multiple/mark-up preferred would normally have at this stage, obviously it varies on terms. 55M shares outstanding this early would not be the sign of a "healthy" cap table unless they didn't start with the standard 10M outstanding.

[throwaway_9989]

The preferred price is about $0.9 (I heard it's been like this for the last 2 rounds). Does that mean the current valuation of the company is $49M?

The parent comment is also correct. We've experienced a down round due to the pandemic.

[comp_throw7]

If the company's gone through a down round, it's very likely they took funding on unfavorable terms (i.e. worse than 1x liquidation preference), which makes it that much less likely your (non-preferred) equity would ever be worth anything. Take the cash offer (though, if you're in the US and have 4 years of experience, $120k is a bit of a joke too; you should be able to do substantially better even limiting yourself to full-remote companies).

[rkk3]

> If the company's gone through a down round, it's very likely they took funding on unfavorable terms (i.e. worse than 1x liquidation preference), which makes it that much less likely your (non-preferred) equity would ever be worth anything

which is expressed in the preferred share's being valued at 13x the common shares

[rkk3]

> Does that mean the current valuation of the company is $49M?

No.