16. @tdavidson
Options 101
- The right to buy stocks at a
predetermined price, or strike price
- Strike price set at fair market
value
- Have to be exercised
17. @tdavidson
Align risk and reward
Reward long-term value creation
and thinking
Encourage employees to think
about holistic success
http://firstround.com/article/the-right-way-to-grant-
equity-to-your-employees
20. @tdavidson
If i is the average outcome for
the company with the addition
of some new person, then
they're worth n such that i = 1/(1
- n). Which means n = (i - 1)/i.
http://paulgraham.com/equity.html
21. @tdavidson
For example, suppose you're just
two founders and you want to hire
an additional hacker who's so good
you feel he'll increase the average
outcome of the whole company by
20%. n = (1.2 - 1)/1.2 = .167. So
you'll break even if you trade 16.7%
of the company for him.
http://paulgraham.com/equity.html
22. @tdavidson
Save 20% for
employees
- Sam Altman, Y Combinator
http://blog.samaltman.com/employee-equity
23. @tdavidson
“As an extremely rough stab at actual
numbers, I think a company ought to
be giving at least 10% in total to the
first 10 employees, 5% to the next 20,
and 5% to the next 50. In practice, the
optimal numbers may be much higher.”
- Sam Altman, Y Combinator
http://blog.samaltman.com/employee-equity
26. @tdavidson
“The only thing that matters in terms of your
equity when you join a startup is what
percent of the company they are giving you.
If management tells you the number of
shares and not the total shares outstanding
so you can’t compute the percent you own –
don’t join the company! They are dishonest
and are tricking you and will trick you again
many times.”
– Chris Dixon
http://cdixon.org/2009/08/28/the-one-number-you-
should-know-about-your-equity-grant/
47. @tdavidson
- Do I trust this team?
- Do I believe the product will succeed?
- Is this the right company?
- How much has company raised and on what terms?
- How much runway the company has and when they’ll
need to raise again?
- What is my percentage ownership?
- What is the market rate salary and equity comp?
- Is there an exit strategy?
- What is the estimated valuation at exit?
- How long is my vesting schedule?
- What are the tax implications?
60. @tdavidson
Additional Resources
• AngelList: http://angel.co/jobs
• CrunchBase: http://crunchbase.com
• Visualization of dilution: http://visual.ly/visualizing-dilution
• Fed Wilson’s Cap Table Template: http://avc.com/2011/09/mba-mondays-cap-tables/
• Mark Suster Cap Table and Valuation:
http://www.bothsidesofthetable.com/2010/07/22/want-to-know-how-vcs-calculate-
valuation-differently-from-founders/
• Anonymous Startup Salaries: http://www.ackwire.com/
• Wealthfront: https://www.wealthfront.com/tools/startup-salary-equity-compensation
• Buffer: http://open.bufferapp.com/buffer-open-equity-formula/
• Salary Negotiation: Make More Money, Be More Valued by Patrick McKenzie:
http://www.kalzumeus.com/2012/01/23/salary-negotiation/
• Best practices on financial modeling: http://foresight.is/best-practices
• An Introduction To Stock & Options by David Weekly:
• Book:
http://www.scribd.com/doc/55945011/An-Introduction-to-Stock-Options-for-the-Tech-
Entrepreneur-or-Startup-Employee
• Video:
http://blog.dweek.ly/introduction-to-stock-options-startup-founder-entrepreneur-
employee/