Factors to consider when optimizing equity vs cash
I recently received an offer from a series D unicorn. They are giving me the option to trade off base salary and sign-on bonus for more equity and vice versa. I’ve heard conflicting opinions about whether you should optimise for cash or for equity (some say optimise for equity, others say optimise for pay), so I want to get a good understanding of what factors I should consider when trading off pay for more equity?
I'm fortunate enough to have come from a decent background, so I don't need to worry about paying off debt or anything like that. It also happens that I live near family so cost of living isn't too big of an issue. So this is more about maximizing my compensation without having to worry about anything else.
Also, this company told me that they don’t negotiate, but I told them that I had a competing offer that paid me 15K more base. They gave more reasons about why they don't negotiate but said they’d see what they can do. I ended up getting the 15K. In previous calls, they definitely showed that the really wanted me (can tell through their language), so I was wondering if I could’ve gotten more? There’s a lot of factors/details that I left out to preserve anonymity but I’m happy to (carefully) provide any details left out.
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Discussion
(5 comments)- 22 months agoEng @ Taro
One exercise that might be worth doing is:
- Figure out how much equity % you will own by calculating your (num shares / shares outstanding).
- Find out the current valuation of the company
- Subtract out much money the company has raised from their current valuation
- (investors will get paid out first)
- Create a line graph of your (equity % * company valuation) at different company valuations
- Repeat this process with the other equity value they are offering you
- Overlay the two line graphs on each other.
- Find out what the company valuation would have to be in order to exceed the extra salary that you are getting
- What is the probability that the company valuation would meet that number?
If you don't want to do all that math, you can also act as if the equity is worthless, because that is the worst case scenario. Would you be okay with the base salary that you are getting? Okay meaning you are able to pay your bills. Maybe not ball out, but you'd be able to pay for all of your expenses and still have buffer leftover for discretionary spending (vacations, etc) and investing.
- 02 months agoSoftware Engineering InternTaro Community
Thanks for the advice. I’m curious how you find how much capital has been raised? I know you can use Pitchbook but I don’t want to pay for it just to see how much money was put in. I don’t have access to the number of total shares outstanding. Is it possible to find the %equity by doing (equity grant)/(409a valuation)?
- 12 months agoTech Lead/Manager at Meta, Pinterest, Kosei
For most young people who don't have lots of responsibility (and especially you, since you're debt-free and close to family), I'd recommend being "risk-on": that means opting for more equity instead of cash.
This is actually incentive-aligned with startups, which are usually cash-poor. Also given that the company is Series D, hopefully the equity won't end up as completely worthless, even if it doesn't live up to the full hype.
Is the negotiation with the company now done? Given how much they want you, it's likely you could get more. In the negotiation course, I talk about a tactic called "Closing the Deal" which you could use here:
I will sign the offer if you give me 1.3x more equity
- 02 months agoSoftware Engineering InternTaro Community
The negotiation is already done. Since the company seemed pretty firm on not negotiating, I figured that they wouldn't negotiate a second time. Another issue is that they seemed pretty adamant about putting the negotiation process to a call, since when I emailed them about my competing offer, they strongly pushed for a call.
I'm curious if companies often say that they don't negotiate? What's your experience with companies that say they don't negotiate? How much are they actually willing to spend?
- 02 months agoSoftware Engineering InternTaro Community
I just realized that a friend works at the company I received an offer for. I was thinking of asking them how salary raises within the company work so I get a sense if raises are more cash heavy or more equity heavy. Are there any other questions I can ask to better inform my decision?
