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A late stage series D startup is offering 40,000 shares at a strike price of around $1. I also have another offer from a series B startup offering similar number of stocks at 0.5$. Both these companies are growing well and assuming there will be some sort of exit (IPO or acquisition).

How can I properly research on how much they will be worth in 4 years (Again, I understand it can be 0$). The public data available is not very helpful. If there are paid sources from which I can get some data, I'm happy to hear that. It's a small price to pay to make an informed decision.

My second question is, just because it's a series B company, does it mean that it will go up higher?

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    There is no way to answer this without some indication of what shares are currently worth and what you expect the growth of the companies' valuations to be. – David Jun 19 '18 at 15:42
  • Adding to this. The current valuation of series D is 300$M. A similar company sometime back had an exit of around 1.5B and I expect this to go a bit lower at 900M (Again, I understand its all assumptions). But for sure I don't expect the company to tank or not do an exit in 4 years. The series B is valued at $50M. Does the stage of startup really matter? (Not about risk but just about value of the stock after n years) – NEO Jun 19 '18 at 15:50
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If these are privately held companies, there really is no way for you to evaluate them, all the info is private. Really your best bet to gather info comes in the interview process and spending time with a finance type person. However, understand, they may not be telling the truth.

Your hire might be a last ditch effort, of the board/investors, to salvage the company. An example of this is a software company, that suffers with code quality, hiring a bunch of testers to improve the quality of their products. If the culture does not support code quality, then the company may just crash and burn.

So even your hire may not be an indication of company stability/strength.

A red flag for me, given the numbers you cite, is the generosity of the grants. 40k shares at such a low strike is crazily generous. It is almost if they do not expect either company to amount to much.

It even shows a bit of poor management decisions. One can be issued the grant, wait until some or all of the grant vests, then just purchase the options and move onto another business.

Options grant such as these are typically used to encourage employees to work long and hard to make the company profitable and to stay with the company. This is typically done with higher strike prices and subsequent grants. These grant offering are encouraging employees to take the job, and move on in a relatively short time. Turnover is very expensive for a company, more so for one that is budding.

Without a lot of other information, I would say that either of these grants will probably be worth nothing. Take one of the jobs if you need it, but you may want to keep looking.

  • Without further information I wouldn't be sure about the 40k shares. They might need a CFO.... – xyious Jun 19 '18 at 15:39
  • At such a low strike price? Very unlikely. His stack exchange profile indicates he is a developer and one that actually does the work of development. Not some kind of manager. If he said 4k@10, then it might be believable. – Pete B. Jun 19 '18 at 16:40
  • "A red flag for me, given the numbers you cite, is the generosity of the grants. 40k shares at such a low strike is crazily generous. It is almost if they do not expect either company to amount to much." Or they just have a lot of shares. The absolute number of shares is useless without knowing the total outstanding. – Kevin Jun 19 '18 at 17:10
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Pete B.'s answer is pretty much right on the money.

All the information you can find on the current value of the shares (and the historic price) will not help you all that much. What you should do is go to both interviews, evaluate the company from the interview. Go with the company that 1) you believe in and 2) has the better products, has something you believe will do well.

If the company lacks a product or vision that has a future any shares you get will be worthless.

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This is little more than one company offering you a signing bonus of maybe $40,000 versus another company offering maybe $20,000, both bonuses will be handily invested for you in to the company you'll be working for.

As far as what could either of these investments be worth in the future, who knows. How much will IBM be worth in 4 years? Have they let you see any prospectus or financial paperwork? Do you have any idea of the financial health of either company apart from "they are growing well?" Do you know what the debt load is? At least when you invest in IBM you can see the books. If you were applying to jobs and one company said they'd put $40,000 in to IBM stock on your behalf but another would only put $20,000 in to IBM stock would that sway your decision?

Where is the growth coming from? Are any of the existing major investors known for IPOs? Does any of the executive team have experience at a public company? Do you know who any of the retainer legal staff is? Do any of them have specific M&A or IPO practices?

I'd treat these as signing bonuses at some discount to their stated "value" and just choose whichever company you rather work for. Personally, I don't think series B or D makes a difference, nor do I think the bigger company is necessarily better than the smaller company, or vice versa.

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