TripleByte Equity Value Calculator

/* How much is your Startup Equity Really Worth? */

Compare startup equity offers and scenarios

One of the unique aspects of joining a startup is the opportunity to earn equity—it’s an asset class that few have access to, with the potential for large returns. But startup outcomes are highly variable, which means equity value is highly speculative. Since equity is often a large percentage of a startup employee’s salary, it’s important to know how to calculate the value of equity under various scenarios, and how to compare various equity offers.

Use this startup equity valuation tool to estimate the value of your current equity options or compare multiple job offers. You can model how much your equity would be worth in various exit scenarios.

Not sure where to start? Read Triplebyte's 5-minute Crash Course in Startup Equity!

So what is equity and why is it part of my compensation offer?

Equity is the overall term used to represent your ownership interest in a company. It also represents your opportunity to grow and scale your own financial future alongside your company's. Companies want to incentivize employees by offering a meaningful stake in the company, which generally works in both parties' favor. Early stage startups often have fewer cash reserves to fund salaries, so they often offer more equity than larger companies. The potential upside of this is huge.

You'll see startup equity most often taking the form of stock options or RSUs (restricted stock units). RSUs actually become stock when they vest, whereas options are literally what they sound like - when they vest, they become the option to buy stock.

Wait a minute... what’s this "vest" thing you just mentioned?

To "vest" a stock option or RSU means you"ve worked at a company for a period of time to earn a specific amount of equity. A vesting schedule tells you when and how your equity will vest. A typical startup vesting schedule is a 4 year vest with a 1 year cliff. The cliff is how long it takes to earn your first chunk of equity. Early stage companies benefit greatly from retaining committed, engaged employees, and cliffs are a way to reward long-term employees like that.

As startups grow, employees will often be offered promotions and raises, along with option refreshers. New options and RSUs generally come with their own associated vesting schedules. You can use the calculator to add additional scenarios that model potential raises.

Ok. So I have some options and I know when they’ll vest. What else do I need to know to figure out what they’re actually worth?

First, you’ll want to get an idea as to what the company’s market value might be. For a private company, this can be based on either a 409A valuation,or the last financing round. Then, you need to know what percentage of the company your options signify and how much it would cost you to exercise those options. That info can be determined using two numbers: the current number of outstanding shares and the strike price of your options (use $0 in our calculator if you have RSUs). Note that the number of outstanding shares will change over time due to dilution.(Every time a startup raises a new round of funding, new shares are created to sell to investors making existing shares a smaller percentage of the new total - that’s dilution. )

The strike price of your options is what it will cost you to exercise them, aka buy shares of the company. You may exercise any vested shares before or during your exercise window (the period of time the company allows you to exercise after your last day of employment). This can range from as little as 90 days up to many years. We’ve written here about why Triplebyte offers our employees a 10 year exercise window.

About Founding Shares

A startup can start with any number of shares they want. A typical founding allocation is around 10 million shares, and typical startup dilution is around 20-25% for Seed, Series A, and Series B, then about 10% per round after that. Since founding allocation is not standardized, that means that not all option quantities are equal, even at same-stage startups. That means the percentage of equity is far more important than the actual number of options. (Determining the potential monetary value of that percentage is where our equity calculator comes in!)

What’s an exit, and what's a growth multiple?

A startup exit is when the current, private investors decide to sell their shares. This usually happens in one of three ways:

Liquidation: the startup is not worth much to others, so the investors try to get back what value they can and close the company
Acquisition: investors sell the startup to a larger company
IPO: investors take company public, selling shares on the open market

The time it takes to exit can vary widely from a few years to well over a decade. Exits can occur throughout a company’s timeline, which is where growth multiples come in. We’ve kept it simple, so for this tool, you can think of the growth multiple as the exit valuation divided by the current valuation. So the expected exit valuation would be the current valuation, times the growth multiple. You can model various potential exits and growth multiples in the calculator. Keep in mind, growth multiples will vary based on company, industry, funding stage, etc.

Last question. I have all my numbers and I’m ready to start running scenarios... any last tips I should know?

Yes - it’s a classic cliche, but true nonetheless... timing is everything. Beyond the numbers we’ve already talked about, the worth of your equity is also dependent on when you exercise your options. Most startups aren't publicly-traded companies, and exercising options is NOT the same as buying regular stock on Wall Street. If you choose to exercise your options, you're spending your own actual cash to buy shares in a private company. This action has a wide range of tax ramifications and we can't advise you on that - this is the part where you should seek professional tax advice.

Use your insider perspective as an employee to think about whether your company is likely to continue growing or liquidate. And then consider your company's 409A valuation. Private companies (which include most startups) must complete this independent assessment of their worth each year. Your main focus for when to exercise should be on the difference between your strike price and the current 409A per share valuation. If your strike price is lower, you'll potentially make money if/when the company exits.

And that’s it! You're ready to dive into the calculator, start comparing offers, and run various scenarios so you can interpret (and then negotiate) your startup equity offers!

(For the extra-curious, check out our glossary to explore more in-depth details about equity.)

Startup Equity Reference Data

Unicorn Startup Exit Multiple Examples

Exit valuation multiples vary widely depending on industry, funding stage, company ect. Here are a few well known example exit valuations compared to their series A valuations.

Skype - 40x
Microsoft - 50x
Twitter - 350x
Facebook - 1100x
Uber - 1250x

Probablility of an Average Startup Exit

Based on a recent study of over 35,000 startups, about 6,800 startups eventually acheived IPO or aquisition. This is a roughly 20% chance to exit. Keep in mind, this varies greatly based on industry, company, and funding stage.

How much equity should a software engineer expect?

The biggest contributing factors to an engineer's equity are generally the current funding stage, and what type of (engineering) role you’d be taking. The more you’re expected to contribute, the more equity would be available to you.

For example, one early Series A company on Triplebyte advertised these ranges:

Lead engineer 0.5–1%
Senior engineer: 0.3–0.6%
Junior engineer: 0.2–0.3%

Glossary

Vesting schedule

In the context of employee equity, vesting schedules determine when and what portion of your stock options will become available for you to exercise purchase. Generally, employee stock option plans in the startup world are 4 years vesting with a 1 year cliff, meaning 25% of your options would vest after your first year of employment, after which, a portion of the remaining 75% would vest monthly (or quarterly). New stock grants generally come with a separate, new vesting schedule.

Example: You are awarded 1,000 stock options with a 4 year vest/1 year cliff schedule. You'll earn 25%, aka 250 options, all at once on your one year anniversary (aka the 1 year cliff). You'll vest the remaining 750 options equally each month over the next 3 years. If you leave the company before your 1 year cliff date, you get no options. If you leave after year one but before the end of year 4, you'll get whatever you've earned up to that point.

Exercise Windows

So you've put in the time and your equity has vested. Now you're wondering if it's time to exercise (purchase the shares you've been promised at the pre-defined strike price). Should you? Well, there's tax implications here that you should seek professional tax advice on, but before that, you'll want to make sure you understand your company's exercise window policy. This is the window during which you can exercise your right to purchase the stock that has vested. A typical exercise window might be 7 or 10 years, as long as you continue to work for the company. This window often shrinks down to something like 90 days if you leave the company.

409a Valuation

409A valuations are an independently performed estimation of what a company is worth. These valuations are based on a wide range of factors such as the company's financial health, past performance, growth potential, industry, funding stage, etc. and incorporate various exit scenarios, probabilities, and discounts. All that to say, it's a pretty good guess, usually made by independent professionals, but it's still a guess. One of the primary outputs of 409A valuations are the fair market value of the company's stock, which can be used to determine a Strike Price.

Strike Price

When it comes to startups and equity, a strike price is a pre-defined price at which you can purchase a stock option, once you can exercise. The strike price is generally equal to or based on the fair market value, usually determined by a 409A valuation, of the company's stock when the option is granted.

Example: Your stock option grant offers you a $0.45 strike price. It's been a year so you're past your vesting cliff and can now exercise your right to purchase these options. Over the past year, the company has been in hypergrowth mode and the value of the stock is now $1.00 per share, indicating a potential profit of $0.55 per share! Should you exercise? Well, it depends. Remember, unless the company exits or allows their shares to be traded on a secondary market, the increased value of equity doesn't necessarily translate into more money in your bank account! Keep in mind there's also tax implications here and you should seek professional tax advice on that.

Pre & Post Money Valuation

When a company is looking to finance a new round of investments, an independent 409A valuation is typically performed to determine a recent, updated fair market value. Assuming the company then goes on to raise more money, the pre-money valuation would be the value of the company before investment, and the post-money valuation would be the pre-money valuation + the amount of money raised. For an employee with equity, you may see some dilution occurring here. That means the overall value of your equity may not change from pre-money to post-money, but your % ownership might.

Authorized vs. Outstanding shares

Authorized shares refers to the total number of shares that a company can issue. Usually, this is determined at the time of formation and can be a fairly arbitrary number. Outstanding (issued) shares, however, refer to the portion of the authorized shares that have actually been issued or granted. Generally, companies will refrain from issuing a portion of authorized shares to be held in reserve for future employee stock option plans.

We typically see somewhere around 10 million authorized shares for early stage companies, which translates to a more easily-understood price per share. For example, a company with 10 million authorized shares, which has issued 80% of its shares and been valued at $8 million would still have a $0.10 price per share.

Dilution

When a company raises additional money, your percentage ownership of the company will almost certainly go down. However, the value of your equity will likely increase with a net gain.

Example: You own 10% of a company valued at $1 million. This translates to a stake in the company worth $100,000. It's time to raise another round of funding, so a 409A valuation is performed, valuing the company at $8,000,000 (pre-money). You decide to raise another $2 million, bringing the post-money valuation of the company up to $10 million, but also translating to a 20% dilution. You now only own 8% of the company, however, your stake is now worth $800,000.

Keep in mind that this is about as simple of an example as we could create, and the reality is often far more complicated. Don't be afraid to ask your hiring manager about future plans for raising money, dilution, and exit strategies.

Secondary Markets

Is the only way to profit on startup equity to wait for the company to exit? Not necessarily! There are also secondary markets, platforms where private company stock can be sold to other private parties. Not every company will allow their equity to be traded this way, and it may be traded at a slight discount. Remember - there are tax implications here that you should seek professional tax advice on.

Golden handcuffs

Golden handcuffs refers to a scenario where employees are heavily incentivized to stay at a company, potentially longer than they'd like to. Late stage companies are sometimes accused of delaying their IPOs, knowing that employees with equity will stick around until the hopeful exit. One major factor here is that exercising on high value options or RSUs may be expensive and/or have major tax implications. This is where you'll definitely want to seek a tax professional for advice around capital gains taxes and how they relate to the equity you've been granted.

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