Last week the topic of employee stock options and grants came up in a conversation. We got to debating the best way to talk through the potential value. I offered up my favorite way to think about them in the context of expectation setting should things go well: new car, new house, new life.
Here’s how the new car, new house, or new life concept for employee equity value looks:
- New Car – $50,000 – Commensurate with the position and time of joining the startup, a quality exit might result in the stock options being able to pay for a nice car (e.g. owning .15% of a $50M exit and then paying the corresponding taxes).
- New House – $500,000 – A bigger exit, or larger ownership position, might result in being able to buy a nice house (e.g. owning 1.5% of a $50M exit and then paying the corresponding taxes).
- New Life – $5,000,000 – A massive exit, or large ownership position, could be completely life changing and provide financial freedom forever (e.g. owning 1.5% of a $500M exit and then paying the corresponding taxes).
The next time you’re setting expectations about the potential value of employee equity, consider the new car, new house, and new life concept.
What else? What are some more thoughts on the new car, new house, new life idea for thinking about potential employee equity value?
David Cummings on Startups 