A Beginner’s Guide to Startup Options & Equity

Filed under: Jobs/Employment, Offers / Counteroffers

A Beginner’s Guide to Startup Options & Equity

By: Jon Piggins, VP Business Development 

Redfish Technology

 

A Beginner’s Guide to Startup Options & Equity

In the startup world, most offers of employment include stock “options”, essentially granting you the right to buy shares of the company’s stock in the future at a predetermined price. For example (in a best case, simplified scenario), you accept an offer to work at “XYZ Company”, stay there more than 4 years (to fully “vest” 100% of your options). The “strike price” for your options is $2/share. In year 5, XYZ Company decides to issue an “Initial Public Offering” to begin selling shares of their company to investment banks & the general public. They price their stock at $20/share and it begins trading on the open market (e. “NASDAQ”, where the price will fluctuate based on demand). You now have the right to “exercise” your options, buying them at the predetermined $2/share and then sell them at the market price of $20/share, giving you a gross profit of $18/share.

 

So now that we have a basic understanding of what an option is, we’ll look at a few more important considerations when evaluating your offer (or current position).

 

Valuation

While a company is private, it’s valuation is managed by the board of directors (via a “409A Appraisal”) usually one a year (or if there’s a significant change, like a new VC round of funding). The valuation is based on a number of factors, but is intended to be an independent/objective Fair Market Value, or “FMV” (think of a house appraisal). Each round of valuation, in principal, represents an increase in the value of each share in the company. So, each increase in value also means that the cost per share in that company goes up. Meaning, if you started employment at XYZ Company when they were valued at $5 Million and your “strike price” was $2/share and now the company is valued at $10 Million and new hire would now have to pay $4/share for the same option. Hence, the benefit of “early equity”…getting in while the cost to exercise (“purchase”) your options is low (as it allows for more potential profit margin).

 

Calculations
In simple terms, you can come up with a rough value for your shares by using the following equations (and a company should be able to provide you with this information once you get to the offer stage).

 

% of “ownership”, how much your potential shares represent of all the company’s outstanding shares:
# of shares/options, divided by “total number of shares outstanding” = % of equity you’d have in the company. (eg. your # of shares/options of 50,000, divided by the total number of outstanding shares for the company of 10,000,000 = 0.005 or .5% equity in the company).

 

Value (on paper) of your shares/options:
# of shares/options x current FMV strike price – # of shares/options x your strike price = your current spread or profit margin. (eg. 10,000 shares at the last Board of Director’s FMV of $10/share – your 10,000 shares/options x your strike price of $5/share = $50,000 in a “paper” gross profit).

 

 

Vesting Schedule

This is simply the rate at which you gain the ability to purchase your options/shares. Industry standard is 4 years, the 1st year vesting (25%) after one year of employment and the remaining 75% vesting each month at a rate of 1/48 over the remaining 3yrs. After 4 years, you now own the right to exercise (“buy”) all of your options.

 

 

Liquidity Preference

Venture Capitalists & other investors get paid 1st. So, if a company has taken $40 million in funding and it decides to go public, no one else but the investors get paid until the proceeds exceed the $40M+ mark. Important to note (from an equity standpoint) when looking at a company that’s taken on a lot of funding & doesn’t have good traction, as there’s a good chance you’ll probably never realize any benefit from your options.

 

 

Summary

This is meant to be a very high level “Options 101” review of the topic. There are a multitude of factors that can come into play; dilution of shares/equity, different classes of stock, company acquisition, Restricted Stock Units (“RSU’s) vs. Options…but our hope is that a basic understanding of what options are & how you can calculate a rough valuation of a company and what your options represent in “ownership” of that company, you’ll be able to better evaluate your next (or current) opportunity. We’d be happy to answer any questions or do a deeper dive on these (or other) topics, so contact us if we can be of service!

Featured opportunities this week include; Solution Engineers & Architects (Bay Area & Seattle), Developer Support Engineers (Bay Area), and a Sales Operations Specialist (Sunnyvale)

Filed under: Jobs/Employment

Featured opportunities this week include; Solution Engineers & Architects (Bay Area & Seattle), Developer Support Engineers (Bay Area), and a Sales Operations Specialist (Sunnyvale) #engineers #recruiting #engineeringjobs (https://bit.ly/2szxvy3 , https://bit.ly/2AQmOLW , https://bit.ly/2syrwcD , https://bit.ly/2RZH5se , https://bit.ly/2DqenbK , https://bit.ly/2S3GC8n , https://bit.ly/2FSUKL3 , https://bit.ly/2Hsd28F , https://bit.ly/2Ht8zlX)

The Tech Market in a Nut Shell – Trends & Numbers

Filed under: High Tech / IT / Software, Jobs/Employment

The Tech Market in a Nut ShellTech Numbers

Tech Sector Employment Trends & Numbers

Employment

 

The U.S. tech industry totaled 6.5 million employees at the end of 2014 according to CompTIA’s Cyberstates report. The top five states by tech industry employment are: California, Texas, New York, Florida, and Massachusetts.

 

Payroll / GDP

 

The tech industry’s impact on the U.S. GDP is 7.1%. Tech salaries tend to be double Read more »

IT Pros / Software Engineers: How Does Your Salary Compare?

Filed under: High Tech / IT / Software, Jobs/Employment, Tech Trends

IT Pros / Software Engineers: How Does Your Salary Compare?

Indeed.com Screenshot Software Engineers & Developers Salary

Indeed.com Screenshot

Glassdoor’s 25 Highest Paying Companies for Software Engineers, The Redmond IT Pro Salary Survey, Salary Information from Indeed.com, Payscale.com, and Redfish Technology.

Glassdoor survey

Glassdoor.com is a free jobs and career community that offers the world an inside look at jobs and companies. The “employee generated content” is all posted by employees, job seekers, and sometimes the companies themselves. Now with nearly 3 million salaries and reviews, there is plenty of information available to consider when to making your next career decision. Read more »

Is Immigration a Solution for Economic Growth? – Workforce Immigrations Trends

Filed under: High Tech / IT / Software, Jobs/Employment, Tech Trends

Fortune 500 45% intl

45% of Fortune 500 Co.s in 2010 were founded by immigrant or child of one

Is Immigration a Solution for Economic Growth?

Workforce Immigration Trends

 

Reports show that immigration secures huge economic benefits through job creation and increased GDP. The tech talent crunch has been a persistent story throughout the recession and recovery, American companies need access to highly skilled international workers in order to compete. If we do not allow highly skilled foreign workers into the US, they will contribute to another country’s economy instead of ours, and America would risk losing its preeminent place as the world’s business powerhouses, and the Fortune 500 companies of the future.

 

More than forty percent of the 2010 Fortune 500 companies were founded by immigrants or their children; and seven of the ten most valuable brands in the world come from American companies founded by immigrants or children of immigrants. Many of America’s greatest brands inlcuding Apple, Google, AT&T, Budweiser, Colgate, eBay, General Electric, IBM, and McDonald’s, were founded by an immigrant or the child of an immigrant, according to Partnership for a New American Economy.

 

The “New American” Fortune 500 report states that immigrants spur job creation across all industries, including the highest growth sectors:

  • 45% of high-tech firms from the Fortune 500 had either an immigrant or child of an immigrant among its founders,
  • 50% of the medical equipment and device makers, including the three largest players by revenue, were founded by immigrants or their children,
  • Immigrant-founded Fortune 500 companies employ 3.6 million workers around the world today,
  • Fortune 500 companies founded by immigrants to the United States generated more than $1.7 trillion in revenues in 2010; companies founded by immigrants or children of immigrants generated more than $4.2 trillion in revenues that year.

 

The Brookings Institute’s Hamilton Project reports on the impact of new immigration on wages. While some worry about a negative impact on wages resulting from new immigration, several studies have shown that on average, immigration can positively impact wages and opportunities for Americans. When immigrants are hired into lower paid positions, American businesses and farms can expand their capacity which then provides new opportunities and better pay for more Americans. When there is a shortage of the right skills in the labor marketplace and highly skilled immigrants are able to enter the workforce, then American companies benefit in their competitiveness and capacity, again providing more jobs and opportunities, better pay follows.

 

Another report by the Regional Economic Models, Inc (REMI) Key Components of Immigration Reform estimates that the proposed Pathway to Legal Status policy would increase total U.S. employment by 123,000 in 2014, and by 594,000 by 2018. The GDP that would result includes an increase of over $10 billion in 2014, and over $49 billion in 2018. An expansion of the high-skilled (H-1B) worker visa program would add 227,000 jobs by 2014. The report argues for the expansion of lesser-skilled visas (H-2A [farm visas], H-2B [seasonal, peak load, and intermittent worker visas] and W-1 [lesser-skilled nonseasonal worker visas]) as well, citing increases in employment and GDP through increased economic productivity and output. The REMI report states that “expansion of these visas will benefit not only those who receive them, but also the workers and consumers in the U.S. economy as a whole.”

 

The positive impacts and need for top talent are the inspiration behind the formation of FWD.us by leaders of the US technology community, from tech giants such as Facebook, Google, YouTube, LinkedIn, DropBox, and other household names. FWD.us is a 501(c)(4) advocacy organization committed to promoting policies to keep the American workforce competitive. The group promotes comprehensive immigration reform: Easing immigration for foreign talent and enticing native entrepreneurs to stay in the country are among the group’s goals. The mission is “to build the knowledge economy the US needs to ensure more jobs, innovation and investment,” states Mark Zuckerberg in a Washington Post Op/Ed.

 

 

IT Employment Steaming Along – Staffing Companies Staying Busy

Filed under: High Tech / IT / Software, Jobs/Employment

TechServeAlliance-IndexreleaseMay2013IT Employment Steaming Along

IT Staffing Companies Staying Busy

 

A Few Little Dips in the Last 12 Months, But Overall Great Upward Trajectory Hitting a New All-time High in April

 

TechServe Alliance, made up of tens of thousands of IT & Engineering staffing and solutions firms, clients, consultants and suppliers, tracks industry jobs via the IT Employment Index.

 

Over the last year, there have be a few dips in the Index, but April saw another all-time high with IT jobs hitting 4,424,200 (0.24% growth over last month, and 5.1% since April 2012). Read more »

IT Expanding Demand, Expanding Salaries

Filed under: High Tech / IT / Software, Jobs/Employment, Tech Trends

IT Expanding Demand, Expanding Salaries

The Information Technology sector continues to expand so far in 2012. Investment continues both in infrastructure and in staffing. Software developers, Health IT, and Security Cleared IT are in high demand. The Bureau of Labor Statistics projected that from 2008 to 2018 Computer Software Engineers 283,000 jobs will be added. This adds to the competition for talent

Along with the increased competition for IT talent, are increased salaries, according to the 17th annual Redmond Salary Survey. Salaries stagnated for some years but many employers are seeing the wisdom of salary increases to current employees in order to stay competitive and retain technical talent.

There is also movement by employees at companies that are not giving raises. Despite very specific needs and employer demands for very specific skill sets and experience, for those who change companies, there is an associated salary increase. Given the 3.6 percent unemployment rate among IT workers that upward pressure on salaries looks set to continue.

We are seeing more competition this year for experienced security, networking, analytics, and cleared software developers,” reports Beth Cliff, IT Engineering Recruitment Manager at Redfish Technology. “Hiring companies are carefully evaluating the available talent and in many cases scaling salary offers to meet talent acquisition goals.”

According to the ESJ Salary Survey 2012 Part 1, the largest jump in salary was awarded to enterprise architects (up 10 percent), and Internet managers got the largest bonuses (up 55 percent). Across the board IT professionals in application areas such as SOA, business intelligence and analytics, and enterprise resource planning (ERP) saw salaries rise.

But it isn’t only IT professionals who stand to benefit from raises, according to the recent U.S. Compensation Planning Survey by Mercer, most U.S. employers plan on increasing base salary in 2013. Those who stand to benefit the most are predicted to be the top-performing talent, i.e. the top 8 percent of the workforce.

What Metros are Growing the Fastest in Tech/STEM jobs?

Filed under: High Tech / IT / Software, Jobs/Employment, Tech Trends

Tech Trends

What are the hottest growth cities in the tech/STEM sectors?

Forbes recently published an article “The Best Cities For Tech Jobs”, in which the author, Joel Kotkin, analyzed tech-related jobs (including software, data processing and Internet publishing), and STEM (science, technology, engineering and mathematics-related) employment, in companies spanning manufacturing to business services to finance.

Interestingly, Silicon Valley isn’t in the top five despite the preponderance of high profile tech companies there. In fact, despite offering the most tech and STEM jobs in the U.S., Silicon Valley employed 170,000 less folks in 2011 than in 2000.

Coming in number one is the Seattle-Tacoma-Bellevue metro, with increased tech employment of 43% and STEM of 18% in the decade from 2001 to 2011. The last two years documented 12% growth in tech jobs, and 7.6% growth in STEM jobs. Read more »

Companies Dream about Filling Cloud Computing Jobs

Filed under: Jobs/Employment, Tech Trends

Companies Dream about Filling Cloud Computing Jobs

Dr. Ira S Wolfe

Dr. Ira S Wolfe

 By Ira S. Wolfe

 

Cloud computing jobs increased by 9 2 percent in February 2012 in comparison to numbers from February 2011. And it was up 400 percent from the same time in 2010. More than 2,400 companies posted job ads during the last quarter of 2011 and hiring demand grew 61% year-over-year. As a result hiring managers are having trouble finding workers to fill these positions. A shortage of skilled workers means demand is high for people with cloud computing experience and development skills. Read more »