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How to determine the value of stock options?

how to determine the value of stock optionsI'm in negotiations with a Series B startup whose valuation I do not know. What information should I ask for?

 

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

First, their valuation should be fairly easy to find out. Ask for their decks!

Second, they are on their Series B and their valuation will only be important if they are not paying you market rate and the comp package includes options.

Third (and to answer directly your question), from a prospective employee point of view, the more important thing is their cash flow and how long their funds from the previous Series A will last (what if Series B does not turn out well) and how far is Series B going to take them.

Of course, all other decision factors re; start-up VS mature company applies.

David Belgum
Title: CFO
Company: Sureify
(CFO, Sureify) |

If you are receiving stock options, and you consider this an meaningful part of your compensation, I would ask what the fully diluted number of shares outstanding are. Good luck.

Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

The question isn't clear to me. Both Emerson and David have assumed you are in negotiations to go to work for a Series B startup. Is that correct?

Topic Expert
Peter Freeman
Title: Chairperson - Clean Tech Committee
Company: Keiretsu Forum - Angel Investors
(Chairperson - Clean Tech Committee, Keiretsu Forum - Angel Investors) |

The question is not, as Scott M observed, clear. However, in both the case of stock options to be received or investment in a series B, it is simply a matter of asking the company for valuation, which they should be willing to provide.

Stock option values should be at current FMV, which is determined by various methods I won't address. Typically the company knows it.

For a new investment, you should ask what they believe is their current or pre-money value. And it is negotiable (unlike stock options). The value can be determined via comparable transactions or using the Venture Capital method. Full disclosure, I prepared a course on ProFormative presenting the VC method:

https://www.proformative.com/courses/venture-capital-valuation-analysis-training-course

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