Entering StartUpLand: An Essential Guide to Finding the Right Job

by Jeffrey Bussgang

Table 8-2 gives an example of this sort of scenario planning for the hypothetical option package of 1,000 stock options, representing 1 percent of the company fully diluted, at a $5 strike price. TABLE 8-2 Scenario planning for evaluating stock option value Company value $0 $10 million $50 million $100 million Value per share $0 $100 $500 $1,000 Net value of 1,000 options $0 $95,000 $495,000 $995,000 Probability 50% 25% 15% 10% Expected value $0 $23,750 $74,250 $99,500 Sum of expected values weighted by probability: ($0 × 50%) + ($23,750 × 25%) + ($74,250 × 15%) +($99,500 × 10%) = $27,025 Sum up these four expected values in the context of the probability weightings and you get $27,025. Thus, in your judgment, owning 1 percent of the company has an expected value of just under $30,000. This exercise can be helpful in mapping out how much you think the stock options are truly worth—both the range of possible values and the likelihood of hitting those values—and assist you in trying to normalize the value of an offer from one company as compared to another.