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Nikitha Suryadevara's Startup Job Offer Evaluation Framework

Ask These Stock And Valuation Questions To Early-Stage Startups

When evaluating my job offer from FlexAI, I talked to Nikitha Suryadevera, Product Manager at Temporal, Angel investor, and a tech blogger who has been writing since 10+ years. I loved her framework to evaluate a startup. So, I took her permission to share it here.

You need 2 minutes to read this post.

Lady explaining how to evaluate a paper, as good as having a team of data analysts.
Lady explaining how to evaluate a paper, as good as having a team of data analysts.

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Background To Nikitha’s Framework

Nikitha recently moved from Google to Temporal. She created this framework when moving from a publicly traded company to an early-stage startup.

She recommends using the Carta equity calculator. You can even download an Excel sheet from Carta and input your numbers.

Evaluating Stock Options And Startup For A Job

When negotiating, ask for more options. More options mean owning a larger share of the company. This significantly impacts your payout when the company exits. For example, owning 0.01% vs. 0.3% makes a HUGE difference if exits are in the billions.

  • Confirm Company Valuation: Know the total shares on a fully diluted basis to accurately evaluate your stock options' worth.

  • Confirm the Most Recent Preferred Price: Companies often aim to keep their preferred price high. Find out the most recent preferred price to get a clearer picture of the company's valuation.

  • 409a Valuation: This helps you understand the fair market value of the company's common stock.

  • Total Shares on a Fully Diluted Basis: It helps you determine your percentage ownership in the company.

  • Early Exercise Window: Check if the company offers an early exercise window for your stock options. This can provide tax advantages.

  • Post-Termination Exercise Window: Find out the length of the post-termination exercise window. You can exercise your stock options after leaving the company during this time period.

Calculate the value of your stock options: (number of shares) x (share price - strike or exercise price). For example, if you have 1,000 options at $100 per option, their value is $100,000.

Divide your options by the total outstanding shares to find your percentage ownership.

Why do you need percentage ownership? If the company exits for $100M, your ownership % determines your payout. If you own 0.1%, you would get (0.1% * $100M - exercise cost).

Investors In The Startup

  • Investors' Ownership Percentage: Understanding what percentage of the company investors own gives you insight into the company's financial health and the distribution of ownership.

  • Liquidation Preference of Investors: Find out if investors are participating or non-participating, as this affects payout distribution during an exit.

Customers And Cash

  • Current Customers: How many customers does the company have right now? This number gives you an idea of its market traction and customer base.

  • ARR and ARR Growth: The company's financial performance and growth potential indicators.

  • Net Dollar Retention (NDR): Measures the company's ability to retain and grow revenue from its existing customers.

  • Runway, Burn Rate, and Cash in Hand: Indicates how long the company can operate before needing additional funding.

  • Licensing and IP Ownership: Understand the company's licensing agreements and IP ownership, which can affect its long-term value and growth potential.

Applying This Evaluation Framework

Evaluating a startup job offer involves understanding various financial metrics and ownership details. By following these steps, you can make a well-informed decision and negotiate effectively for your equity stake.

I applied this evaluation framework here.

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