Many people accept startup offers without fully understanding what they’re getting into financially.
Startups often dangle early-stage equity with the promise it could be worth millions one day. In reality, for the vast majority of startups, that day never comes.
Before you accept an offer, here’s what you should ask:
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What is the current 409A valuation? What valuation did investors pay in the most recent round?
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What is the company’s revenue? What has the year-over-year growth rate been for this year, last year, and the year before?
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What liquidation preferences exist?
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What’s the burn rate? How much cash is in the bank, and what’s the runway?
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Is there change-of-control protection or accelerated vesting?
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If it’s a stock option grant, what type is it? (e.g., Non-Qualified Stock Options, ISOs, etc.)
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What is the current share price, and how many shares are outstanding?
When my clients receive an equity offer, we gather these data points and build a financial model to evaluate the potential value.
And this approach isn’t limited to startups—we apply the same framework for public company offers as well.