"The difference between the most recent FMV (409A) valuation and your exercise price."
This will almost never be the case. This doesn't account for different share classes, liquidation preferences, preferred stock, all of which get exercised before common shares.
A better description would be "the most recent 409A valuation, minus preferred treatment, and your exercise price."
All of that is moot though, as an employee wouldn't have access to the cap table or liquidation stack. The short answer is you'll have no idea how much your equity is worth until you get the wire transfer into your bank account.
Equity as an incentive truly favors the employer. With vesting, equity rarely works out to be better than having a market rate salary, unless the company becomes a household name.
>This will almost never be the case. This doesn't account for different share classes, liquidation preferences, preferred stock, all of which get exercised before common shares.
>Equity as an incentive truly favors the employer. With vesting, equity rarely works out to be better than having a market rate salary, unless the company becomes a household name
I've worked at 4 different startups. Two were acquired and two are still going, with one making a small profit and being a lifestyle business for the founder, and the other having a great product and still growing.
For the two acquisitions, one of which I held 1% equity in, the value of my options was $0, which was very disappointing. In that case, I did get a cash bonus as the VP Engineering and an offer from the acquiring company that was 3X my cash comp, but the stock was worthless.
At this point in my career, I value stock in private companies at exactly $0 and treat it like a nice bonus should it ever amount to anything.
409a valuations explicitly take into account share classes/liquidation preferences. That's kind of the point. If the Preferred last sold for $1.00, the 409a might value the Common at $0.10 per share, which would then typically be the FMV strike price set in the next round of issued options.
If the Common FMV has been steadily increasing from when you received your options, that would typically be a positive sign. Of course, 409a valuations are based on mathematical models. Since Common shares are so illiquid in a private start-up, you don't "really" know what they're worth until a liquidity event.
"The difference between the most recent FMV (409A) valuation and your exercise price."
This will almost never be the case. This doesn't account for different share classes, liquidation preferences, preferred stock, all of which get exercised before common shares.
A better description would be "the most recent 409A valuation, minus preferred treatment, and your exercise price."
All of that is moot though, as an employee wouldn't have access to the cap table or liquidation stack. The short answer is you'll have no idea how much your equity is worth until you get the wire transfer into your bank account.
Equity as an incentive truly favors the employer. With vesting, equity rarely works out to be better than having a market rate salary, unless the company becomes a household name.