Break down your startup's offer letter
The company has taken funding equal to $ at a $ valuation.
This means they sold % of the company for and implies that the total value of the company is .
They are offering you shares out of the shares they have issued.
This means you would own % which is worth at the current valuation.
Now there is always a chance a startup will fail, so we apply a risk factor to it.
Because your portion is worth only if the company sells, you have to decide how likely that is.
If, for example, you believe the company has a % chance of selling for the valuation of , then the expected value of your equity is .
You also won't get all your equity at once; usually you get some amount per amount of time you work. So let's say your % share is paid out over years.
Over time, you may get diluted. This happens because the company has to take in more money in order to get to a place where it can sell itself (hence A Round, B Round, etc.) This can actually be a good thing, because it means the company is growing and increasing in value.
So imagine they took in another $ at a $ valuation.
Because they would issue new shares, your % of the company is now only %.
But because the company is now valued at your portion
is worth .
a work worth doing project by natalia rodriguez and matt wallaert
* This tool is not a crystal ball; your equity could eventually be worth a lot more or a lot less. But equity does have a potential value and while many startups fail, you join a startup because you believe it will succeed and because your efforts make that success more likely.