I have an offer to join a startup as a software developer. They would like me to sacrifice some of my salary for equity, which is reasonable enough. However, I am confused by their proposal.
Consider this scenario (I’ve simplified and changed the numbers):
- Salary before sacrifice = £50,000.
- Valuation of company = £5,000,000.
- Vesting period = 4 years (1-year cliff)
My working assumption was, if I were to take 0.4%, the equity would be valued at 5000000*0.004 = £20,000. Since this vests over 4 years, I should sacrifice £5,000 per year so my salary would be £45,000.
However, their proposal is 50,000 – 20,000 = £30,000 salary. In my view, this means I’ll pay £80,000 (over 4 years) for something worth £20,000 (present value).
Am I correct in my interpretation or is this really common practice?
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April 17, 2017 at 07:05PM
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