The company recently got $3M investment. I’m being offered $152k salary and 2% equity, vested over 4 years. Is this good?
My thinking is that 2% of $3M is about $60k, so I could treat that as an extra $15k per year. But if I look at the valuation based on that investment, it is probably worth 5x that, like an extra $75k per year. All in all it is over $200k compensation, which I’m grateful for, but it’s on par with a tech job at a big tech company. Are these reasonable assumptions, or am I missing something?
Yes, that is an option the existing shareholders have. However, they also have the option of issuing more shares to give to the new investors. Which is what everybody has been trying to explain here. If they have 100k shares but want to take on a new investor and say that investor wants 20%… The shareholders have the option of giving up 20% of their existing shares (20k. Leaving them with 80k) OR they can issue more shares so they don’t have to give up 20k of their shares. If that’s the case, they would issue 25k shares to the new investor bringing the total amount of shares to 125k. 100k still owned by the original shareholders and the newly issued 25k shares to the new investor. 25k shares would then represent 20% of the company and the original 100k shares would be diluted down to 80% of the company.
Issuing more shares is how dilution is done for new investment, typically. Existing shareholders give up a % of the company via dilution, but hold on to the number of shares they had before. Their existing shares just represent a smaller chunk of the company after investment. I can see how my explanation was not clear on what is being given up, and I don’t think giving up actual shares happens often, if ever.
On a side note, startups do sometimes reserve shares for future investors, i.e. hold it themselves until disbursed. Typically when a new investment round is imminent.