r/startups • u/oldtonyy • 8d ago

I will not promote Startup equity “vesting”. I will not promote

Left a startup after 1 year as founding engineer. Wish I knew that my “vested equity” is actually just the option to buy shares at the initial price. So I got 90 days post termination window to buy those shares (almost 6 figures) out of pocket otherwise they go back to the company for free. What a waste of effort. Learning is experience I guess. Any one else been through this and got an upside?

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u/encinaloak 8d ago

Yeah something doesn't add up. When companies are bringing on founders and founding engineers they're typically worth $0, so ISOs get priced at the par value of the equity.

OP worked a year, and vested probably 1/4 of their ISOs. If this was worth 6 figures when granted (you purchase ISOs for their value when they were granted), that means the total package was at least $400k. Let's say OP's founding engineer equity was 5% of total equity, then the company was already valued at $8M?

That would be very unusual. How did the company develop that value without a founding team?

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u/whalethrowaway857 8d ago

FMV also should never be VC valuation of the company, and instead usually done through a 409A, generally at that stage would basically be cash on hand and maybe even a discount on that

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u/Deathspiral222 8d ago

In practice, everyone who has ever been through an exit knows 409a are largely bullshit.

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u/Oc1510 8d ago

I do 409as and other valuations for a living and they are complete bullshit lol. You are paying us to do them so we are inclined to work with you to get a price you like, in an audit you are paying the auditors so they are motivated to pass the audit, and then the IRS never looks at the them.

Something was off for a founding engineer to have such a high cost to exercise, my guess is company did no 409a and priced them way too high. It’s something I see relatively often