If you’re considering a new job, salary is of course important…but don’t forget about equity (especially in Internet/Silicon Valley-oriented companies).
Here are the simple questions to ask related to stock (I’m gonna keep this simple and limit discussion to stock options):
If the answer is “yes,” than you move on to these basic questions:
Let’s say that the answer is that they can offer you 20,000 stock options for a strike price of $.01 each (i.e $200 total cost if you every exercised the options).
And let’s say that there are 1 million shares outstanding but another 1 million are authorized to issued (i.e. there are 2 million shares that may be outstanding one day).
Then, your 20,000 stock options would account for 2% of the currently outstanding shares or 1% of the shares that could be outstanding one day.
If the current valuation of the company (remember, you asked for this too) is $5 million, then you’re stock are worth at the low end 1% of the $5 million or $50,000 minus the $200 you’d have to pay to exercise the options (and, of course, minus whatever the capital gains taxes are at that time).
If you or other smart folks believe that the value of the company is going to increase (let’s say to $100 million within 4 years), then your 20,000 stock options (which should account for 1%+ of the biz) would be worth around $1 million.
That’s the basics of how stock option compensation works.
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