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A Better Model for Valuing Startup Equity - Varun Srinivasan

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If you’re joining a startup and want a good financial outcome, there are two critical things to get right. Ensure that there is some probability of an IPO and that your stock won’t expire before it happens. Unfortunately, most equity advice is bad and distracts people from these two important points. The most insidious advice is “don’t join a startup for the money.” It discourages people from joining startups or encourages them to treat their equity like a lottery ticket. Startups might pay lower salaries, but they’re one of the best ways to create wealth. You just need to be diligent about choosing a good one. Why is most advice about equity incorrect? One reason is that feedback loops are long and often single-threaded. If someone tells you that a company will never be big, it may take years to prove them wrong. Another is that valuing startups is counter-intuitive, and people’s first instincts tend to be incorrect. Here’s an example — let’s say you have options to buy 0.01% of a com

A Better Model for Valuing Startup Equity - Varun Srinivasan A Better Model for Valuing Startup Equity If you’re joining a startup and want a good financial outcome, there are two critical things to get right. Ensure that there is some probability of an IPO and that your stock won’t expire before it happens. Unfortunately, most equity advice is bad and distracts people from these two important points. The most insidious advice is “don’t join a startup for the money.” It discourages people from joining startups or encourages them to treat their equity like a lottery ticket. Startups might pay l

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