[HN Gopher] How to Measure Option Grants - Implied Value Method
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       How to Measure Option Grants - Implied Value Method
        
       Author : mavelikara
       Score  : 11 points
       Date   : 2021-09-07 08:22 UTC (1 days ago)
        
 (HTM) web link (darylll.medium.com)
 (TXT) w3m dump (darylll.medium.com)
        
       | gruez wrote:
       | >Implied Value -- Here's how you get there. The two pieces of
       | data that you need are:
       | 
       | >1. FMV per share -- In general I recommend using the most recent
       | investor price. If it's been a long time since your last
       | financing round then I recommend adjusting that FMV per share by
       | a reasonable growth rate (either tied to revenue growth or the
       | change in your 409a value).
       | 
       | >2. 409a value -- This will most likely be the exercise price for
       | the option grant. Since a 409a value is calculated at least once
       | a year (and definitely along with a round of financing), it
       | should be relevant for the calculation.
       | 
       | But if the 409a value is recalculated along with a round of
       | financing, wouldn't FMV per share equal 409 value?
        
         | twakefield wrote:
         | The 409(a) valuation is the value of the common shares. They
         | are generally valued at a discount to the preferred shares (or
         | company valuation) due to the fact that the preferred shares
         | have a pay back preference and the common are considered less
         | liquid. The discount is generally higher (70-80%) during the
         | early stages of a company when a liquidity event is less
         | certain and the discount decreases over time.
        
           | gruez wrote:
           | In that case the calculation in the OP seems even more wrong?
           | 
           | >The difference between these two values is the "Implied
           | Value per Share"
           | 
           | By subtracting the two values, you're getting the preferred
           | shares premium, not the "implied value" of the options.
           | 
           | The proper name for "implied value" used in the OP is
           | "intrinsic value"[1]. While it's possible for that to be
           | present, it's probably negligible. At the very least, it's
           | non-trivial to determine, and requires a lot of guesswork
           | regarding the actual current value of the company. 409a
           | valuations exist specifically to prevent giving employees
           | compensation via the intrinsic value of an option (eg. apple
           | issuing options with a strike price of $0.01). Most of the
           | value of the option is in the time value, which is even
           | harder to calculate.
           | 
           | [1] https://en.wikipedia.org/wiki/Valuation_of_options
        
         | bpodgursky wrote:
         | My understanding is that in most early-stage startups the 409a
         | includes the cash in the bank and very little else (and is
         | completely detached from the last fundraising round valuation,
         | where investors are including the growth potential of the
         | company).
        
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       (page generated 2021-09-08 23:01 UTC)