We're planning on offering some key early employees equity in our startup, an LLC, in the form of ownership shares. The benefits include: - proportional sharing in distribution of profits - proportional share of money in the case of an acquisition
We aren't looking for an exit however, so in the meantime, we'd like to offer something if/when: - they decide to leave - they would like to "cash out" some of their equity even while still employed
However, given we are a smallish private company that isn't trading on any market, what is a fair way to value the company in order to pay out before an acquisition? We could hire a professional to perform a valuation each year, but that seems like too much money for a young startup. We could go with a formula like book value, but that is pretty paltry especially for a software startup with relatively few "tangible" assets. Are there other formulas out there? Perhaps some function of revenue, number of employees, profits...?