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Assume that you are working for a startup on hourly rate basis (let's assume x dollars per hour) right from the start. Now, after y month, the stack holder offers you equity in exchange of hourly rate. Your confidence of that startup eventually pulls off is 50/50.

How do you come up with an equity option that is fair to both of you and your stack holder?

I understand that there is a very subjective question, but I would be interested to hear how you handle this situation.

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Before you can even start working on a conversion you need to know what an option is worth relative to the perceived worth of the company.

  • Find out how much stock has been issued - 10,000 options when a million have been issued is different than the same number of options with 10 million issued.
  • The option strike price matters too - the lower it is, the closer an option is in value to an actual share.
  • How the options are vested - if the options don't vest for a year and the person leaves earlier than that, then they got nothing for their time.

It's difficult to put a value on the company stock as a whole, but you have to come up with some number that everyone feels comfortable with and then you can try to back into a conversion taking all of the above factors into account, as well as the 50% success rate you estimated.

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