Is the startup equity worth the pay cut?
A recruiter quotes an option grant as though it were cash. It is not. It is a claim behind a preference stack, with a strike price to pay and years of dilution ahead of it. This template runs four years of exits and tells you how often the equity offer actually comes out ahead, and how often the options are worth nothing at all.
Work Advanced Monte Carlo Pro engine
After you install, this is the model to open.
Is the Startup Equity Worth the Pay Cut?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
The established offer is worth $1,069,997 over four years at the most likely share price growth. Here is how the startup offer stacks up against it across thousands of outcomes:
- Startup offer wins
- 10% of four-year outcomes
- Options worth nothing
- 67% of runs
- Median gap
- -$449K against the startup
- P95 (a real exit)
- +$1.36M
The recruiter is not lying when they say the options are worth something on average: the option payout on its own averages +$270,000. But the most likely payout is zero, in about 67% of runs, and the startup offer beats the established one only about 1 time in 10. At a $40M exit the common shares clear roughly $33,600 against a $48,000 exercise cost, so you would not exercise at all. The median outcome is $449,000 behind and the fifth percentile is $519,000 behind, which is the pay cut with nothing to show for it. Two things the sheet assumes and says so: the grant is treated as fully vested at the exit, and nothing is discounted. Change the two base salaries and your own read on the exit odds and the answer becomes yours rather than the recruiter’s.
The model
Two offers over the same four years, both pre-tax and both stated as plain totals with no discounting. The established side is salary, bonus and a stock grant that vests evenly. The startup side is a lower salary plus 0.40% of the company in options, which only pays after the liquidation preference is cleared and the exercise cost is covered.
| Established company | $185,000 base, 15% bonus, $180,000 of stock over four years |
| Startup | $150,000 base, no bonus, 0.40% in options |
| Grant mechanics | 20,000,000 shares fully diluted, $0.60 strike, $48,000 to exercise |
| Liquidation preference ahead of common | $28,000,000 |
| Exit value in four years | 45% nothing for common, 22% $40M, 23% $180M, 10% $700M (uncertain) |
| Ownership kept after later rounds | 55% - 70% - 85% of the grant (uncertain) |
| Established share price growth | -6% - 8% - 22% a year (uncertain) |
| Four-year gap, startup minus established | simulated |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- Two reps closed the same number. Who ranks first?Rank the Leaderboard, Ties and All
- Is there a typo dragging your average up?Catch the Outlier Entry
- One group is wild, one is steady. Is the gap real?Manual vs Automated, Tested Fairly
- When the level shifts, how fast does your forecast follow?A Forecast That Trusts Recent Weeks
- What happens to the plan when reps leave?Will the Sales Team Make the Number?
- What is a pilot actually worth before you commit?Pilot First, or Go Big?
Every model like this one, and the method behind them: Monte Carlo simulation.