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  • June 2019
  • Technical Note
  • HBS Case Collection

Valuing Employee Equity at Early Stage Ventures

By: Shikhar Ghosh, Christopher Stanton and Sanchali Pal
  • Format:Print
  • | Language:English
  • | Pages:11
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Abstract

The note introduces a framework to consider factors that influence the value of employee equity at early stage ventures. Valuing equity is complex, and it important to account for expected dilution, assess exit potential, and acknowledge the high rate of failure in early stage companies. The note uses a fictional example of a recent HBS graduate who makes a compensation comparison (combined salary and equity) between a startup and consulting firm. In order to determine approximate valuation of common equity, it illustrates steps to factor in pre-money valuations in each round, dilution based on the amount raised, and the probability of success/failure at each stage Ultimately, no path is without uncertainty, and intangible factors such as long-term career potential and personal fulfillment can be weighed against the value of the equity package while making a similar decision.

Keywords

Employees; Equity; Valuation; Business Startups

Citation

Ghosh, Shikhar, Christopher Stanton, and Sanchali Pal. "Valuing Employee Equity at Early Stage Ventures." Harvard Business School Technical Note 819-167, June 2019.
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About The Authors

Shikhar Ghosh

Entrepreneurial Management
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Christopher T. Stanton

Entrepreneurial Management
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  • Determinants of Small Business Reopening Decisions After COVID Restrictions Were Lifted By: Dylan Balla-Elliott, Zoë B. Cullen, Edward L. Glaeser, Michael Luca and Christopher Stanton
  • Training, Communications Patterns, and Spillovers Inside Organizations By: Miguel Espinosa and Christopher T. Stanton
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