It's interesting sure but generally speaking if that comes into play you are already getting nothing. Use the time and patience of the CEO wisely IMO, ask the most important questions and focus on the risk/reward of the optimistic case. The downside case you are always getting nothing even if the preferences would imply something investors make sure you get screwed first.
How can you gauge the optimistic case if you don't know the risk?
Interview stage: Can you share with me what the liquidation preferences look like?
The company can either say, yes, (good sign, they are at a minimum confident, but also possibly competent) or the company can say no (What are they hiding?)
And you are right, if liquidation preferences are on the table, you should expect your equity to be worth 0. At that point does that change your calculus working with the co?
All of your questions above + liquidation prefs are key IMO
I would disagree. Presumably the individual taking a job at this startup has other offers, or other jobs they could get - they are taking some risk by joining the startup.
If everyone wants to say that the equity is fake... then ok, it's fake and we can move on. If the firm is representing 50k options are a lot, then I should be able to put a dollar value on those options. In most cases, an employee will expect to get something in between the downside of nothing, and the upside of infinity dollars. The liquidity preference determines whether you in fact get nothing, ever.
Source: Worked at a firm with a 2x liquidity preference on a Series D which ultimately didn't move the needle for the company. Realized ~1.5 years in that the equity would have inconsequential worth in any reasonable outcome for the company.
It would be better to use the market cap of the currently dominant company in the sector to compute the upside (unless the startup is doing something completely novel, like autonomous robotics or nuclear fusion, in which case the risk is so high there's no point in doing the math.)
Never the less, thats what this is usually sold as. For Series B+ companies, the marginal probability that they only achieve marginal equity growth is quite high. This is problematic for the employee, as there is no natural stopping point after Series B - one could labor indefinitely for worthless equity. Seed and A are really just getting off the ground, and agree that if a preference stack matters - the startup likely failed to get off the ground.
