Equity Compensation Calculator

Joining a startup often comes with the promise of equity compensation, offering potential financial rewards beyond a regular salary. However, understanding the true value of equity can be complex. This guide aims to demystify equity compensation and provide you with tools to calculate its potential worth.

What is Equity Compensation?

Equity compensation is a non-cash payment that represents ownership in a company. Common forms include:

• Stock Options: The right to purchase company shares at a predetermined price.
• Restricted Stock Units (RSUs): Company shares granted upon meeting certain conditions.
• Employee Stock Purchase Plans (ESPPs): Programs allowing employees to purchase company stock at a discount.

Key Terms to Know:

• Strike Price: The fixed price at which you can purchase stock options.
• Vesting Schedule: The timeline over which you earn your equity.
• Dilution: The decrease in ownership percentage due to the issuance of new shares.
• Exit Valuation: The company’s valuation at the time of an exit event like an IPO or acquisition.

Calculating Your Equity’s Potential Value:

To estimate your equity’s worth:

1. Determine the Number of Shares You Own: Based on your granted options and vesting schedule.
2. Estimate the Company’s Future Valuation: Consider industry trends and company performance.
3. Account for Dilution: Factor in potential future funding rounds.
4. Calculate the Final Share Value: Divide the estimated valuation by the total number of diluted shares.
5. Compute the Spread: Subtract the strike price from the final share value.
6. Estimate Your Equity Value: Multiply the spread by the number of shares you own.

Equity Calculator Guide: Input & Output Explained

Input Values (What You Need to Enter)

1. Gross Yearly Salary (USD)
   👉 This is your full annual salary before taxes or deductions.
   Example: If you earn $1,20,000 per year, enter 120000.
2. Stock Options Granted
   👉 The total number of stock options your company is giving you.
   Example: If your offer letter says you get 10,000 stock options, enter 10000.
3. Expected Company Valuation (USD)
   👉 This is what you think your company will be worth in the future when you sell your stock.
   Example: If you expect the company to be worth $100 million, enter 100000000.
4. Expected Additional Dilution (%)
   👉 Sometimes companies issue more shares in the future, which reduces your percentage of ownership.
   Enter the percentage you expect it to reduce by.
   Example: If you expect 20% dilution, enter 20.
5. Strike Price (USD)
   👉 This is the price at which you can buy each stock option (usually fixed in your offer).
   Example: If your strike price is $1 per share, enter 1.
6. Number of Fully Diluted Shares
   👉 This is the total number of shares the company will have after including future options, bonuses, etc.
   Example: If fully diluted shares are 1 crore (1,00,00,000), enter 10000000.

Output Values (Results You Will See)

1. Final Share Value
   👉 This is how much each share will be worth in the future based on your expected valuation and dilution.
   Formula: Valuation ÷ Total Diluted Shares
2. Spread of Options
   👉 This shows the profit per share you can earn.
   Formula: Final Share Value – Strike Price
3. Equity Value
   👉 This is the total potential profit you can make from your stock options.
   Formula: Spread × Number of Options
4. Total Compensation Over 4 Years
   👉 This is your total value from salary + stock options, assuming you stay for 4 years.
   Formula: (Salary × 4) + Equity Value

Example

Let’s say:

• Yearly salary = $120,000
• Options = 10,000
• Company Valuation = $100 million
• Dilution = 20%
• Strike price = $1
• Fully diluted shares = 1 crore (10,000,000)

The calculator will show:

• Final Share Value = $8.33
• Spread = $7.33
• Equity Value = $73,300
• Total Compensation = $553,300 over 4 years

Why Is This Important?

Many startups offer stock options, but it’s hard to understand their real value. This calculator helps you:

• Understand the worth of your equity
• Compare offers from different companies
• Make smart salary + stock decisions

Use Our Equity Calculator:

To simplify this process, use our Equity Compensation Calculator to input your specific details and receive an estimate of your equity’s potential value.

Understanding your equity compensation is crucial for making informed career decisions. By grasping the key concepts and utilizing available tools, you can better assess the potential financial benefits of your startup role.