How to compare the value of your startup options offers?

Whether you are deciding between job offers, or hold options as startup employees, understanding how to calculate the value of options is crucial. TLV Partners’ Shahar Tzafrir is calling for entrepreneurs to be more transparent with their workers and explains to employees what to lookout for

Elihay Vidal 20:5316.12.21
The fierce competition for employees in Israeli tech combined with the continually growing investments in the industry has made equity compensation more important than ever for employees, arguably as important as the salary. However, calculating the value of options being offered to employees to move between companies is complex, making it increasingly complicated to compare conditions between offers.


As a result, more and more voices have been calling for employees and companies to be as transparent as possible when it comes to equity compensation being offered to candidates. Shahar Tzafrir, Managing Partner at TLV Partners, is a big advocate for transparency in the sector and in a recent Twitter thread he analyzed the main problems with the issue and highlighted a list of important parameters that will help employees and candidates to better understand what they are being offered and which offer might be best for them.


TLV Partners Managing Partner Shahar Tzafrir. Photo: Eyal Tueg TLV Partners Managing Partner Shahar Tzafrir. Photo: Eyal Tueg


“You can’t compare an offer of 600 share options at one company with 6,000 share options at another company,” Tzafrir wrote. “The 600 share options may represent a larger percent of the company’s total shares, even though the figure itself is smaller.” He feels that companies should tell candidates what percent their options represent when making their offer. “But that still doesn’t make it possible to compare offers as an offer with a smaller percentage could also potentially be more valuable to the employee.”


Tzafrir believes the following list of parameters must be assessed when trying to calculate the value of options:


  • The number of share options that was offered and the total number of shares in the company.
  • The value (PPS) of each share in the most recent funding round.
  • The cost of realizing an option at the moment.
  • Is there a difference in the price of realizing an option between Israeli and American employees?
  • What was the latest 409A and who calculated it?
  • What is the vesting period and what is the vesting cliff?
  • How much money has the company raised to date?
  • How many shares have been allocated to the employee stock ownership (ESOP) program and what is the current number and percentage of unallocated shares in the ESOP, and has the ESOP been approved by the required authorities and registered with a trustee?
  • What is the approval process for option allocation?
  • How many board members are required for approval, is there a commitment that the option allocation is certain to be approved and the approval by the board in the coming meeting is only formal? And when is the next board meeting?
  • Will the employee receive confirmation once the allocation is approved?
  • When does the vesting period begin?
  • From what stage is the external trustee updated on the new allocation?
  • What is the company’s full options plan and can it be changed along the way?
  • How is the options program different from standard programs?
  • Can an employee sell or assign their rights for the options before realizing them, after realizing them, while being employed, after leaving, and how long after leaving can the options be realized?
  • What is the stock acceleration in the type of shares which the employee has been allocated and under what conditions and what are the liquidation preferences? A future change in that and in the amount of funds being raised is dramatic.


“All of this is a small part of the parameters required when comparing between offers, even when the company has provided the percentage that the options make up of the total shares. And I will repeat myself: The most dramatic aspect of all is the liquidation preferences and the amount of funds that will be raised in the future. Ahead of that are only the size of the exit and the payment conditions. Most of these figures will change over time and are dependent on the terms of future funding rounds that can include conditions that will dramatically change the value of options,” Tzafrir emphasized.



Tzafrir concluded his thread by stressing that “I’m not writing this from my position as a VC, but due to my frustration regarding the superficial discussion on the matter and the lack of transparency in job offers when it comes to options. My recommendation, trivial as it may be, is to go work at a place with a vision and values you believe in and with colleagues you will have fun with in the morning. A place that will challenge you and teach you. At the same time, remember that all of us: Investors, entrepreneurs, and employees in the office next to you, are all capitalists. Maximize every financial condition you can. But place plenty of weight on the place you will be working at and the people you will be working with. What you’ll do. How much you’ll enjoy yourself. And regarding options: Try to understand as much as you can, and know that it is difficult to calculate their value and that some of the information is dangerous for companies to reveal.”