The valuation is the expected value. And since we're talking about investors who get preferred shares, the actual valuation for determining the value of the common shares (which employees get) is lower than that, still.
You're not wrong and that view represents the normal thinking I suppose. But don't you think it feels weird to say, "We're going to pay you next year in equity at this years valuation"? if you choose to stay in the company for year 2, it's strange to think that your risk goes down while value per share goes up. Your effective cash+stock compensation for year 2/3/4 goes way way up if you think in those terms. Then drops sharply at year 5!
I don't know, I suppose in a fair world you would be given more equity on yr1, less y2, etc. But that doesn't motivate people to stick around like the existing structure.
> Your effective cash+stock compensation for year 2/3/4 goes way way up
Not if the company flails or fails. If it does well, your increased comp makes up for the even more probable counterfactual, where your equity was worth bupkiss but you plugged away like a true belieber until the lights went out and the last pizza box was empty.
Value per share goes up, but presumably the employee had a significant role in making it go up, so that part seems fair. The 5th year discontinuity is an unresolved problem, though. It seems that, for the most part, people don't expect their employees to stick around that long. In the blog post, it mentions that some people are moving to 5 or 6 year vesting.
> The 5th year discontinuity is an unresolved problem, though.
By the end of year 3, you should be having "that talk" with whomever is running the show at that point. If you are a valued, productive member of the team, you'll negotiate another package that is at market. If not, it's probably time to move on to the next town 'cuz you're a rolling stone, always looking for the next adventure....
