- As part of their compensation packages, most startups offer prospective employees shares in the company – but few, if any, can give any guidance on what that equity might be worth.
- To help startups workers figure out an answer, software engineer Beth Andres-Beck helped create a tool called “TLDR Stock Options.”
- The tool is incredibly easy to use – only requiring people to enter in two pieces of information to understand their likelihood of either striking it rich or striking out.
- It can’t tell you for sure if your stock will make you a millionaire, but it uses historical data to help you make an informed decision.
When software engineer Beth Andres-Beck was looking to switch jobs two years ago, she received multiple offers from startups, all of whom offered her some kind of equity in the company. But none of them were able to provide a simple answer to one of her most pressing questions: How much money was that equity actually worth?
“Coming to work for a startup for the first time, there’s this huge information gap between the people who have been doing this, who have seen startups, who understand how finance works, and the people who just want to work at a startup,” Andres-Beck told Business Insider in a recent interview. “It turns out that most people don’t want to have to understand how finance works.”
To help close that gap, one of the first projects she worked on when joining LTSE – the company she eventually chose, founded by “The Lean Startup” author Eric Ries – was TLDR Options, a simple tool that helps users quickly estimate the value of their stock option packages.
“TLDR” is internet slang for “too long, didn’t read,” and has come to mean the version of something that cuts right to the chase. To that end, TLDR Options is aimed at cutting away the legalese and tricky maths to show you how much you might make (or not make) if your company gets acquired or goes public.
Here’s how TLDR Options works
When TLDR Options was released in June 2017, Andres-Beck said it was atop Hacker News, the popular startup news aggregator and online hangout, for an entire day. “I think it speaks to how it is answering a real problem that real people have,” she said.
“All the other tools asked you questions most people didn’t know the answers to, like ‘what dilution do you want to assume?'” Andres-Beck said. “Most people starting a new job at a startup don’t know what dilution is.”
To get started with TLDR Options, users enter the percentage of ownership they have been offered, as well as the funding stage of the company (Ie. Seed stage or Series A). Andres-Beck said that some stock packages only indicate the number of shares, but that people should always request to know the percentage of the company their package represents.
From there, the tool produces a graph showing the likelihood of cashing out, as well as an estimate for how much the stock options will be worth over time, depending on how much the company is sold for, or the valuation at which it goes public.
For example, if you get that 0.1% equity in a seed-stage company, the calculator estimates that within 7 years on average, you could be looking at a $US300,000 windfall, assuming it sells for an Instagram-esque $US1 billion. If it instead goes public at $US10 billion, that same equity would be worth about $US3 million.
TLDR Options goes to great pains to explain that this is really a numbers game: Only 15% of companies will actually have exits large enough to generate a substantial return for employees, on average, while 11% will have exits low enough that the stock is worthless, or close to it. The remaining 74% or so of companies will simply never exit at all.
By its own admission, the tool is quite simplified, and doesn’t account for a lot of special situations – but it’s meant to give people a ballpark idea of their stock’s potential value, based on historical data. It’s all the things that a potential new hire might want to know before joining a startup.
“Instead of trying to get the right answer, we set out to build a tool that could get an answer,” the company said on its website.
Thinking for the long term
“This personal pain point I had was very in-line with the things we were trying to do [at LTSE],” Andres-Beck said.
LTSE (which stands for Long-Term Stock Exchange) aims to create its own stock exchange, with rules that would reward what it calls “today’s modern companies” to focus on long-term growth, rather than quarter to quarter gains. LTSE filed its registration with the SEC last November and is awaiting a response.
In the meanwhile, Andres-Beck and LTSE are building tools to help employees and other people in the startup ecosystem take a long-term view for themselves, like TLDR Options itself.
Still, Andres-Beck admits that the tool she helped to create is far from being foolproof.
She says “there’s no way to really know” if your stock options will be worthless or worth billions.
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