Do The Math

Let's talk about ESOPs and valuations.

Is there really a financial upside to your stock options? If you're a startup operator, founder or investor, this question matters for you. Tech companies are turning to stock compensation to stay competitive in the war for talent but is it still a way to share skin in the game or could they offer more risks than benefits?

How we created a $10 unicorn:

How did we create a unicorn?

Step 1: Incorporate a company with 1,000,000,000 shares outstanding and a nominal amount of paid up capital. In our case we had $4 of paid up capital with 250,000,000 shares outstanding. Implying a price per share of $0.000000016

Step 2: Register and file all required constitutive documents - i.e. Articles of Association, Constitution, etc. 

Step 3: Find someone to purchase 1 share at a nominal amount such that the fully diluted valuation of the company (Shares outstanding x price per last share) is $1,000,000,000. In our case we spoke to some our friends who wanted in on the fun to purchase 1 share each at $4 price per share. So our fully diluted shares outstanding is 250,000,003 with the latest price per share at $4. Our on-paper valuation is now $1,000,000,012.

Step 4: File updated share purchase agreements and constitutive documents to lodge the updated cap table. 

Et Voila! You now have a unicorn! 

The only things that matter in early stage VC rounds are a) Cash In, b) Dilution, and c) Runway. 

For us, we raised $12, with 0.0000012% dilution. Given that we have annual filing & registration costs, we have <12 months of runway. (It's worth noting this is common practice because much of VC investment is oriented around the idea of what the team will create in terms of future value via technological development.) 

Does being a unicorn really mean anything here? :)

Why this tool exists

Hype or handcuffs? 2021 was a record year for venture funding in Asia, with over $150B raised; of which over $110B went to growth and late stage rounds. 

But as exciting as these high valuations are, they need to be paired with more education on what these valuations mean for operators, everywhere.

Asiaventuredollar
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How to start...

Stock options come with obligations. We've put together a simple scenario to help employees figure out how their startup's valuation could impact their bottom line compensation.

This should only be used as an information resource and starting point! When in doubt, please reach out to a tax consultant.
Screenshot 2022 03 06 at 10.04.24 am
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4 Simple Steps

A quick walkthrough on how you can Do The Math on your own with our dashboard.

  • Step1 dothemath
    Input latest details of your company
  • Step2 dothemath
    When and how will an IPO happen?
  • Step3 dothemath
    What is the downside?
  • Step4 dothemath
    Are the options worth as much as you thought?

Questions every startup employee should ask before saying yes to their stock options:

  1. What round did you join?
  2. When does the company need to raise next?
  3. What is the company hoping to achieve by the next raise?
  4. What is your exercise price?
  5. What are the tax obligations upon exercise of your options in your jurisdiction?
  6. Is your ESOP/RSU treated as income or capital gains for tax purposes?
  7. What happens to the value of your options if there is a downround?

The team behind the resource

  • 1618915390145
    Vardhan Kapoor
    Startup

    "As someone with an academic background in law & accounting and an operational background that spans multiple IPOs; I've been fortunate enough to experience what 'good' ESOP plans look like. The region's startup ecosystem is currently in the midst of a truly compelling inflection period and it's key to make sure that best practices are being followed by all participants to ensure that gains are appropriately distributed."

  • 1619121041854 (1)
    Chia Jeng Yang
    VC

    "The Southeast Asian tech ecosystem has hit an inflection point in the last few years. The outlook is wildly bright. In order to achieve the vision for the ecosystem we all share, we felt there was a need for a deeper discussion of the risks and rewards associated with ESOPs. When used well, they can be a powerful tool, but in our ecosystem its not fully valued yet. Our goal is to help people understand it a bit better. Hopefully, in a way that can start with a tongue-in-cheek laugh."

  • Profphoto2
    Nadim Muzayyin
    VC

    "Trust and transparency are some of the most important qualities in a relationship. In order to build trust and transparency among new startup operators, employees, and investors in Southeast Asia, both best and worst practices need to be called out for everyone to be aware of. Startup valuations and Employee Stock Option Plans (ESOPs) are tricky to understand if you haven't been previously exposed to the mechanics of early stage investing. We hope that this open information platform helps build more trust and transparency between everyone involved in the startup process."

  • 1646183145288
    Brian Cu
    Co-Founder

    "Attracting great talent into this ecosystem means building an ecosystem that can reward junior and senior talent for taking the risk into the startup ecosystem. As important as success is to empower the next generation of founders and operators, setbacks are equally necessary to provide a strong gut check to those willing to take the leap. Allowing operators to take the right educated risk/reward ratio will be crucial for the next generation of startups."

  • 1607595418870
    Nattariya Wittayatanaseth
    Founder / VC
  • Screenshot 2021 03 16 at 4.41.41 pm
    Rachael De Foe
    Strategic Communications
  • 1579664918260
    Akshay Bajaj
    VC
  • 1634546597173 (1)
    Qin En Looi
    VC
  • Angelolee
    Louie Angelo Lee
    Co-Founder
  • 1648781660244
    David Yin
    VC
  • media queries

    rachael@rdf.co