The Optimal Time to Join a Company: Maximizing Salary and Equity Grants

Earlier this week, I received an offer for my first full-time job at a private company. Initially, the offer included a fixed number of RSUs (Restricted Stock Units). A week later, the company announced a new funding round, leading to a 50% increase in the company's valuation. Following discussions with the recruiter, I was fortunate enough to retain the original stock grant, which now had a value approximately 50% above the market average. Although this particular situation was rare, it highlights the importance of understanding company valuation dynamics and the timing of joining a firm.

Understanding Company Valuation and Market Dynamics

The decision to join a company should be based on more than just the initial salary and equity grants. Companies pay according to the quantity and quality of talent they hope to attract. As Philip Su, Chief of FBLON, asserts, the fair market value of your skills and experience is /- 20%. The ability to offer performance-based equity grants is a key incentive for attracting and retaining talented employees. However, companies can sometimes over-value these grants due to the unique circumstances and valuation differences between public and private companies.

Public vs. Private Company Valuation

For public companies, equity grants are typically valued based on publicly available information and market trends. However, in the case of private companies, there are notable differences. Private company valuations are not as responsive to changes in performance or expectations because the equity is not freely traded. Furthermore, private valuations are often biased upwards due to better terms for investors, such as liquidation preferences that cap downside risk. As a result, private companies may grant more equity to align with investor expectations and the inherent risks associated with private investments.

The Best Time to Join a Company

So, when is the optimal time to join a company? The best time to join a company is whenever the company is poised to exceed its investors' expectations. Unfortunately, predicting which company will outperform the market is akin to gambling. Investors typically have a deeper understanding of the business landscape and its potential opportunities and threats. Choosing the right company to join at the right time is not about making financial predictions but about aligning with a reputable and promising growth trajectory.

Considering that accurate predictions are rare, the focus should be on finding a place where you can learn, grow, and contribute effectively. Joining a company when it is likely to meet or exceed its investor expectations can help maximize both your salary and equity grants. However, it's crucial to remember that even the best predictions can be uncertain, and the likelihood of a company meeting its higher valuation potential decreases with the passage of time.

Conclusion

In the end, the most reliable strategy is to focus on companies that are known for growth, innovation, and resilience. While the specifics of equity grants and salaries may fluctuate, the potential for long-term success and personal growth is often more secure when you align with a company that is well-positioned for future success.

By staying informed about the company's performance, market trends, and fundraising activities, you can make a more educated decision about when to join a company. Remember, the optimal time to join a company is not just about the immediate salary and grants but about aligning with a company that has the potential to thrive over the long term.