While most coverage has focused on low valuations being a bad thing for founders and existing employees, new employees joining a growth stage startup in 2023 could receive nearly three times the equity they would have received joining a similar stage startup in 2021.
Savvy job seekers will often look for companies with a low valuation (or avoid ones with a high valuation) so that their equity has more upside. They’ll wonder if they joined a unicorn “too late” or if there’s still upside between now and an IPO.
Investors say that entry prices matter. As an employee who owns equity (or options), you’re an investor, so they matter for you too.
In order for your equity to grow, the company’s valuation needs to increase. There are two drivers that change the value of your equity:
Revenue growth is fairly straightforward. Initially, the company has low revenue before it finds product-market fit (PMF). You receive more equity for joining at this stage to compensate you for the risk you’re taking. As the company finds PMF and starts scaling revenue, it is less risky to join and you receive less equity. Revenue growth can often seem more “fair”: grow revenue and you will grow valuation.