The Coda Offer Model: Transparency around Equity

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The Coda Offer Model: Transparency around Equity

Introduction

Coda's Offer Model: Insights & tools for promoting transparency around equity

Kenny Mendes

Instructions

When it comes to equity, companies often keep candidates in the dark by withholding key information about the value of their equity. I believe this practice prevents startups from attracting great people who may have, otherwise, considered joining if they had a better understanding of their compensation package.

Coda is attempting to change this mindset, one candidate at a time.

Intended Audience

This doc is designed for both recruiting teams and candidates who’ve recently received an offer from a startup company.

For companies presenting offers - This doc provides with you with Coda’s compensation philosophy, offer model, and tools for putting together compensation packages candidates can choose from.

For candidates evaluating an offer from a startup - This doc equips you with information and questions to help you better understand the equity offer.

Included in this doc:

Coda’s

compensation philosophy⁠

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framework⁠

for gathering equity details and

template⁠

for sharing them with candidates

tool⁠

for putting together compensation package candidates can choose from

checklist⁠

with important equity questions for candidates to ask when evaluating an offer

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Create my own offer template
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Coda’s compensation philosophy

Philosophy #1

Transparency helps both sides win. 👀

At Coda, when we present offers to candidates, we share information we believe they need to properly value the economics of their compensation, with special care going into explaining equity. When companies gloss over explaining stock, candidates don't learn how it all works or how to value it. Rather than letting stock turn into a mysterious lottery ticket, we provide the following info so it can be fairly valued:

Company valuation: both current and historical

The candidate's ownership percentage: calculated by dividing number of shares in their offer by total number of outstanding shares

Stock Price: 409A stock price is needed to understand cost basis to obtain the stock, and estimate future growth potential

Liquidation Preferences: Understand how stock might play out in downside scenarios

Breaking this down into food analogies ー the biggest question we’re teaching candidates to ask is:

How big can this cake get? 🎂

How big will my slice be? 🍰

Philosophy #2

Think like an investor. 📈

Silicon Valley is full of investors who assess startups, yet we see many candidates who don't view startups in the same way. Our view is that time is a much more precious asset than capital, and employees should understand the value of their ‘time investment’ in a company.

Startups can offer dramatically more upsides in stock growth than later stage companies, but candidates often mis-assess the upside in their stock. The main reason? Expected values are hard to calculate!

We give employees the tools and framing to sort these values out for themselves. This includes weighing factors such as stock outcomes across various growth scenarios and liquidity preferences in downside scenarios.

We also ask them to compare our offer against their BATNA, an acronym for the Best Alternative To a Negotiated Agreement, as any good investor would do.

Fast-appreciating stock can be a great advantage, but only if it's assessed properly.

Philosophy #3

Give employees control. 💪

We like to hand candidates a model that leverages projections based on our belief in the company's mission and business potential. This serves as a starting point for candidates to make assumptions about the company. If they feel we are being too optimistic or conservative with any of the assumptions, we encourage them to change the numbers. After all, this is their tool.

Often, it's reassuring for employees to see that even when they model conservative scenarios, their economic upside is comparable—or even better than their alternatives.

Philosophy #4

The right bowl of porridge. 🙋🐻

By now, you probably can tell that we like to think of employees as well-educated investors. So it only makes sense to us that they should have some choice in how much of their compensation comes in cash versus equity.

We provide candidates with three choices that contain sliding amounts of salary and stock, and they can pick one that makes the most sense to them.

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Closing remarks

🤓 The full picture is complicated. Coda’s simple model touches on areas including transparency in equity, growth projections, expected values, and anticipated dilution, but doesn't cover critical areas like liquidation preferences or taxes. There are so many factors that affect company outcomes, and they are impossible to predict, but we think our method gives both candidates and employers a strong footing to start. Our simple model is a great introduction for how to think about stock and expected values, but we encourage people to use the more advanced model for a more accurate projection. Remember to be clear that you aren't giving any sort of predictions or guarantees. Also, we're a strong believers that compensation shouldn't be the primary driver in making career decisions.

💸 More on taxes. There are meaningful deltas in post-tax outcomes when you take advantage of lower capital gains tax rates. Startups can set up their stock in a way that allows employees to exercise early to help with taxes. Some stock is also

qualified small business stock⁠

eligible!

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Ready to get started? Head to
`Share offer details`⁠

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A few of the 25,000+ teams that 🏃‍♀️ on Coda.

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