Valuing Those Pesky Stock Options

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I receive many questions from my students and other startup joiners regarding how to evaluate the value of the stock options they are being offered. There is surprisingly little written about this topic, so this post will hopefully be useful to folks interested in answering this question.

In order to properly assess the value of your stock options, you need to know four pieces of information from the company:

  1. The number of shares they are offering to grant you
  2. The total number of fully diluted shares of the company
  3. The common stock strike price of your shares
  4. The preferred post-money valuation of the last round of financing

Many HR departments don’t know the answer to these four simple questions and get very defensive when asked by candidates, perhaps out of embarrassment or a false sense of confidentiality. Don’t be afraid to escalate the conversation to a more senior hiring manager or financial executive to get the answer. After all, it’s impossible to understand the value of the options package unless you have the data you need to evaluate it.

From these four data points, you should perform the following calculation using your best judgment:  what might be the dilution that I will face in the coming years as a result of future financings and what might be the range of valuation increases that the company might be able to achieve.

With this information in mind, you can derive a range of possible values of your stock options and evaluate whether the scenarios make sense to you and what range of value is possible under the different scenarios. The spreadsheet template below provides an example that you can play with or download here:

Hopefully, this template and post are helpful! I welcome any feedback or stories you might want to share on your own stock options negotiation process.

Many thanks to Matt Wozny for contributing to this post!

Experiments Lead to Product-Market Fit

The central theme of my Harvard Business School class, Launching Technology Ventures (LTV), is that startups are experimentation machines and the choice and design of experiments during a finite envelope of time and money is the central strategic decision that founders make. In other words, founders should test the experiments that matter most.

If done correctly, these early experiments eventually lead to finding product-market fit. But finding product-market fit in the context of a dynamic system that makes up the startup business model is complex and nuanced. Each component of the business model is linked to the other. Thus, experiments should be run that hold certain elements constant and focus on testing the most important, critical path business model elements first.

To help frame those decisions, I have developed a simple framework that builds off Professor Tom Eisenmann’s work on business model analysis for entrepreneurs to communicate the early strategic choices in experiment design. Founders need to answer two simple questions:

  • Which experiments should I run between testing the Consumer Value Proposition, the Go To Market and the Cash Flow formula (sometimes also referred to as the business model)?
  • What organization should I build to execute each of these experiments in the most efficient fashion?

The following two slides summarize these two questions visually:

Step One in my HBS LTV Course: figure out which are the most critical experiments to run

Step Two: figure out what organization to stand up to run those experiments in the most efficient fashion

The other day, my friend Ed Zimmerman of Lowenstein asked me to “speed present” my entire course in 5 minutes in advance of a panel that he hosted as part of his VentureCrush series. Here is that presentation, where I cover the experiments as well as the metrics that help determine where you are in your quest for product-market fit:

I welcome hearing about feedback from your own experiments!

The Rocket Ship List of Startups – 2019

New graduates should jump on board one of these high flying companies and go along for the ride

Graduating students hungry to dive into the startup community around the world (aka StartUpLand) often struggle to select the right, specific opportunity where they can productively start their career.

Each spring, I provide a comprehensive list of exciting, growing, hiring startups that are worthy of consideration as places to start or continue a career in StartUpLand. The criteria for being on the list is subjective but is a mix of fundraising (typically > $20m in the most recent round), scale (typically > 100 employees), momentum (typically growing users or revenue > 50%) and hiring (typically growing headcount > 20%, including a number of entry-level positions that would be a fit for recent college or business school graduates).

Before we get into the companies themselves, I suggest checking out two of my posts where I give some more detailed advice on how to select the right company for you and position yourself to secure a job:

Once you have reviewed this framework for deciding what you’re looking for, below you will find a list of 500 companies to research and approach.

As usual, the list is compiled and organized based on location. Like David Brooks, I believe in selecting a particular community to invest in and contribute to as a member of the ecosystem.

I received fantastic input from angels, entrepreneurs, lawyers and VCs across the world, helping me pressure test and compile this list (note: Flybridge portfolio companies are in blue). This year, I added companies from India and China with the help of a number of friends from those communities — a nod to the growing global importance of those two startup ecosystems. I’d also point folks to Stanford’s Andy Rachleff’s terrific list, which he publishes each fall with a similar theme.

I’m sure I made many mistakes and omissions, which are all my own. Special thanks to my Flybridge teammate and MIT Sloan intern Caroline Constable, who methodically crushed this year’s list and Harvard computer science intern Raymond Wang, who provided awesome analytical, programmatic firepower.

As always, feedback welcome!

East Coast

BOS 2019 v2

NYC 2019 v2

West Coast


Other Startup Hubs

  • ATL: Bitpay, CallRail, FullStory, Kabbage, MailChimp, Pindrop, SalesLoft, Terminus
  • CHI: AvantCredit, bloXroute, Civis Analytics, Fooda, FourKites, Kin Insurance, Project 44, ShopRunner, Sprout Social, Tempus
  • CO: Boom Supersonic, Cloud Elements, CyberGRX, FullContact, GoSpotCheck, Ibotta, JumpCloud, LogRhythm, Quantum Metric, Red Canary, TeamSnap, Welltok
  • DC: MapBox, Optoro, Sonatype, Vox Media, WeddingWire
  • SEA: Apptio, Convoy, DefinedCrowd, ExtraHop, Knock, OfferUp, Outreach, Porch,, Textio
  • UT: Avetta, BambooHR, Canopy Tax, Fortem Technologies, Health Catalyst, HireVue,, Lucid Software, ObservePoint, Podium, Qualtrics, Solutionreach, Via, Workfront

All About Applied AI


My partner, Chip Hazard, has been on a blogging tear lately on the topic of Applied AI.

We are pretty fired up about this theme here at Flybridge and Chip’s recent posts provide a nice outline as to why. His first post from a few weeks ago, Applied AI: Beyond The Algorithm, provides a description of how we think about next generation AI companies and the opportunities and challenges they face. Today’s post, the AI Paradox, gives a more detailed view on what we are internally referring to as “AAA grade” AI companies:  those that are focused on building Absorable, Applied AI. We are very bullish on this category of startups.

The kickoff last week of MIT’s billion-dollar new AI school, the Schwarzman College of Computing (pictured above), was a punctuation point in an ongoing arc of historical significance. We are entering an era where applied AI is on the cusp of impacting billions of lives and businesses. This wave will be a fun one to watch and participate in.

How To Raise Your First Round of Capital

Every year, I do a talk at Harvard Business School regarding how to raise your first round of capital. In the past, folks have found the slides to be helpful, and so I am sharing them here. The longer version of this material is covered in my book, Mastering the VC Game (first chapter is free) and this teaching note on Raising Startup Capital. I hope they’re helpful!



Applied AI: Beyond The Algorithms

Great, thoughful post from my partner, Chip, on Applied AI.

Hazard Lights

One of the primary areas of focus for Flybridge over the years has been to be the first institutional investor behind companies looking to transform the enterprise technology landscape with modern software.  Given the explosion in the volume of data being generated globally, this theme has led to investments in companies such as MongoDB (databases) and Nasuni (storage) that operate at the data infrastructure layer of the enterprise tech stack.

More recently, we have been investing in further advances in data management, analytics, machine learning, and artificial intelligence.  While the potential for artificial intelligence has been written about extensively, what is less well understood is that the algorithms and underlying tools are only a fraction of the value and are unlikely to be a source of long-term differentiation.  Fully realizing the power of AI requires a deep understanding of the domain and the specific workflows that AI will seek to…

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Don’t Abandon Lean Experimentation on the Blockchain

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In my blockchain investment work (we have invested in six early-stage projects, including bloXroute, Enigma, FalconX, NEX and two stealth projects), I have been struck by the fact that decades of progress on applying the scientific method to entrepreneurship (e.g., experimental design, lean startup, design thinking), as well as decades of established governance modeled, are being effectively blown up by Initial Coin Offerings (ICOs).

Steve Blank and Eric Ries popularized applying the scientific method to startups in an incisive fashion with the publishing of their books, Four Steps to the Epiphany and The Lean Startup, respectively. These became canons for entrepreneurs around the world as they embarked on the journey for product-market fit.

With blockchain startups raising over $5 billion in 2017 and over $12 billion through the first three quarters of 2018, it appears that this discipline of staged experimentation and fundraising is being discarded.

Harvard Business School professor Ramana Nanda and I spent some time on this issue in an article we published last week in Harvard Business Review called “The Hidden Cost of Initial Coin Offerings”. In it, we outline 3 defenses of large ICOs, some of the downsides they present and how they constrain the team from executing successfully on their mission. We hope it adds to an important debate on startup staging and experimentation in the context of this exciting, emerging funding mechanism.


Blockchains and Communities

We are big believers in community-building. We have invested heavily in it as a firm, contributing to the ecosystem in various ways that are consistent with our values (e.g., fostering diversity in tech, supporting women entrepreneurs and immigrant entrepreneurs). And we have invested heavily in it across our portfolio companies. Our insight a decade ago that developers were becoming the kings of IT led to a fruitful investment thesis, led by my partner Chip, around developer driven adoption and community building (as exemplified by our investments in MongoDB, Codecademy, Crashlytics and Firebase).

For the last few years, we have been applying this thesis to our investments in blockchain and crypto. Blockchain-based startups share many of the same characteristics as developer-driven startups. With these companies, sustainable competitive advantage is built through a loyal community of supporters who contribute to the project and feel ownership over its success. Because of token network effects, a Blockchain startup has the opportunity to create ardent supporters that literally have a stake in the project in ways that MongoDB and other open source projects could never do.

On the eve of our second portfolio company completing an Initial Coin Offering, we gathered the community managers of our five Blockchain startups and – together with our advisors, MongoDB’s Meghan Gill (first nontechnical hire and head of community and demand generation) and OpenX’s Scott Switzer (founding CTO of the largest open source advertising exchange network) – to share best practices in community-building in the context of crypto. Here’s what we learned.

Provide An Amazing First-Time Experience

MongoDB is a complex, scalable database for sophisticated customers. But their design goal was to provide an amazing out of the box experience – holding themselves to the standard of being able to download, install and make use of the product in under five minutes. Crashlytics founder, Wayne Chang, likes to refer to the initial product you release to your community as the Minimum Lovable Product (MLP): a product that is “so intuitive, so satisfying to use, that your customer base can’t help but tell someone about their experience.” Focus on triggering an emotional response, Chang advises, with a narrative and small surprises that compel the user to appreciate that you are thinking of them and their needs.

Jump On An Existing Wave

One of the most important pieces of advice we heard from our community-building experts was the value of latching on to existing communities that already have momentum behind them. NEX, a decentralized crypto exchange, has latched on to the City of Zion community (a non-profit the founders started to support the NEO ecosystem). MongoDB latched on to the NoSQL movement. OpenX latched on to the rise in programmatic advertising. If you can frame your work in the context of an existing trend or platform and then establish your presence in the communities and academic environments where that trend is flourishing, you can put yourself in a strong position to ride someone else’s wave and not be forced to generate all the kinetic energy to support your platform by yourself.

There’s No Substitution For Presence, Especially The Founder

Megan advises, “There’s no magic bullet when it comes to community building. You have to be consistent and always available on line – wherever your community wants to interact with you.” This presence has been challenging for blockchain startups as there is already tremendous fragmentation in communications channels. Discord, Telegram, Slack, Twitter, Reddit, Stack Overflow and many others are all very active forums for different segments of your community. And, if you want to jump on an existing wave, you need to be active through all those channels in the communities of others as well. The team from Enigma (a scalable privacy protocol that enables “secret contracts”) talked about their heightened sense of urgency in being organized to answer questions that come up online immediately. As OpenX’s Switzer put it, “Being available to communicate with and respond to the community is one of the biggest jobs I have as a founder”. Enigma recently created an Ambassador Program in order to help scale the presence of their small team. Ambassadors have their own channel and private calls with the founders to get briefed on the product roadmap and upcoming releases. Enigma built their own scraper / web crawler to track all the questions that come from the different forums and loads them automatically into their issue tracking platform, Jira. BloXroute (a network-based scalability solution for blockchains) is focused on attracting a deeply technical community at this stage in their roadmap and so have put out more technical content to match what their community might be looking for.

In watching our blockchain-based startups evolve, we have come to appreciate more and more the importance of a subtle skill on the part of founding teams in crypto. They not only need to have the usual compelling vision, unique market insight, and execution ability. They also need to be intentional, strategic, capable community builders.

Thanks to Samir Ghosh, Meghan Gill and Scott Switzer for their contributions – as well as Tor Bair (Enigma), Kevin Flynn, Carla Paiva, Giuseppe Stuto and Nissa Szabo.

The New Financing Playbook for Blockchain Startups

When I first wrote Mastering the VC Game, Satoshi Nakamoto had just issued his seminal Bitcoin white paper. At the time, no one could have imagined the transformative impact the invention of Bitcoin and the blockchain would have on the venture capital industry.

With the invention of Ethereum and a Turing-complete platform that allowed for smart contracts, startups could suddenly raise money ahead of delivering products from a crowd of investors, not just a universe of a few hundred venture capitalists. Last summer, I wrote about the impact Initial Coin Offerings (ICOs) were having on the venture capital industry. This summer, I am amazed at how quickly the science of token-based fundraising has evolved and the hybrid of VC, crowdfunding and crypto token economics best practices that have emerged.

Last summer, one of my portfolio companies, Enigma, completed a $45 million ICO with only three employees and a (very well-written) white paper. Like many companies at the time, they had only raised a total of $1 million in a prior seed round and had yet to deliver any software to the market. At the time, they were not alone — startups raised more capital in ICOs than in venture capital rounds last summer. As of this writing, over $10 billion has been raised in ICOs since their invention in 2016. The money seemed to come so easily that aggressive entrepreneurs seized the moment.

Those days are gone. As William Mougayar correctly observes, “the only token that matters is the one being actually used.” The SEC has stepped in with some strong, cautious guidance and both professional and retail investors, although still enthusiastic about blockchain and crypto, are showing a bit more caution.

Today, a new playbook is emerging for startups who wish to follow best practices in fundraising in a post blockchain world. To understand the contrast to the pre-blockchain, you first have to understand what the best practices playbook looked like previously:

Financing Playbook, Pre-Blockchain

  • Seed round: $1–2m. Raise from a mix of smart, value-added angels or seed funds. Pre product-market fit. Build the team and deliver an MVP in order to run some experiments to test the customer value proposition. Run a few go to market experiments and perhaps a business model / pricing experiment. Hit some important value-creating milestones, such as early customer revenue or at least engagement.
  • Series A: $5–10m. Raise from a professional, series A firm. Complete the product, round out the team with some commercial executives (first salesperson, first marketer) and get to product-market fit. Begin developing a repeatable, scalable business model. Stand up a growth team.
  • Series B: $10–30m. Raise from a professional, series B / growth stage firm. Execute on your repeatable, scalable business model. Expand beyond the initial product to deliver multiple products in adjacent areas. Expand internationally. Build a senior executive team that includes a head of finance and a head of customer service / operations.
  • Series C: $30–60m. Raise from a professional, pre-IPO firm with a good, credible brand to assist in the IPO process. Work towards a profitable, scalable business model. Execute well across multiple products, multiple channels, multiple geographies. Complete some M&A to expand your product footprint. Build a strong, independent board and prepare for IPO.

In a post-blockchain world, the playbook has changed dramatically from the pre-blockchain world and also has evolved from the go-go days of last summer. Today, the market has become more discriminating, forcing companies to be more deliberate and professional. Here’s what the best practices playbook looks like now:

Financing Playbook, Post-Blockchain

  • Seed round. $1–2m. Raise from value-added angels and professional seed funds, particularly those with strong reputations and credibility in the crypto community. Include in the seed round terms a token conversion option, allowing equity holders to convert into tokens at their election (following a vesting schedule) if the company’s business model is more focused on token value creation (utility, security) than equity value creation (revenue model, cash flow). This option tends to be anchored on a pro rata ownership share of the equity. In other words, if an investor were to own 10% of the fully diluted shares, they would have an equity conversion option on 10% of the tokens that are held by the company in treasury post-ICO. Build the team and articulate a product roadmap in the form of a technical white paper. Focus on writing code and building out a testnet (i.e., public beta). Ideally, leverage existing platforms (e.g., Ethereum, Cardano, NEO) to minimize the amount of new code required. Link your vision to a secular trend in the space and enlist thought leaders to publicly endorse you on Twitter, Reddit, Medium and at conferences.
  • SAFT or SAFE-T or SAFTE. $3–6m with a pre-defined “launch valuation rate” (i.e., crypto valuation cap at which the dollars convert to tokens) as well as a discount. The labels the different lawyers might use are somewhat fungible, but this investment agreement is typically in the form of an option to purchase future tokens or equity with professional investors that are a mix of traditional VCs and crypto funds. This agreement looks very much like an offering document nowadays (due to recent SEC guidance), with many provisions that you might find in an IPO boilerplate, but is explicitly not a registered security but rather a carefully-worded agreement to purchase a non-registered investment security. Entrepreneurs attempt to raise enough from smart money (and ideally good brands to assist in the ICO) to go beyond the technical team and add a community executive and investor relations / business development. Issue the testnet and perhaps even release an initial component of code on the mainnet (aka the live blockchain) — not the entire product roadmap, but enough to get a community of developers something to play with and get excited about. Build out your community infrastructure (Telegram, Slack, Reddit, Twitter) and have your community manager recruit and engage with two types of members: developers (most important) and investors (secondary but still critical). Expand and publicly publish the multi-year product roadmap and vision. Prepare for ICO.
  • ICO. $20–200m. The range is wide, but most top-tier ICOs are aiming for a crypto market cap of $100–300 million which would place them in the range of 50–150 top tokens (as of this writing, #50 is trading over $300 million and #150 is trading at $70 million according to CoinMarketCap). Thus, if they are selling 50% of the tokens, they might be raising $50–100 million. At this stage, a decision needs to be made as to whether the project meets the Howey Test, and is thus aiming to be a utility token, or should be a registered security. More and more blockchain projects are leaning towards the full offering and registration requirements consistent with a security token offering (known as an STO) due to the SEC’s recent guidance. The team needs to be a more fully formed team — not quite as mature as the IPO team (e.g., no CFO required) but ready to handle developer recruitment and support, have a point of view on the business model, a full treasury and finance function (what will you do with all that money? how will you maintain security? what are your treasury policies? how much tax do we pay on the ICO proceeds and when is that tax due?) and a fledgling legal function to assist with compliance. And a real product needs to be delivered or very close to being delivered, where customers and developers can actually evaluate the quality of the code (it is all open source, after all).

These points of evolution are a good thing. They are causing startups to slow down, be more professional and responsible, and deliver real code that has some real utility — not just a well-written white paper and an active Twitter account. Some companies may skip the SAFT step and still go right from a seed round to an ICO (e.g., our portfolio company NEX is in the midst of doing that), but it takes a pretty special team to deliver a large enough number of milestones in that rapid a fashion. Most companies are going to take 2–4 years to be fully prepared to journey from inception to ICO/STO. Considering the median age of an IPO company over the last fifteen years is eleven (our company, MongoDB, just completed it in ten and it seemed breakneck!), this time compression is still an amazing development for the future of innovation.

Many open questions remain and there is much more work for entrepreneurs and investors alike to sort through. One of the trickiest, for example, is incentive compensation. We have had decades of experience with stock option grants to employees, complete with vesting schedules, acceleration provisions and various exercise price processes and mechanisms. What is the right incentive compensation structure for token-based startups? Is there going to be a vesting schedule and, if so, for how long? What are the tax implications? If the token is a registered security, how will the issuance of securities as employee compensation be handled?

It is an exciting time for both entrepreneurs and investors in the post blockchain world. I suspect that the next year will bring similarly rapid and unanticipated developments and evolution!

The Search for Product Market Fit

Each year, I join my friend Ed Zimmerman (lawyer, super angel, wine enthusiast and raconteur) at his annual Venture Crush First Growth conference (fka First Growth Venture Network) to talk about product-market fit with early-stage entrepreneurs.

Each year, I try to think anew about the topic, reflecting on some of the lessons and research related to my entrepreneurship class at Harvard Business School.

Below is this year’s version, complete with a new framework for thinking about the three kinds of experiments all pre product-market fit startups must undergo: Consumer Value Proposition experiments, Go To Market experiments and Business Model experiments.

Feedback welcome!