Worked example
Public RSUs in Manhattan or a seed startup in Austin?
A senior engineer has two offers: $210K plus RSUs at a public company in Manhattan, or $175K plus $1M of options at a seed-stage startup in Austin. After tax and cost of living, the answer turns on one number: the odds the startup equity ever pays.
The offers
| Public company, Manhattan | Seed-stage startup, Austin | |
|---|---|---|
| Base salary | $210,000 | $175,000 |
| Target bonus | 15% | 0% |
| Equity over 4 years | $320K public RSUs | $1M options, $40K to exercise |
| Vesting | 25% a year, 1-year cliff | 25% a year, 1-year cliff |
| 401(k) match | 50% up to 6% of salary | None |
| Health premiums / yr | $2,400 | $1,200 |
| Where | New York County, NY | Travis County, TX |
| Office | 3 office days, 40-minute commute | 4 office days, 20-minute commute |
| Hours a week, days off | 45, 25 | 55, 18 |
Both are single filers with no dependents, putting the default $24,500 a year into a 401(k). The offers are illustrative, not anyone's real comp.
At realistic odds
The comparator's default treats startup equity as having a 20% chance of paying its paper value, and taxes it as wages if it does. At those odds, over four years and in national-average dollars:
| Four years | Public company, Manhattan | Seed-stage startup, Austin |
|---|---|---|
| Pay, equity and benefits on paper | $1.3M | $1.7M |
| Startup equity haircut | $0 | −$768K |
| Federal tax and FICA | −$317K | −$216K |
| State and city tax | −$114K | $0 |
| After tax | $871K | $671K |
| Price level (US = 100) | 112.6 | 98.1 |
| After tax, cost-of-living adjusted | $773K | $684K |
| Per hour worked or commuting | $83.97 | $61.27 |
Manhattan takes $114K in state and city income tax over four years; Texas takes none. Prices in Manhattan are 14.5 points higher. Even so, at 20% odds the public company comes out $89K ahead, and further ahead per hour, because the startup asks for 10 more hours a week and 7 fewer days off.
How the odds change the answer
| Startup equity odds | Public company, Manhattan | Seed-stage startup, Austin |
|---|---|---|
| Worthless (0%) | $773K | $554K |
| Realistic (20%) | $773K | $684K |
| Optimist (50%) | $773K | $879K |
| Recruiter math (100%) | $773K | $1.2M |
Over four years, the startup draws level at 34% odds. Judged per hour, it needs 59%, because the startup's extra hours dilute its pay. At the recruiter's 100%, it wins by $430K.
The trade-offs
- No state income tax isn't the whole story. Texas saves this engineer $114K in state and city tax, and Austin is cheaper, but the bigger salary, bonus and liquid RSUs in New York more than make up for it.
- The startup is a bet on one number. Below about 34% odds the public offer wins. Most venture-backed startups never return much to common, and common is paid after every investor's preference; a down round can wipe out most of it.
- Hours count. 55 hours a week with 18 days off is about 488 more hours a year than 45 with 25, even after the longer Manhattan commute.
- What it leaves out: raises and refreshers, the stock price moving, taxes on a real exit (all at once, possibly as capital gains or with QSBS), and the career value of either job.