Paul Graham's equity equation
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I think to translate salary and overhead into stock you should multiply the annual rate by about 1.5. Most startups grow fast or die; if you die you don't have to pay the guy, and if you grow fast you'll be paying next year's salary out of next year's valuation, which should be 3x this year's. If your valuation grows 3x a year, the total cost in stock of a new hire's salary and overhead is 1.5 years' cost at the present valuation.
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I think instead of multiply by 1.5, it should be multiply by 0.67, here is why:
if the company's current valuation is 1m, and it grows 3x a year, the valuation next year should be 3m.
if you are paying the employee $100k a year,it worth 10% of the current valuation, because the salary won’t change during the year, $100k worth 3.33% of the valuation next year.
In average, you are paying 6.7% for the employee's salary.
Please correct me if I am wrong.