The Talent Wars: Stock Based Comp Armageddon
7/20/25 Benchmarks for Operators
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One of my favorite books of all time is The Fish that Ate the Whale by Rich Cohen. The protagonist, Sam Zemmury, is a Russian immigrant who builds the largest banana company in the world (true story).
The bulk of the book takes place in Central America—in hot, dirty, dangerous produce fields. In 1915, there's a dispute over 5,000 acres of valuable jungle land between Honduras and Guatemala. Prime banana territory. But two different local owners claim to own it.
Zemmury’s biggest rival, United Fruit (UF), also wants the land. Being a massive, slow-moving corporation, UF hires an army of lawyers and drags the matter through Central American courts.
Zemmury takes a different approach. One that is much more decisive. He buys the land—twice. He meets with each claimant separately and pays them both.
Yes, he paid a little more. But considering UF’s legal bill? Zemmury likely came out ahead, and walked away with the land.
That’s the energy many tech companies are channeling right now in the AI hiring wars.
They’re paying 2x, 3x, even 100x what we used to offer engineers. Engineers who make more than the small forward for the Boston Celtics. Most of it comes in the form of stock. You don’t just get a paycheck; you get a ticket to the show.
Meta recently poached a few top AI researchers from OpenAI. What didn’t make the headlines? The dilution Meta now faces in the aftermath.
And it goes both ways. OpenAI has been on a hiring spree. In 2024, OpenAI reportedly booked more in stock-based comp ($4.4B) than revenue ($3.7B). That’s 119% SBC-to-revenue. Let that sink in.
And it won’t slow down. Meta raiding talent means OpenAI’s existing employees are knocking on HR’s door for top-ups. You can bet the comp committee is working overtime.
Quick refresher: stock-based comp (SBC) is a non-cash expense tied to equity grants. It reduces reported profits, but more importantly, it creates dilution. Every new grant pulls from the option pool, shrinking each existing shareholder’s slice.
I’ve lived this. It’s not uncommon during a hiring spree to run out of shares and beg the board for more.
In theory, the dilution is worth it. You give up ownership hoping the new talent builds a bigger pie. But here’s the rub…
Employees are starting to do the math:
“We raised at 10x the valuation when I joined. My $100K should be worth $1M!”
[checks Carta]
“Wait… after three rounds and 2,000 new hires… I’m sitting on $500K?”
This happens all the time when headcount balloons. OpenAI’s staff reportedly grew 200% y/y.
Now, I’m not crying for folks at OpenAI, Cursor, or Anthropic. They’ll still make generational money. So maybe the VP of FP&A makes $5M instead of $9M. Boo hoo. No crying in the casino.
And I’m def not crying for the people at Meta who get diluted. There’s no risk of that company going under.
But the rest of the AI pack? They’re mortgaging tomorrow’s cap table to win today’s talent war. And maybe that’s the right call. Because if this really is winner-take-most—or worse, binary, you do what it takes to stay alive.
As investor Rory O’Driscoll said on 20 Minute VC:
“No one asked Winston Churchill if he brought World War II in on budget.”
Once you decide it’s existential, budget math goes out the window.
Back to Zemmury. My favorite quote from the book:
“We’re out of money.
There are times when certain cards sit unclaimed in the common pile, when certain properties become available that will never be available again.
A good businessman feels these moments like a fall in the barometric pressure.
A great businessman is dumb enough to act on them even when he cannot afford to.”
And for those in the peanut gallery…
Not every company is chasing the same three AI engineers. Plumbers still need dispatch routing. Supermarkets still need supply chain software.
But for the rest of us watching from the bleachers, it’s not a question of if the talent bubble bursts—it’s when.
How many 0.25% grants can you hand out before your pie disappears?
History moves like a pendulum. And when things swing too far in one direction, they often snap back to the other side.
People hired in 2021–2022 at $12B valuations woke up in 2025 at companies worth $3B. This movie isn’t new.
But this time, the dilution wave will be bigger. Much bigger.
The difference between Zemmury paying up for land and today’s AI startup paying up for engineers?
Zemmury walked away with the land.
If things go south for today’s AI founders, all they’re left holding is hope.
As they say in the book:
“Banks fail, women leave, but land lasts forever.”
TL;DR: Multiples are UP week-over-week.
Top 10 Medians:
EV / NTM Revenue = 16.3x (UP 0.5x w/w)
CAC Payback = 20 months
Rule of 40 = 50%
Revenue per Employee = $480k
Data source: Koyfin
Figures for each index are measured at the Median
Median and Top 10 Median are measured across the entire data set, where n = 140
Population Sizes:
Security & Identity = 17
Data Infrastructure & Dev Tools = 11
Cloud Platforms & Infra = 15
Horizontal SaaS & Back office = 19
GTM (MarTech & SalesTech) = 18
Marketplaces & Consumer Platforms = 18
FinTech & Payments = 24
Vertical SaaS = 18
Revenue Multiples
Revenue multiples are a shortcut to compare valuations across the technology landscape, where companies may not yet be profitable. The most standard timeframe for revenue multiple comparison is on a “Next Twelve Months” (NTM Revenue) basis.
NTM is a generous cut, as it gives a company “credit” for a full “rolling” future year. It also puts all companies on equal footing, regardless of their fiscal year end and quarterly seasonality.
However, not all technology sectors or monetization strategies receive the same “credit” on their forward revenue, which operators should be aware of when they create comp sets for their own companies. That is why I break them out as separate “indexes”.
Reasons may include:
Recurring mix of revenue
Stickiness of revenue
Average contract size
Cost of revenue delivery
Criticality of solution
Total Addressable Market potential
From a macro perspective, multiples trend higher in low interest environments, and vice versa.
Multiples shown are calculated by taking the Enterprise Value / NTM revenue.
Enterprise Value is calculated as: Market Capitalization + Total Debt - Cash
Market Cap fluctuates with share price day to day, while Total Debt and Cash are taken from the most recent quarterly financial statements available. That’s why we share this report each week - to keep up with changes in the stock market, and to update for quarterly earnings reports when they drop.
Historically, a 10x NTM Revenue multiple has been viewed as a “premium” valuation reserved for the best of the best companies.
Efficiency Benchmarks
Companies that can do more with less tend to earn higher valuations.
Three of the most common and consistently publicly available metrics to measure efficiency include:
CAC Payback Period: How many months does it take to recoup the cost of acquiring a customer?
CAC Payback Period is measured as Sales and Marketing costs divided by Revenue Additions, and adjusted by Gross Margin.
Here’s how I do it:
Sales and Marketing costs are measured on a TTM basis, but lagged by one quarter (so you skip a quarter, then sum the trailing four quarters of costs). This timeframe smooths for seasonality and recognizes the lead time required to generate pipeline.
Revenue is measured as the year-on-year change in the most recent quarter’s sales (so for Q2 of 2024 you’d subtract out Q2 of 2023’s revenue to get the increase), and then multiplied by four to arrive at an annualized revenue increase (e.g., ARR Additions).
Gross margin is taken as a % from the most recent quarter (e.g., 82%) to represent the current cost to serve a customer
Revenue per Employee: On a per head basis, how much in sales does the company generate each year? The rule of thumb is public companies should be doing north of $450k per employee at scale. This is simple division. And I believe it cuts through all the noise - there’s nowhere to hide.
Revenue per Employee is calculated as: (TTM Revenue / Total Current Employees)
Rule of 40: How does a company balance topline growth with bottom line efficiency? It’s the sum of the company’s revenue growth rate and EBITDA Margin. Netting the two should get you above 40 to pass the test.
Rule of 40 is calculated as: TTM Revenue Growth % + TTM Adjusted EBITDA Margin %
A few other notes on efficiency metrics:
Net Dollar Retention is another great measure of efficiency, but many companies have stopped quoting it as an exact number, choosing instead to disclose if it’s above or below a threshold once a year. It’s also uncommon for some types of companies, like marketplaces, to report it at all.
Most public companies don’t report net new ARR, and not all revenue is “recurring”, so I’m doing my best to approximate using changes in reported GAAP revenue. I admit this is a “stricter” view, as it is measuring change in net revenue.
Operating Expenditures
Decreasing your OPEX relative to revenue demonstrates Operating Leverage, and leaves more dollars to drop to the bottom line, as companies strive to achieve +25% profitability at scale.
The most common buckets companies put their operating costs into are:
Cost of Goods Sold: Customer Support employees, infrastructure to host your business in the cloud, API tolls, and banking fees if you are a FinTech.
Sales & Marketing: Sales and Marketing employees, advertising spend, demand gen spend, events, conferences, tools.
Research & Development: Product and Engineering employees, development expenses, tools.
General & Administrative: Finance, HR, and IT employees… and everything else. Or as I like to call myself “Strategic Backoffice Overhead.”
All of these are taken on a Gaap basis and therefore INCLUDE stock based comp, a non cash expense.