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Interesting that the author mentions disclosing financial performance data but not capital structure. Many startups attempt to induce employees to trade salary
by markbnj 10y ago
Interesting that the author mentions disclosing financial performance data but not capital structure. Many startups attempt to induce employees to trade salary (or time) for equity, without making it easy or even possible to understand the company's capital structure, i.e. how many preferred shares have been issued, what the preferences are, etc. I was recently recruited by a startup that made noise about my trading salary for equity, but had been through four institutional rounds. I wanted to know what the preferences were and what would be left for the common if the company sold tomorrow at various valuations. They brushed me off and I haven't heard from them since. If you're going to ask me to basically invest in your company by either working for less money or working longer than usual hours then you had better be prepared to disclose your capital structure. As a former founder myself, and someone who is probably older than the average startup employee, I know to ask these questions. The majority of younger colleagues whom I have discussed the issue with don't even know what I'm talking about.
- zhte415 10y agoPlease use line breaks. Ir will help others to get point. For now, a wall of text.
- markbnj 10y agoYou consider that a wall?
- hkmurakami 10y agoI advise my friends to do the same, but often realize that like you have found, they aren't really equipped to ask the question in an effective manner even if I tell them what they need to ask. In that light the "assume your equity is worth zero" really starts to be a good self protection mechanism.
- markbnj 10y agoThat's the approach I take. I tell them that I will think of their equity like a bonus, and I will be happy to work hard in anticipation of getting something from it, but probably will not trade real dollars in return.
- csense 10y agoThis. If you're getting below-market salary (market salary minus some delta), plus substantial equity, this is economically equivalent to getting paid a market salary and then investing delta dollars into the startup. Where delta is likely thousands (or tens of thousands) of dollars per year, and a substantial portion of your income. Obviously, you should understand exactly what you're getting when talking about such large amounts of money. Which means understanding both the total EV of the business (how big it will be on a success that allows you to cash out, times the probability that will happen) and the cap structure (because you also have to multiply by the percentage that you own).