3 ms·

Startup employers unwilling to mention % equity offered.

18 points by bankim 16y ago

joshu 16y ago
Tough. They have to.
- kgrin 16y ago
  Is there a law/regulation? (federal or state?) Or just a norm?
  - staunch 16y ago
    IANAL. Stockholder laws in Delaware are very protective. As a stockholder you probably can force a company to disclose some basic information like this. Two problems: 1) You only have those rights once you've been granted the equity. 2) You would have to sue or threaten your current employer.
  - techiferous 16y ago
    Well, there's the law of supply and demand. Just go to the company next door that's willing to disclose the equity percentage. http://onstartups.com/tabid/3339/bid/37790/HubSpot-Fires-First-Shot-in-Boston-Battle-For-Talent-10-000-Bounty.aspx http://onstartups.com/tabid/3339/bid/37790/HubSpot-Fires-Fir...
gamble 16y ago
Then consider it to be worth nothing... which is probably what it will be worth. It wouldn't be an encouraging number anyway.
- techiferous 16y ago
  Nothing would be overvalued. Consider it worth a negative amount because of the opportunity cost.
prodigal_erik 16y ago
That's much like promising you a salary of 200k ... in some undisclosed unit of currency. The rational valuation of it is roughly nil, even if they succeed. So you have to decide if you'd still take the position if that part of the compensation weren't offered at all.
jaxn 16y ago
To be fair, the percentage can be a pretty fuzzy number for a young startup in the middle of raising money.
grimlck 16y ago
Wow, i'm surprised there is even debate on this. If you don't know the %, then you should value the equity at $0.
johnrob 16y ago
When these companies hire people without telling them the percent, what caliber of person do they think they're getting?
jasonjei 16y ago
If you are being paid market rate, there is no reason for you to know the % of equity offered until you bring the company to an important stage. But if you are discounting your salary for equity, then it should be in writing.
- jasonjei 16y ago
  Believe it or not, I have had applicants who have felt entitled not only to $85/hour (52 weeks x 40 hours equates this to 176,000 USD for this particular programmer whose only skill is Basic and C#), who was even asking for equity at this rate. This guy was talking about serious CEO pay even though he didn't even know our main language (Ruby) and would presumably require time to be acquainted with it. The bottom line is you need to account properly for the past, the present, and the future. We pay $75,000 or $45/hour (if contractor) for a programmer with 3-4 years of professional experience (add $10/hour to your rate if you are not salaried or there is no guarantee of continued work a la contractor. We talk equity later.
  - rorrr 16y ago
    176K is not serious CEO pay, it's a salary of a senior level programmer.
  - salemh 16y ago
    Cost of living low or not, that is entry / mid-level pay. Ruby tends to be in high demand as well..your post is confusing.
rorrr 16y ago
So let's say you know the percentage, like 10%. What would it mean to you? There's nothing that would stop them from diluting it to 0.0000001%.
beagle3 16y ago
Well, they must give you the exercise price; and if you assume it is a fair price (or 15% discounted, which is often the case) of $x/share, you know that e.g. if the company grows up 10 times in value, you get a bonus of $nx(10-1) where n is the number of shares you get an option for. So in that sense, the total outstanding is not interesting. It is interesting in the sense that you need to know the total company valuation to have an idea of how much the company can still increase its value. If an unknown facebook competitor "mugshotbook.com" is already valued at $5B without any users, it is unlikely your option will be worth anything ever, regardless of how much you are getting. DO NOT FORGET: Options are a contract to buy in the future at a price known today. They are not equivalent to shares (if they were, you'd be taxed for the face value on the day of the grant!). If the value does not go up, they are worth exactly nothing. If you get facebook options with exercise price reflecting $50B market capitalization, and facebook IPOs at $50.5B when you are vested, what you earn is 1% of the share value of your options (because of the exercise price), not a penny more! In numbers: If you get $10M worth of facebook options today, and facebook IPOs at $50.5B, you get a $100K bonus for your (e.g.) 4 years of vesting, or $25K/year -- not shabby, but a far cry from the $10M you think you'll be owning.

18 points by bankim 16y ago

joshu 16y ago

Tough. They have to.

kgrin 16y ago
Is there a law/regulation? (federal or state?) Or just a norm?
- staunch 16y ago
  IANAL. Stockholder laws in Delaware are very protective. As a stockholder you probably can force a company to disclose some basic information like this. Two problems: 1) You only have those rights once you've been granted the equity. 2) You would have to sue or threaten your current employer.
- techiferous 16y ago
  Well, there's the law of supply and demand. Just go to the company next door that's willing to disclose the equity percentage. http://onstartups.com/tabid/3339/bid/37790/HubSpot-Fires-First-Shot-in-Boston-Battle-For-Talent-10-000-Bounty.aspx http://onstartups.com/tabid/3339/bid/37790/HubSpot-Fires-Fir...

gamble 16y ago

Then consider it to be worth nothing... which is probably what it will be worth. It wouldn't be an encouraging number anyway.

techiferous 16y ago
Nothing would be overvalued. Consider it worth a negative amount because of the opportunity cost.

prodigal_erik 16y ago

That's much like promising you a salary of 200k ... in some undisclosed unit of currency. The rational valuation of it is roughly nil, even if they succeed. So you have to decide if you'd still take the position if that part of the compensation weren't offered at all.

jaxn 16y ago

To be fair, the percentage can be a pretty fuzzy number for a young startup in the middle of raising money.

grimlck 16y ago

Wow, i'm surprised there is even debate on this. If you don't know the %, then you should value the equity at $0.

johnrob 16y ago

When these companies hire people without telling them the percent, what caliber of person do they think they're getting?

jasonjei 16y ago

If you are being paid market rate, there is no reason for you to know the % of equity offered until you bring the company to an important stage. But if you are discounting your salary for equity, then it should be in writing.

jasonjei 16y ago
Believe it or not, I have had applicants who have felt entitled not only to $85/hour (52 weeks x 40 hours equates this to 176,000 USD for this particular programmer whose only skill is Basic and C#), who was even asking for equity at this rate. This guy was talking about serious CEO pay even though he didn't even know our main language (Ruby) and would presumably require time to be acquainted with it. The bottom line is you need to account properly for the past, the present, and the future. We pay $75,000 or $45/hour (if contractor) for a programmer with 3-4 years of professional experience (add $10/hour to your rate if you are not salaried or there is no guarantee of continued work a la contractor. We talk equity later.
- rorrr 16y ago
  176K is not serious CEO pay, it's a salary of a senior level programmer.
- salemh 16y ago
  Cost of living low or not, that is entry / mid-level pay. Ruby tends to be in high demand as well..your post is confusing.

rorrr 16y ago

So let's say you know the percentage, like 10%. What would it mean to you? There's nothing that would stop them from diluting it to 0.0000001%.

beagle3 16y ago

Well, they must give you the exercise price; and if you assume it is a fair price (or 15% discounted, which is often the case) of $x/share, you know that e.g. if the company grows up 10 times in value, you get a bonus of $nx(10-1) where n is the number of shares you get an option for. So in that sense, the total outstanding is not interesting. It is interesting in the sense that you need to know the total company valuation to have an idea of how much the company can still increase its value. If an unknown facebook competitor "mugshotbook.com" is already valued at $5B without any users, it is unlikely your option will be worth anything ever, regardless of how much you are getting. DO NOT FORGET: Options are a contract to buy in the future at a price known today. They are not equivalent to shares (if they were, you'd be taxed for the face value on the day of the grant!). If the value does not go up, they are worth exactly nothing. If you get facebook options with exercise price reflecting $50B market capitalization, and facebook IPOs at $50.5B when you are vested, what you earn is 1% of the share value of your options (because of the exercise price), not a penny more! In numbers: If you get $10M worth of facebook options today, and facebook IPOs at $50.5B, you get a $100K bonus for your (e.g.) 4 years of vesting, or $25K/year -- not shabby, but a far cry from the $10M you think you'll be owning.