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Your answer illustrates what he's talking about You are not even realizing what he's actually saying HE's not talking about lowballing on salary He is talkin

Your answer illustrates what he's talking about You are not even realizing what he's actually saying HE's not talking about lowballing on salary He is talking about what percentage of the company you are going to get, how soon you will get it, and other details * Most people won't get this. I will still try A) What percentage of the company are you getting? B) What dilution is going to happen? C) When can you sell your stake in the company? D) How soon and in what manner does it vest * People fixate on things like 1,000 options without considering what it really means Please consider what you wrote: The standard for pre-IPO seems to me to be N number of options, at a particular strike price, 10-year expiration (or 90 days if you leave the company). That doesn't seem all that complicated to me, or deceptive. NOWHERE in that is What value do I bring the company IN RETURN what percentage of the company am I getting AT WHAT RATE will I be given that share of the company

alonmower 6y ago
You should absolutely ask about A) and be very suspicious if they refuse to tell you. No one can answer B) with any real confidence because they don’t have a crystal ball. C) is almost always going to be at IPO or when the company sells, though maybe if you’re extremely important they’ll let you negotiate to sell some at a later round, though given this complicates things in most cases they’ll likely not want to bother with it unless you have a ton of leverage. D) is almost always going to be one year cliff, then rest monthly over four years. That should also be extremely easy information to get.
- est31 6y ago
  Regarding C, usually you need to wait a bit post IPO until the investors had opportunity to sell their stock. Only THEN it's your turn. It's called lock-up period and lasts usually 180 days (half a year). Just keep that in mind. Also during sale, investors might choose to execute their liquidation preferences, which means that your shares might become worthless. Employees who paid hundreds of thousands of USD annually in opportunity cost have no such clauses to get their money back.
  - eanzenberg 6y ago
    Investors have the same lockup period post-IPO as do employees and founders.
    - est31 6y ago
      Huh, TIL. Investopedia only says "may also include early investors" [0]. I've checked the S-1's of some companies. Cloudflare's S-1 has a 180 day lockup for "Our executive officers, directors, and the holders of substantially all of our capital stock" In One Medical's S-1 "We, our directors, executive officers and the holders of substantially all of our equity securities, have agreed" to 180 day lockup. In the Unity S-1 they have "certain holders of our common stock": "All of our directors and executive officers and certain holders of our common stock and securities exercisable for or convertible into our common stock, are subject to lock-up agreements that restrict their ability to transfer such securities for a period of 180 days after the date of this prospectus", and apparently they allow selling of 30% of the stock within the first two days of trading. Couldn't find any reference on who those certain holders are. [0]: https://www.investopedia.com/terms/i/ipolockup.asp https://www.investopedia.com/terms/i/ipolockup.asp
      - kibibyte 6y ago
        I suspect it may be the IPO underwriters, the big financial institutions that most companies going public will work with to make their shares available to the public. In short, the company and these institutions negotiate the initial price of the shares beforehand, and on the day of the IPO, those institutions purchase those shares from the company at that price (thus funding the company) and then immediately flip them (hopefully for a profit) to the masses.
- kibibyte 6y ago
  What is a reasonable range for an answer to (A)? I know it's going to depend on what stage the company is at, and I figure 1% is probably going to be the upper bound, but I don't know what the lower bound should be.
  - jariel 6y ago
    A is one area for which there seems to be some very rough standards, if you visit Angel List you might see job offers with % equity listed, and it's usually in % terms not number of options. 1% would be quite a lot for an employee. Once the team is past the founders plus a few more, the only people getting more than 1% would be key executives.
  - naveen99 6y ago
    Just look at the fair market value vs. the valuation at last fund raise. Percentages are meaningless without the valuations...
- mehrdadn 6y ago
  Regarding (A) I know they might tell you unofficially but they won't put it in writing necessarily. Would you know why?
  - alonmower 6y ago
    Probably because if you’re joining an early stage company you’re inevitably going to get diluted if there are any later rounds. By how much will depend on how the company is performing so they won’t be able to know exactly what this will look like ahead of time. Perhaps putting the percentage in writing opens up some liability down the line as a result. You should be able to get the number of outstanding shares at the time you join in writing though and then the percentage is trivial to calculate (though as other commenters pointed out you might not be able to get information on any existing liquidation presences investors might have that make it hard to really know what you would get if the company were to sell for x amount...
- tpxl 6y ago
  B) is trivial to answer: Either the shares are going to dilute and the company may fuck you over making them worthless, or they are not going to dilute.
anon98356 6y ago
Does A) matter? In terms of evaluating the value I would care about the number of shares and their likely value (now and in the future). If that is 2% of the company or 1% why does that matter? B) is going to have a bigger impact on evaluating how valuable the offer is but as another poster said, it's almost impossible to know.
- jiveturkey 6y ago
  (A) is the only thing that matters. How will you know a unit share value without knowing the company valuation?
jariel 6y ago
That's only scratching the surface. There are any number of terms that other investors and financiers can have that fundamentally change your own. Participating preferences, option deals (i.e. if xyz happens, they get abc options in which case, they are not allocated yet, but are in a way 'pending'), option pools for other employees are often not counted in the % ownership, convertible debt, special cases, ratchet/anti-dilution clauses. Effectively - you have to see every single contract the company has with other investors, financiers and executives to actually calculate the real value and risk.
KallDrexx 6y ago
You are missing one of the larger points of opacity as well, which is liquidation preference. Even if your company has only taken a small amount of investment money you may not see a dime of it unless it gets acquired for over $20m, as VCs are able to claim that first $20m. Every round the liquidation preference goes up and it does not take long for a $100m liquidation preference to come into effect.
- wing-_-nuts 6y ago
  Thank you for pointing this out. This is the main reason why so many engineers I know got basically nothing when their company was acquired after slaving away for years. If you join a startup, you should either do it for the experience (lots of responsibility, wearing many hats), or as a founder. Anything less is a recipe for disappointment.
  - jonfromsf 6y ago
    This even washes out earlier investors. I've had situations where I invested and the company got acquired, but there wasn't enough money to get back to my preference shares. Obviously common was wiped out. In particular, when companies seem like they might go bust new money insists on healthy (2X/3X) liq prefs. As in many situations, the golden rule applies. He who has the gold makes the rules!
- fatnoah 6y ago
  I've been part of two startups that were acquired, even with options for about 3% of non-Founder shares for one of them. Total value of all of those was $0. What was valuable was the experience I gained, and rising to VP in one of them. I got a nice package from the (>$100B, SF-based, public) acquiring company. That was an instant 200% raise, and the experience I got has really helped find future higher paying jobs.
JoeAltmaier 6y ago
And investors have so many tricks to grab all the value on smaller buyouts. Convertible debt for instance, which is convertible from say a 10X payback to some large number of stock shares. If its a unicorn, they choose the stock direction (no skin off your back). If its a modest buyout they chose to convert, taking say $10M for every $1M they invested, which can be 'all of it' and you get precisely nothing for your shares as an employee. Founders can have a different stock category, so they get something, otherwise they'd not agree to the buyout. So often, as an employee, you are given what are essentially 'sucker shares' that will likely never amount to anything. By design.
jiveturkey 6y ago
Excuse me, but you also don't get it. All the questions you are posing are knowable. (They will tell you.) It's not deceptive at all, it's just inexperienced if you don't find out all this information and use it in your decision making. OK, B is not knowable but it's estimable and you need to do that yourself. What's not knowable, generally, (ie, they won't tell you) is the waterfall, the pref stack, pro-rata rights, how much convertible debt there is (money already in, that you are essentially pre-diluted by but just don't know it yet) future unknowns like a carve-out and total other debt. IMHO, yes it's deceptive, but no, it doesn't matter. If the company has a successful exit, you will do well enough. I'm talking about Series A or pre-Series A hires. In the 90% of cases where the company has a fire sale or just bombs out, you won't get anything, no matter the answers to the above.
fluffernutter 6y ago
> A) What percentage of the company are you getting? Usually you are getting something minuscule initially, well below any founder or board member's share. The logic is that, if there is going to be money made, the company will need lots of headcount and that headcount all needs to think they own something significant in the entity, which they don't because of vesting, dilution, new CEOs, etc. > B) What dilution is going to happen? Unknown, and depends on the performance of the management and board, if they even bother to perform later when all the money is gone (because the company is actually not profitable, shocker) and they have to suck up to someone else who wants a higher dilution so they can get a good percent of the company. Don't forget the employees will be "the problem" if the company runs out (which means RIFs or worse). Unless it's going gang busters, in which cases that minuscule amount stays the same. Oh, don't forget preferred stock. > C) When can you sell your stake in the company? Probably never, or maybe when it sells, if you are lucky. Besides, calling it a "stake" is really a fantasy given the stake's value is tied to whatever the investors thought it was worth, which in their mind is always more than any sane person would agree to spend on the company to make it their own company's problem. If the company is even slightly profitable (unlikely) then everyone would lose their minds thinking it's worth half a billion or something. Think two 20 something year old founders thinking their company is worth 1B+ and refusing to take an offer from Facebook for half that while today they are gone and it's not worth diddly. > D) How soon and in what manner does it vest Usually to the advantage of the company. Most people never vest their full amount of shares because the company doesn't sell and over 4 years (typical vest scheduling) the chances are the company will re-up its coiffures, which means dilution and besides which you can't stand working for these idiots for more than 2 and a half years, tops.

alonmower 6y ago

You should absolutely ask about A) and be very suspicious if they refuse to tell you. No one can answer B) with any real confidence because they don’t have a crystal ball. C) is almost always going to be at IPO or when the company sells, though maybe if you’re extremely important they’ll let you negotiate to sell some at a later round, though given this complicates things in most cases they’ll likely not want to bother with it unless you have a ton of leverage. D) is almost always going to be one year cliff, then rest monthly over four years. That should also be extremely easy information to get.

est31 6y ago
Regarding C, usually you need to wait a bit post IPO until the investors had opportunity to sell their stock. Only THEN it's your turn. It's called lock-up period and lasts usually 180 days (half a year). Just keep that in mind. Also during sale, investors might choose to execute their liquidation preferences, which means that your shares might become worthless. Employees who paid hundreds of thousands of USD annually in opportunity cost have no such clauses to get their money back.
- eanzenberg 6y ago
  Investors have the same lockup period post-IPO as do employees and founders.
  - est31 6y ago
    Huh, TIL. Investopedia only says "may also include early investors" [0]. I've checked the S-1's of some companies. Cloudflare's S-1 has a 180 day lockup for "Our executive officers, directors, and the holders of substantially all of our capital stock" In One Medical's S-1 "We, our directors, executive officers and the holders of substantially all of our equity securities, have agreed" to 180 day lockup. In the Unity S-1 they have "certain holders of our common stock": "All of our directors and executive officers and certain holders of our common stock and securities exercisable for or convertible into our common stock, are subject to lock-up agreements that restrict their ability to transfer such securities for a period of 180 days after the date of this prospectus", and apparently they allow selling of 30% of the stock within the first two days of trading. Couldn't find any reference on who those certain holders are. [0]: https://www.investopedia.com/terms/i/ipolockup.asp https://www.investopedia.com/terms/i/ipolockup.asp
    - kibibyte 6y ago
      I suspect it may be the IPO underwriters, the big financial institutions that most companies going public will work with to make their shares available to the public. In short, the company and these institutions negotiate the initial price of the shares beforehand, and on the day of the IPO, those institutions purchase those shares from the company at that price (thus funding the company) and then immediately flip them (hopefully for a profit) to the masses.
kibibyte 6y ago
What is a reasonable range for an answer to (A)? I know it's going to depend on what stage the company is at, and I figure 1% is probably going to be the upper bound, but I don't know what the lower bound should be.
- jariel 6y ago
  A is one area for which there seems to be some very rough standards, if you visit Angel List you might see job offers with % equity listed, and it's usually in % terms not number of options. 1% would be quite a lot for an employee. Once the team is past the founders plus a few more, the only people getting more than 1% would be key executives.
- naveen99 6y ago
  Just look at the fair market value vs. the valuation at last fund raise. Percentages are meaningless without the valuations...
mehrdadn 6y ago
Regarding (A) I know they might tell you unofficially but they won't put it in writing necessarily. Would you know why?
- alonmower 6y ago
  Probably because if you’re joining an early stage company you’re inevitably going to get diluted if there are any later rounds. By how much will depend on how the company is performing so they won’t be able to know exactly what this will look like ahead of time. Perhaps putting the percentage in writing opens up some liability down the line as a result. You should be able to get the number of outstanding shares at the time you join in writing though and then the percentage is trivial to calculate (though as other commenters pointed out you might not be able to get information on any existing liquidation presences investors might have that make it hard to really know what you would get if the company were to sell for x amount...
tpxl 6y ago
B) is trivial to answer: Either the shares are going to dilute and the company may fuck you over making them worthless, or they are not going to dilute.

anon98356 6y ago

Does A) matter? In terms of evaluating the value I would care about the number of shares and their likely value (now and in the future). If that is 2% of the company or 1% why does that matter? B) is going to have a bigger impact on evaluating how valuable the offer is but as another poster said, it's almost impossible to know.

jiveturkey 6y ago
(A) is the only thing that matters. How will you know a unit share value without knowing the company valuation?

jariel 6y ago

That's only scratching the surface. There are any number of terms that other investors and financiers can have that fundamentally change your own. Participating preferences, option deals (i.e. if xyz happens, they get abc options in which case, they are not allocated yet, but are in a way 'pending'), option pools for other employees are often not counted in the % ownership, convertible debt, special cases, ratchet/anti-dilution clauses. Effectively - you have to see every single contract the company has with other investors, financiers and executives to actually calculate the real value and risk.

KallDrexx 6y ago

You are missing one of the larger points of opacity as well, which is liquidation preference. Even if your company has only taken a small amount of investment money you may not see a dime of it unless it gets acquired for over $20m, as VCs are able to claim that first $20m. Every round the liquidation preference goes up and it does not take long for a $100m liquidation preference to come into effect.

wing-_-nuts 6y ago
Thank you for pointing this out. This is the main reason why so many engineers I know got basically nothing when their company was acquired after slaving away for years. If you join a startup, you should either do it for the experience (lots of responsibility, wearing many hats), or as a founder. Anything less is a recipe for disappointment.
- jonfromsf 6y ago
  This even washes out earlier investors. I've had situations where I invested and the company got acquired, but there wasn't enough money to get back to my preference shares. Obviously common was wiped out. In particular, when companies seem like they might go bust new money insists on healthy (2X/3X) liq prefs. As in many situations, the golden rule applies. He who has the gold makes the rules!
fatnoah 6y ago
I've been part of two startups that were acquired, even with options for about 3% of non-Founder shares for one of them. Total value of all of those was $0. What was valuable was the experience I gained, and rising to VP in one of them. I got a nice package from the (>$100B, SF-based, public) acquiring company. That was an instant 200% raise, and the experience I got has really helped find future higher paying jobs.

JoeAltmaier 6y ago

And investors have so many tricks to grab all the value on smaller buyouts. Convertible debt for instance, which is convertible from say a 10X payback to some large number of stock shares. If its a unicorn, they choose the stock direction (no skin off your back). If its a modest buyout they chose to convert, taking say $10M for every $1M they invested, which can be 'all of it' and you get precisely nothing for your shares as an employee. Founders can have a different stock category, so they get something, otherwise they'd not agree to the buyout. So often, as an employee, you are given what are essentially 'sucker shares' that will likely never amount to anything. By design.

jiveturkey 6y ago

Excuse me, but you also don't get it. All the questions you are posing are knowable. (They will tell you.) It's not deceptive at all, it's just inexperienced if you don't find out all this information and use it in your decision making. OK, B is not knowable but it's estimable and you need to do that yourself. What's not knowable, generally, (ie, they won't tell you) is the waterfall, the pref stack, pro-rata rights, how much convertible debt there is (money already in, that you are essentially pre-diluted by but just don't know it yet) future unknowns like a carve-out and total other debt. IMHO, yes it's deceptive, but no, it doesn't matter. If the company has a successful exit, you will do well enough. I'm talking about Series A or pre-Series A hires. In the 90% of cases where the company has a fire sale or just bombs out, you won't get anything, no matter the answers to the above.

fluffernutter 6y ago

> A) What percentage of the company are you getting? Usually you are getting something minuscule initially, well below any founder or board member's share. The logic is that, if there is going to be money made, the company will need lots of headcount and that headcount all needs to think they own something significant in the entity, which they don't because of vesting, dilution, new CEOs, etc. > B) What dilution is going to happen? Unknown, and depends on the performance of the management and board, if they even bother to perform later when all the money is gone (because the company is actually not profitable, shocker) and they have to suck up to someone else who wants a higher dilution so they can get a good percent of the company. Don't forget the employees will be "the problem" if the company runs out (which means RIFs or worse). Unless it's going gang busters, in which cases that minuscule amount stays the same. Oh, don't forget preferred stock. > C) When can you sell your stake in the company? Probably never, or maybe when it sells, if you are lucky. Besides, calling it a "stake" is really a fantasy given the stake's value is tied to whatever the investors thought it was worth, which in their mind is always more than any sane person would agree to spend on the company to make it their own company's problem. If the company is even slightly profitable (unlikely) then everyone would lose their minds thinking it's worth half a billion or something. Think two 20 something year old founders thinking their company is worth 1B+ and refusing to take an offer from Facebook for half that while today they are gone and it's not worth diddly. > D) How soon and in what manner does it vest Usually to the advantage of the company. Most people never vest their full amount of shares because the company doesn't sell and over 4 years (typical vest scheduling) the chances are the company will re-up its coiffures, which means dilution and besides which you can't stand working for these idiots for more than 2 and a half years, tops.