5 ms·

You should do your due diligence on the business and financing to avoid this situation, and unless you have a ton of equity, you should hedge your bet on multip

You should do your due diligence on the business and financing to avoid this situation, and unless you have a ton of equity, you should hedge your bet on multiple companies if you’re trying to make high ROI and you aren’t feeling confident that’ll happen in your current gig. “Start-up” is a bit of a disingenuous term when using to compare with FAANG, because one refers to a class of high performing public tech companies, and the other is a catch all for small businesses. I know chronically broke start up folks, faang millionaires, and a group of people who seem to to know how to play the startup game and are extremely wealthy, so YMMV.

cheriot 5y ago
I’ve received offers from a bunch of startups over the years. None of them would disclose their cap table. Most of them even refused to tell me the total number of shares outstanding. Are people getting enough info for any kind of due diligence? Do people know how to play the game or did they get lucky?
- tptacek 5y ago
  Don't work for companies that offer equity as a significant component of their compensation and won't tell you shares outstanding. That used to be somewhat common, but I can't remember the last time a friend of mine got an offer where that was the case. It's a red flag.
  - JCM9 5y ago
    For a privately held company the number of shares outstanding, on its own, isn’t enough and really doesn’t tell you much. Your shares are almost certainly not the same as other people’s shares and you need to know what those differences are. Other people likely hold shares that have terms like “I get paid 3X my investment before anyone else gets paid.” Or other terms that make the total number of shares not that informative in knowing where you really stand. If someone’s not sitting down with you and laying everything out on the table then it’s almost certain there are things they don’t want you to know that make your offer significantly less attractive than what it might appear in face value.
    - tptacek 5y ago
      You can ask about liquidation preferences as well. Anything above 1X is above market and, again, a red flag.
  - throwawaysea 5y ago
    Is there a list of these red flags to watch out for or ask about for startups?
- HWR_14 5y ago
  Do you need the whole cap table? Presumably, common shares outstanding, preferred shares outstanding and the total dollars of the overhang of the preferred shares should be sufficient. Assuming that options are correctly accounted for in that number (that is, if people cash in ITM options)
  - cheriot 5y ago
    I’ve yet to meet a start up that would disclose that much, but this is only my personal experiences
    - HWR_14 5y ago
      Isn't that the minimum you need to evaluate how much, if anything, equity is worth?
- engmgrmgr 5y ago
  I’m not agreeing one way or another about needing cap table in detail, but if the company isn’t giving you the information you need to evaluate an offer after you request it, then don’t work there. As for luck, of course there’s some risk component there, otherwise the ROI wouldn’t be higher, but it’s not a dice roll unless you let it be. I’m biased. I was part of lackluster exits, failed startups, and dead-end startups that will forever raise more money. I learned a lot of valuable lessons the hard way on how to evaluate companies, and have since been able to pick winners when I look to change jobs. The other thing that goes unmentioned is once you “win” once, your risk tolerance might change, or your patience to wait for the exact right next opportunity may increase significantly. I think you can ask yourself if you’d invest 500k in this company (or whatever assets you have up to that), and if you value your time more than your money, that should tell you something.

cheriot 5y ago

I’ve received offers from a bunch of startups over the years. None of them would disclose their cap table. Most of them even refused to tell me the total number of shares outstanding. Are people getting enough info for any kind of due diligence? Do people know how to play the game or did they get lucky?

tptacek 5y ago
Don't work for companies that offer equity as a significant component of their compensation and won't tell you shares outstanding. That used to be somewhat common, but I can't remember the last time a friend of mine got an offer where that was the case. It's a red flag.
- JCM9 5y ago
  For a privately held company the number of shares outstanding, on its own, isn’t enough and really doesn’t tell you much. Your shares are almost certainly not the same as other people’s shares and you need to know what those differences are. Other people likely hold shares that have terms like “I get paid 3X my investment before anyone else gets paid.” Or other terms that make the total number of shares not that informative in knowing where you really stand. If someone’s not sitting down with you and laying everything out on the table then it’s almost certain there are things they don’t want you to know that make your offer significantly less attractive than what it might appear in face value.
  - tptacek 5y ago
    You can ask about liquidation preferences as well. Anything above 1X is above market and, again, a red flag.
- throwawaysea 5y ago
  Is there a list of these red flags to watch out for or ask about for startups?
HWR_14 5y ago
Do you need the whole cap table? Presumably, common shares outstanding, preferred shares outstanding and the total dollars of the overhang of the preferred shares should be sufficient. Assuming that options are correctly accounted for in that number (that is, if people cash in ITM options)
- cheriot 5y ago
  I’ve yet to meet a start up that would disclose that much, but this is only my personal experiences
  - HWR_14 5y ago
    Isn't that the minimum you need to evaluate how much, if anything, equity is worth?
engmgrmgr 5y ago
I’m not agreeing one way or another about needing cap table in detail, but if the company isn’t giving you the information you need to evaluate an offer after you request it, then don’t work there. As for luck, of course there’s some risk component there, otherwise the ROI wouldn’t be higher, but it’s not a dice roll unless you let it be. I’m biased. I was part of lackluster exits, failed startups, and dead-end startups that will forever raise more money. I learned a lot of valuable lessons the hard way on how to evaluate companies, and have since been able to pick winners when I look to change jobs. The other thing that goes unmentioned is once you “win” once, your risk tolerance might change, or your patience to wait for the exact right next opportunity may increase significantly. I think you can ask yourself if you’d invest 500k in this company (or whatever assets you have up to that), and if you value your time more than your money, that should tell you something.