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Too many people don’t do their research and understand how preferred status on the cap table works, minimum payouts, and other things that are typically (sadly
by JCM9 5y ago
Too many people don’t do their research and understand how preferred status on the cap table works, minimum payouts, and other things that are typically (sadly intentionally) withheld from employees receiving these offers. People hear about startups selling or being acquired for millions or even billions but too often nearly all that money is just paying back the original investors with some modest returns so they can move on. There can be little, or even nothing, for employees holding options. If the company is acquired you might get a nice stash package to welcome you onboard with a t-shirt.
Obviously there are other stories that see employees become fantastically wealthy, but that’s a rare exception not the norm. Equity comp at a publicly traded company (via RSUs) is very different than equity comp in a privately held venture. With RSUs you’re still at the mercy of the market but you know how much they’re worth literally second by second.
At a startup as an employee you should generally assume those shares are worth nothing and be OK making what you’ll be making then. Anything above that is a nice windfall bonus.
- danrocks 5y agoVast majority of startups will not disclose cap table, outstanding shares, liquidation preference, nothing. Try asking and see how it goes. The only one I've interviewed with that does disclose some of it was Stripe.
- twistedpair 5y agoAlso watch out for a clause giving the buyer the right to buy back the employee shares, possibly at par value. That means you could have executed those options 5 years ago (to prevent a windfall tax), and just get you money back at acquisition time. Zero interest five year loan. Thanks!
- danrocks 5y agoWhat the hell, is that a thing? Does it have a name?
- 0x456 5y agoDrag-along rights, with a waiver of appraisal rights?
- twistedpair 5y agoMore details: https://stockoptioncounsel.com/blog/standards-ownership-canthecomanytakebackmyvestedshares https://stockoptioncounsel.com/blog/standards-ownership-cant...
- JCM9 5y agoThat’s because there are still enough willing pawns that accept these offers without knowing what they’re getting. That won’t change until the market wakes up and enough people stop subjecting themselves to such nonsense to the point that companies can’t hire. Until then, as the saying goes there’s a sucker born every minute. If you think I’m being syndical, ask a typical startup to see everything people have described in this tread and watch them squirm.
- anonymousDan 5y agoI agree. I think it would benefit all of us if we were more informed about the types of tricks startups use to lure people like this. If we were more informed, then they would have to start being more open about the actual value. I feel like this kind of thing could almost be taught to CS students in some kind of negotiation class!
- willcipriano 5y agoIf you want someone to stop bothering you about working at their startup just ask for the cap table.
- ralston3 5y agoThis is such good advice to filter out all the recruitment emails XD Instead of responding “not interested”. I’m just gonna start saying “show me the cap table”. Love this idea
- avyfain 5y agoWith the caveat that you don't need the full cap table - a company not disclosing outstanding shares, last preferred price and 409a/strike price are giving you a signal to run away. Agreed that liquidation preference would be helpful, too, but if at the time you're signing on you think the liquidation preference will come into play you shouldn't join them.
- jbreiding 5y agoIf you had access to all the necessary information, what would the formula look like that you would have to track at funding rounds to give any early indication that as an employee you're not going to make anything. This is something that I have been thinking about lately and I am just not well versed enough to know what inputs I need to build this. I would like to be able to have a some sort of data driven risk assessment. I would love some input here and would like model this and track when it's time to say goodbye.