5 ms·

Is it odd that almost every startup I or my friends have interviewed with refuse to answer the "number of outstanding shares" question? Have others had similar

Is it odd that almost every startup I or my friends have interviewed with refuse to answer the "number of outstanding shares" question? Have others had similar experiences?

patio11 13y ago
Without some notion of how much your equity grant represents of the company (by current dilution), the actual number of options you get cannot be sensibly valued. The total number of shares at a company is totally arbitrary. Seriously, when you register one, the state just asks you to pick a number. If a company won't tell you enough to calculate the percentage, that's like you asking "What's your offer for salary?", "Dollars. Definitely dollars.", "Can you be more specific?", "No. We consider exact salary offers to be competitively sensitive."
- vikas5678 13y ago
  I agree, makes negotiation much harder. "We're giving you 25000 options"... but if I have no idea how much its potentially worth, I dont know what I'm saying OK to. This is often the case though, I'm quite sure.
  - patio11 13y ago
    Ask for a clarification. If you don't get one, gracefully exit the negotiation, because they're either stupid or not negotiating in good faith. You have better (no pun intended) options.
- gabemart 13y ago
  Please forgive my ignorance, but if you know the number and price of the options, is the problem that you don't know the current valuation? Because it seems like if you know the price of the option, how many options you're being offered, and the current valuation, it's trivial to work out the number of outstanding shares. I guess the current valuation is privileged? Or that there is no current-valuation if it's been a while since the last round?
  - jplewicke 13y ago
    It's still necessary to consider the total number of shares. Let's say you've been issued 500,000 options with a $0.10 strike price, and the company is currently valued at $4 million. The approximate pretax value of exercising your options immediately would be: ~ $2,000,000 if they've only issued 500,000 shares ~ $100,000 if they've issued 13,000,000 shares ~ $2,000 if they've issued 40,000,000 shares. And your returns would be negative for any greater number of shares. The real problem is that you don't know the price per share from the current valuation.
    - gabemart 13y ago
      I must have misunderstood. I thought that the strike price always reflected the current price of the shares at the time the option was issued, but it seems that this is not the case. Thanks for clarifying.
      - loumf 13y ago
        I'm pretty sure the strike has to be greater than or equal (out-of-the-money) or there are tax implications. So, they would need to tell you (I AM NOT AN ACCOUNTANT) Not that an at-the-money option has no value -- but I think for tax purposes, it's not treated as such.
    - vikas5678 13y ago
      Exactly. Another common practice, especially for private companies considering an IPO, is they dont even reveal the valuation at which they most recently raised money. So unknown number of outstanding shares, unknown valuation - this is common. Anyone who interviewed with companies like box.net, linkedin(pre-IPO), etc would attest to this.
- nraynaud 13y ago
  My last company did a split by 10 the first round moreover, they didn't tell me why, but I guess the new investors found the granularity too coarse for the stock option plan.
spacehome 13y ago
They may have reasons for not wanting to give exact numbers, because backing out changes in this number over time can give information on the compensation of your peers. However, any honest company should be willing to give you numbers in writing to within an error of, say, +/- 1-2%. Which should be enough precision to make your decision. Variations in potential future valuations far exceed this error, so the exact number shouldn't be terribly crucial. On the other hand, any company that gives you no information on the number of outstanding shares makes their options worthless as compensation. You should let them know this on your way out the door.
balls187 13y ago
Yes it is odd. I would expect someone to at least say "I'll let you know." Asking for the Cap Table on the otherhand, I think it's okay to hand-wave that (imo).

Is it odd that almost every startup I or my friends have interviewed with refuse to answer the "number of outstanding shares" question? Have others had similar experiences?

patio11 13y ago

Without some notion of how much your equity grant represents of the company (by current dilution), the actual number of options you get cannot be sensibly valued. The total number of shares at a company is totally arbitrary. Seriously, when you register one, the state just asks you to pick a number. If a company won't tell you enough to calculate the percentage, that's like you asking "What's your offer for salary?", "Dollars. Definitely dollars.", "Can you be more specific?", "No. We consider exact salary offers to be competitively sensitive."

vikas5678 13y ago
I agree, makes negotiation much harder. "We're giving you 25000 options"... but if I have no idea how much its potentially worth, I dont know what I'm saying OK to. This is often the case though, I'm quite sure.
- patio11 13y ago
  Ask for a clarification. If you don't get one, gracefully exit the negotiation, because they're either stupid or not negotiating in good faith. You have better (no pun intended) options.
gabemart 13y ago
Please forgive my ignorance, but if you know the number and price of the options, is the problem that you don't know the current valuation? Because it seems like if you know the price of the option, how many options you're being offered, and the current valuation, it's trivial to work out the number of outstanding shares. I guess the current valuation is privileged? Or that there is no current-valuation if it's been a while since the last round?
- jplewicke 13y ago
  It's still necessary to consider the total number of shares. Let's say you've been issued 500,000 options with a $0.10 strike price, and the company is currently valued at $4 million. The approximate pretax value of exercising your options immediately would be: ~ $2,000,000 if they've only issued 500,000 shares ~ $100,000 if they've issued 13,000,000 shares ~ $2,000 if they've issued 40,000,000 shares. And your returns would be negative for any greater number of shares. The real problem is that you don't know the price per share from the current valuation.
  - gabemart 13y ago
    I must have misunderstood. I thought that the strike price always reflected the current price of the shares at the time the option was issued, but it seems that this is not the case. Thanks for clarifying.
    - loumf 13y ago
      I'm pretty sure the strike has to be greater than or equal (out-of-the-money) or there are tax implications. So, they would need to tell you (I AM NOT AN ACCOUNTANT) Not that an at-the-money option has no value -- but I think for tax purposes, it's not treated as such.
  - vikas5678 13y ago
    Exactly. Another common practice, especially for private companies considering an IPO, is they dont even reveal the valuation at which they most recently raised money. So unknown number of outstanding shares, unknown valuation - this is common. Anyone who interviewed with companies like box.net, linkedin(pre-IPO), etc would attest to this.
nraynaud 13y ago
My last company did a split by 10 the first round moreover, they didn't tell me why, but I guess the new investors found the granularity too coarse for the stock option plan.

spacehome 13y ago

They may have reasons for not wanting to give exact numbers, because backing out changes in this number over time can give information on the compensation of your peers. However, any honest company should be willing to give you numbers in writing to within an error of, say, +/- 1-2%. Which should be enough precision to make your decision. Variations in potential future valuations far exceed this error, so the exact number shouldn't be terribly crucial. On the other hand, any company that gives you no information on the number of outstanding shares makes their options worthless as compensation. You should let them know this on your way out the door.

balls187 13y ago

Yes it is odd. I would expect someone to at least say "I'll let you know." Asking for the Cap Table on the otherhand, I think it's okay to hand-wave that (imo).