6 ms·

"And companies selling their securities are required to disclose important adverse facts about their business to prospective buyers." Does this include prospec

• Zigurd 12y ago
  It's a red flag if the person making you an offer stumbles if you ask to see the cap table, or can't express the ISO part of the offer as a percentage.
  • robotomir 12y ago
    I know some of these words.
  • tptacek 12y ago
    It is strictly and empirically speaking not a red flag if a prospective employer refuses to disclose the cap table, since most companies will not do that. You can't reasonably call standard operating procedure among all professionally managed startups "a red flag". On the other hand, I agree that it is a red flag to refuse to disclose the percentage an allocation represents.
    • jackgavigan 12y ago
      > It is strictly and empirically speaking not a red flag if a prospective employer refuses to disclose the cap table, since blah blah blah.. Not for you, maybe. For the rest of us... http://www.eligiblemagazine.com/wp-content/uploads/2013/01/red-flag.jpg http://www.eligiblemagazine.com/wp-content/uploads/2013/01/r...
    • Zigurd 12y ago
      I was imprecise. I meant that you need to know financing rounds, prices, classes, and financially relevant terms such as preferences and ratchets. You probably want to know who led each round, and a business should not have a problem disclosing that. The fact that uncle Lenny has 10,000 shares in the seed round is not neccessary.
      • tptacek 12y ago
        This makes much more sense to me. I think you may still run into well-run companies where preferences and other terms don't get disclosed to candidates (they should be), but it seems much fairer to call that a red flag.
      • Consultant32452 12y ago
        Would you mind explaining preferences and ratchets?
        • tptacek 12y ago
          Preferences define how investors take money out of the company when it liquidates. Investors might get 1-3x their money back if the company sells, or worse, get 1-3x and their percentage share of the proceeds after that money is taken off the table. If a company succeeds but isn't a breakaway success, preference terms can have a big impact on how much common shareholders earn off the sale. I'm assuming by "ratchets" he meant anti-dilution provisions, which often mean that if the company raises a new round on anything less than amazing terms, existing investors get topped up with new shares to maintain their ownership percentage, at the expense of common shareholders.
          • Zigurd 12y ago
            As long as we're being precise here I have to correct some minor issues: A preference, strictly speaking can be with or without a ratchet. A preference means that, at a liquidity event, you get paid before another class of shares. A ratchet means that you get paid a specified minimum price before other shareholders get paid. An anti-dilution provision usually is invoked in a "down round" and it does what it says: It compensates earlier investors for dilution in cases where the value of their shares don't go up. The details are often complex, and the circumstances where this happens are often where a company is in trouble, and holders of common and options on common are going to get massacred anyway. At which point, if the company wants to keep you, you'll get a new set of options. Which is a long way of saying "you got bigger problems."
  • davidu 12y ago
    Not a red flag not to share cap table. But you should see the grant as a percentage of fully-diluted outstanding stock, and you should know the preference on top of the cap table, and you should know the last granted strike price and if there is anything that would prevent your grant from being granted at that price.