Nivi · July 17th, 2008
In part 1, we covered some questions you should ask about your offer. In this second part, we’ll cover some things you should ask about the company.
Table of Contents
The Offer (see Part 1)
- Can you give me the offer in writing?
- How does my compensation compare to my peers in the company?
- What are my options worth?
- What percentage of the company do my options represent on a fully diluted basis?
- Can I exercise my unvested options early?
The Company (answers below)
- How much money do you have in the bank right now? How long will it last?
- What was the company’s post-money valuation in the last round?
- What are the investor’s preferences?
- Who is on the board and whom do they represent?
- Would I hire the CEO and board to increase the value of my options?
Investors call this runway.
If you’re making an essential contribution to the business, you should have a job as long as the company has runway.
Whether you’re essential depends on what the business needs today; e.g. assistants, recruiters, and salesman might not be essential if the company hasn’t finished building a product yet.
Let’s say the company’s post-money valuation in the last round was $10M. If the company is acquired for $100M, the acquisition value of your options should increase roughly 10x, assuming the company didn’t incur any dilution after the last round.
If the acquisition price isn’t greater than the investor’s preferences, the common stockholders won’t see a penny when the company is sold.
So don’t join a company with $100M in preferences unless you expect the business to sell for a lot more than $100M.
Besides the CEO, the board has the greatest opportunity to increase or destroy the value of the company’s shares.
The answer will also tell you whether the investors dominate the board.
The CEO and the board can easily destroy the value of your options through incompetence and/or greed. You need to ask yourself:
- Would I hire the CEO and board to increase the value of my options? Identifying great people is an aesthetic skill, like seeing the beauty in a painting. Most of us don’t have this skill. And those of us who do still get it wrong a lot. Get help from someone who knows how to identify great people.
- Do I trust the CEO and board to treat my options like their own? Don’t join the company if you don’t trust the CEO and board to avoid opportunities to treat their stock better than yours.