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?
6. How much money do you have in the bank right now? How long will it last?
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.
7. What was the company’s post-money valuation in the last round?
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.
8. What are the investor’s preferences?
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.
9. Who is on the board and whom do they represent?
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.
10. Would I hire the CEO and board to increase the value of my options?
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.
That’s an extraordinary level of information to reveal to potential employees. I’ve worked at several startups as an executive and the only ones where I’ve got that level of info are where I have been CEO or founder. Certainly I can’t imagine startups exposing info like valuation, investor preferences to non-executive hires who may have no way to make sense of the information or compare it.
Hi AC, You can’t value your options without answers to these questions. Also, many prospective employees are under NDA with the company. The company has also already divulged lots of information during the interviews, some of which may be more important than these financials.
This entry goes to show that many CEOs, like this one, view employees as idiots. His main reason for not disclosing this info during the hiring process is that “non-executive hires may have no way to make sense of the information or compare it”. Give me a break…
I think the number of companies that will pass part 2 of Question 10 is vanishingly small.
More good discussion at Hacker News.
great article.. it is absolutely essential to ask for this information when reviewing your offer.. I only wish I did when I was interviewing for my start-up.
I’ve tired of companies who try to play up stock options while, at the same time, low-ball you on salary; and who refuse to divulge the number of fully-diluted shares and the current valuation.
I am taking an $18k a year hit in salary and have shares that represent a 0.02% stake in the company. Sucks. These, combined with working 60+ hours a week add up to a shit deal.
If my shares represented a 0.2% stake in the company, I’d be much happier.
Time to look for another gig…
I have worked for many start-ups, many of which went out of business, some were bought for almost nothing because they were failing and three were acquired while in the process of going public. (One actually made me a little money, not crazy money, but better than the rest.)
I think focusing on the stock option is the exact wrong thing to do in an interview. Not that these are bad questions but the first thing you need to focus on is the concept and technology the company is developing. If that is interesting and you think it has possibilities for success in the marketplace, then you can think about your deal. Too many people concentrate only on the financial details and join bone head companies that are doomed to failure. I am one of these people so I know.
My order of concern is 1) Do the people have a track record of success? Are they inspiring to talk to? Are they truly enthusiastic about what the are building? Can you imagine seeing them a lot, like 80 hours a week? Would you have them over for dinner?
2) Does the business make sense? Will a lot of people want what you are making? Are there people already making something similar? If so, what makes this better? Can you explain what it is in 10 words or less? Could you explain it to your grandmother?
If the company passes these tests then you can think about your compensation.
My experience only but of the companies I worked at where the management thought about how much money they were going to make, and talked a lot about being pre-IPO in the interview are doomed. The people that were focused on the success of their project were successful.
Focus on doing a great job on something you are excited about with people who share your passion and success (and money) will follow.
AC: without answers to some of those questions you have no idea what the shares you’re being offered are either worth or potentially worth.
The only real argument against letting a potential employee know this information is that they might leak it to competitors. Unfortunately, you’re competitors already know it – you probably told their investors all they need to know to figure all of the above out and more when you shopped around for your last round of funding.
In my working experience the only options worth having have been the ones where the company was upfront about the value, structure and health of the company. The ones hiding something tended to be the ones that had something to hide.
Hi there,
A good offer is not just one that is comparable to peers in the company, but peers in the industry as well – a company may be giving crappy offers to everyone.
I’m working at a company I love, and am trying to figure out how good an offer I have. Yes, this would’ve been good to do BEFORE I accepted but I was (and still am) so jazzed that I was a little lax when negotiating options.
I did some math and determined that my shares represent .038% of total shares. For a startup according to another post here, anywhere from .33 – .1 would be inline for a startup post series A for senior/lead engineers (if I am reading http://venturehacks-dev.mystagingwebsite.com/articles/option-pool-shuffle correctly.)
However we are post Series B (just happened after I was hired), and I know that people get less shares at this point and that they are worth more. Still, .038% is a little disheartening.
I’m pretty psyched about where this organization is going, so I want as much a piece of the pie as possible. I was thinking of negotiating for more options in lieu of a salary increase come next review time. Do you think this is a good idea? Any idea on what is inline with the industry for someone in my situation, or how to find out?
Thanks,
Bobby
How about relocation costs – are they part of the deal? For example, the employee needs to relocate from Denver to, say, Palo Alto with his wife and family… is there any pattern around the responsibility for relocation costs in your experience?
I have to agree that it’s going to be tough to get all these questions answered openly and fully by most companies, regardless of how progressive they seem.
Additionally, (perhaps the Valley is different, but in the rest of the world) aside from C level candidates, it will be the rare job applicant that is fortunate enough to be able to shop his current job offers with options on the table based on these criteria.
Kevin, you’re mixing apples and oranges. As all other benefits go, relocation can be negotiated but those are irrelevant here. The title of this piece should probably include the word “options”, as that’s the real underlying issue here.
I was recently approached by a friend to join him in founding a technology startup.
He would be financing the company until the first round of external funding and is offering a 90% – 10% initial share split with linear vesting over 6 years for my options.
All other things being equal, do you guys think this is a fair deal? Anybody with similar arrangements but different percentages?