What does HackerNews think of og-equity-compensation?
Stock options, RSUs, taxes — read the latest edition: www.holloway.com/ec
2. Not at all. With FAANG you're optimizing for compensation and resume prestige. With startups you're optimizing for learning opportunities, professional growth, faster pace, etc. You'll find that at different stages of your career you will start to optimize for different things.
3. Don't give a number. Indicate why you're interested in the company and that you're targeting the market rate for a company their size. Ask them for the role's comp range. Have a lower bound in your mind, but be realistic - a startup simply cannot match the compensation of companies that bring in billions in revenues.
Earlier version on GitHub: https://github.com/jlevy/og-equity-compensation
Also look at the Index Ventures link and calculator: - https://www.indexventures.com/rewardingtalent/calculating-in... - https://www.indexventures.com/optionplan
From your question and knowing nothing else, I assumed it was probably low - but it depended primarily on salary and total compensation (is it market rate for your friend? How far off?).
From other answers (the company's fair market value is $30- $70 million vs $0 or unknown, the salary is slightly under market rate), it depends on the difference between your friend's total compensation here and other offers (or realistic other offers they theoretically could get).
I'd ask for more than the difference between this start up's total comp and other offers. Why? Expected value and risk. Get a reasonable risk adjusted amount given liquidity and likelihood it will ultimately be worth $0, $1,000, or even $10,000 (good chance it's in the 90-98% range, and if the company wasn't already worth something it'd be closer to 99%).
It's probably in the ballpark of fair, but not quite there for your friend.
They outline typical equity levels under "Typical Employee Equity Levels"
Comp at startups are generally a sliding scale of cash to equity. A typical offer will ask you to slide it one way or another.
To judge stock, ask for,
- 409a valuation to know the current strike price of the shares
- total outstanding fully diluted shares to know the total shares available
- size of the employee option pool (eg, 10-15pct)
- possibility of an 83(b) election
- ISO vs NSO - what kind uf options are they?
- re ups, and anti dilution clauses?
- triggering events (eg what happens when the company gets bought?)
The more you know the better you judge the value. If folks are cagey in giving details, definitely push back and ask why.
Next, consider that the company’s progress is all that determines your shares net worth.
- how much do you believe in this team, space and product?
- and ask yourself - are you able to completely push this into a “lost cause financially” bucket in 5y? or do you need the cash? i’d advise being comfortable with the former :)
lastly, look at how much value you bring to the table to determine how much you get. if you’re engineer 1 with two non tech cofounders - you’d be worth much more than engineer 10. In that case, look at some of the blog posts online (esp by folks like Leo Polovets) on some ways to think about these numbers.
good luck!
https://danluu.com/startup-options/
https://github.com/jlevy/og-equity-compensation
https://gist.github.com/yossorion/4965df74fd6da6cdc280ec57e8...
https://news.ycombinator.com/item?id=2623777
Others in this thread have posted great advice. You want to know the most recent 409A valuation, and you want to see the cap table (you might be asked to sign an NDA, which is a reasonable ask). Also, its unlikely your role is going to give you enough pull for an acceleration clause or similar (in either the event your role materially changes or an acquisition occurs), so if you do want equity and they're willing to provide it, get as much as you can so you capture as much value as possible during your tenure and vesting period. The difference between 10 basis points can be material in the event of rapid growth and eventual liquidity. The answer is always no if you don’t ask.
The equity is more likely to end up worthless or a trivial amount more often than not, but you can take steps to derisk the devaluation of this component of your compensation.
https://github.com/jlevy/og-equity-compensation
The bottom lines:
1. The valuation you will get from the founders before being hired ("your equity will be worth $X millions when we IPO") is unrealistically optimistic. Even on the remote chance your startup becomes a huge success, you'll see a small fraction of that at best.
2. Unless you have a lot of influence on the board and majority shareholders (you won't), you can't really protect yourself from losing all the value of your stock.
The Google cache of holloway.com links to https://github.com/jlevy/og-equity-compensation -- perhaps this is the same content as the original post? Can anyone verify?
That said, if one has the choice between a startup job vs. one with equity with real value, they should only consider taking any startup comp package with the intention of being fully okay with their decision if the equity goes to zero. And note that this is a decision you can reevaluate periodically.
Read https://github.com/jlevy/og-equity-compensation and ask all of the questions. Probably ask a couple more, like about liquidation preferences and conversion of vested ISOs to NSOs with long expiration if you leave before liquidity.
I found this repo on GitHub to be the best resource on startup equity, highly recommend it: https://github.com/jlevy/og-equity-compensation
Ideally the company will also tell you roughly how much the company would need to sell for in order for you to see a return. They can tell you this indirectly by saying what kind of liquidation preferences other investors have.
For a more detailed writeup, see https://github.com/jlevy/og-equity-compensation
Good luck!
It's got advice on where to start, common gotchas to look out for (in the US), and definitions of everything.
It is US-centric (especially the tax stuff), but there is still lots of useful vocabulary there.
Over time I suspect that will change as more and more people learn the questions they should ask when evaluating an offer, i.e., as they transition from naive price takers to more sophisticated price setters. This link was circulated on HN a few weeks(?) ago, but it's worth reposting: https://github.com/jlevy/og-equity-compensation.
And here are some companies that offer >90 days: https://github.com/holman/extended-exercise-windows (e.g., Coinbase and Pinterest with 7 years, Quora and Asana with 10 years, etc.). Interesting to see two companies in the list founded by early Facebook employees -- well, cofounder and CTO -- do longer periods. Wonder if people got burned there by the standard period?
This is generally pretty good, if verbose:
https://github.com/jlevy/og-equity-compensation
Talk to esofund and friends ahead of time, and see what their offers for your company's stock are, and make sure they're acceptable to you if you think you'll have to go that route.
Don't count on definitely being able to sell the stock to finance the taxes. I left after seven years in very good standing (I believed) but when I went to sell the deal was shut down [1]. Luckily I had a backup plan and I was ok [2].
[1] Had a handshake deal with an investor in the company, then the investor went silent on me. When I followed up he said the deal was "just much too small." I reached out to the company for help, and they said they'd actually told him not to buy from me. I never would have known if they hadn't decided to tell me for some reason. The takeaway is that the markets for private company stock tend to be small, and the buyers care more about their relationships with the company than they do about having your shares. Even if the stock terms allow them to buy, and they might not.
[2] However I was trying to sell for roughly double the current (public market) price. The private/public valuation gap is real! Don't put too much stock (haha) in the value at the last tender offer. If you can sell privately at close to that price it's possibly smart.