Eight Questions to Ask Before Accepting a Startup Job Offer (Part 1)
Atish Davda | June 04, 2015
Technology start-ups today offer exciting career opportunities. Below is the first half of a two-part guide to help you navigate the all-important equity package in your start-up job offer.
Start-ups vs. Corporations
Let us consider a venture-backed start-up that sits somewhere between securing seed financing and achieving $1 billion in enterprise value. Evaluating a job offer at a start-up versus a traditional corporation can look like this:
If you are evaluating between offers for similar roles from different start-ups, your decision will come down to the headline figures: salary and equity. While crude, here are calculators to help with salary ranges from WealthFront and AngelList. But, what do the equity figures mean?
equity is difficult, do not accept the offer blindly. After all, would you
accept a job offer of 70,000 a year if you didn’t know the currency in which you
would be paid?
Make Sure You Ask These Questions
1. What type of equity grant will I receive?
Equity can be
granted in various forms with Incentive Stock Options (ISO) and Restricted
Stock Units (RSU) being most popular. Employees receive common stock, while investors receive preferred stock. There are nuances in tax treatments for each type,
so if you’re not well versed in this matter, check out: Understanding Equity Compensation and What
it Means for Startup Employees.
2. Is everyone on the same vesting schedule?
If RSU: Is there a performance condition tied to
To align your and
the company’s incentives, equity is not given the day your start, it is earned
over time. This concept is called vesting,
and the set of terms at which you earn that equity is called the vesting schedule.
A standard vesting
schedule spans four years, with a one-year cliff and the rest vesting monthly. The
cliff means if you leave before one year of service, you will have earned no
equity. If you were granted 1% equity when you joined, and you left after 2
years, you would own half, or 0.50%.
Unit (RSU) grants sometimes have a performance
condition tied to them, which means they may not vest until the company
conducts an IPO or get acquired by another company.
3. Are there non-standard transfer
restrictions (such as requiring board approval)?
Once the equity
vests, it remains yours, but there are some limitations on what you can do with
it. Having transfer restrictions on your shares is common, so watch out for
non-standard ones. Uncommon transfer restrictions on your equity, which
diminish liquidity on already illiquid stock, hurt their value versus equity of
mean you cannot pledge, encumber, sell, dispose of, assign, or otherwise
transfer the shares to others without the company getting first dibs. This
provision is often a result of a ubiquitous clause called Right of First Refusal (ROFR). An example of an atypical transfer
restriction is requiring board approval of a proposed transfer.
[To be continued in Part 2 next week]
I originally published this piece on Inc.com. Remember, you may not always have negotiating leverage, but if you ask these questions, you’ll know what you’re getting. Tune in next week for a few more important questions in Part 2 of this series.
To read part two click here.
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