EquityZen's Blog On Startups and Their Economics

Eight Questions to Ask Before Accepting a Startup Job Offer (Part 2)

Shriram Bhashyam | June 09, 2015

This is part two of a two-part series. Click here to read part one.

Equity, as a component of total compensation, matters a lot at startups, so it's important to get it right. You should definitely have some notion of the future prospects of the company, as a lot of your compensation will be tied to its success (via stock). This determination is inherently subjective and nebulous. However, there are other tangible facts you can ascertain if you ask the right questions. Last week, we covered some basic distinctions between working at startups and corporations, and identified some important questions to ask when negotiating your compensation. We continue that list of must-ask questions below.

4. What percentage of the company's equity do the options represent?
While being offered 50,000 options may sound flattering, it doesn't mean much without knowing how much of the company those options represent.  The point here is that the denominator matters. 50,000 options out of 50,000,000 shares outstanding is not as attractive an offer as 5,000 options out of 500,000 shares outstanding.

5. What was the most recent valuation of the company?
This will also help determine the value of your compensation, but not all companies will be willing to share this information with a prospective hire.

6. What was the most recent "409A" valuation and when was that valuation done?
The "409A" valuation is an appraisal done for tax purposes and is commonly done annually (and incident to any fundraise). The exercise price of options is set by reference to the 409A valuation.  If the company won't tell you what this valuation is, you should nonetheless ask when the last 409A valuation was done.  If it's been a while, the company may have to do another 409A valuation, which means your exercise price may go up.

7. Does the company expect to issue stock or fundraise in the foreseeable future?
This will give you some insight into whether there are any dilutive events on the horizon.  A more cryptic way to back into this information is to ask "how long do you expect your current funding to last?"  Fundraising typically has a dilutive effect on your holdings.  See our earlier post, which addresses the topic of dilution.

8. Does my vesting accelerate if the company is acquired?
It is not uncommon for companies to offer accelerated vesting upon the company's acquisition. Layoffs are unfortunately not unheard of after a startup is acquired and the acquiring company might not be the right fit for you.  Accelerated vesting is nice to have in these situations.

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