Eight Questions to Ask Before Accepting a Startup Job Offer (Part 1)

Atish Davda
Jun 4th, 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:

Evaluating Offers

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 Compensation

While valuing 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 these RSUs?
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%.

Restricted Stock 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 another start-up.

Standard restrictions 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.

Links to websites outside of our domain do not constitute an approval or endorsement of the content on those websites.
View more blog posts

Join 290,000+ global shareholders and investors on EquityZen