[HN Gopher] Questions candidates can ask about equity compensation ___________________________________________________________________ Questions candidates can ask about equity compensation Author : Ozzie_osman Score : 104 points Date : 2022-06-02 14:33 UTC (2 days ago) (HTM) web link (www.holloway.com) (TXT) w3m dump (www.holloway.com) | buro9 wrote: | Whether you get answers depends a lot on the size of the company. | | Fewer than 10 employees... those interviewing likely know the | answers and will share. | | Between 10-50 employees... those interviewing may still know the | answers and may still be open to sharing them. | | Above 50 employees... it is increasingly likely that this | information isn't known by more than a few people (those involved | in the fundraising, accounts, senior leadership), and that your | interviewers do not know it - if they know it at one point in | time it's out of date quickly (next raise). It quick becomes | something that only a very few people know and the information | isn't useful/constructive to those focusing on execution (those | who will be interviewing you). | | The questions are good... but if you don't get answers and would | choose not to take the roles on that basis, then you might want | to chat to a lot of people who have been early stage and done | well - because very few got answers to those questions. | TimPC wrote: | Start-ups who don't solve these issues will see more | knowledgeable potential employees walk away. The fact is start- | ups pay a fair bit below the market wage and people have every | right to know what sort of equity you're getting in exchange | for that. If a start-up is unwilling or unable to answer fairly | basic questions about how their equity works it's totally | reasonable to not work for them. | ttymck wrote: | Knowledgeable about their job != knowledge about corporate | equity. | | There's a large share of capable engineers who are still | wide-eyed over startup equity. Folks I know personally and | greatly respect. Startups have had no trouble duping | engineers into lower compensation while delivering | serviceable results, and will continue to have no problem. | ryandrake wrote: | This might be a harsh, unpopular opinion, but if someone is | going to accept a job where equity is a significant portion | of their compensation, they _really need_ to understand the | essentials of equity, how options work, their tax | implications, how to read basic financial statements, and | so on. This is your livelihood we 're talking about. Would | you accept a job that paid in Bitcoin without understanding | the basics of cryptocurrency? How about one that paid in | Beanie Babies? I'm not saying go back to school and get a | Finance degree, but people need to get informed about their | compensation! | kjeetgill wrote: | As a wide-eyed engineer who absolutely should have the | knowledge you're talking about but doesn't. Any good | comprehensive resources? | | Random googling never gives me confidence I'm getting the | right information when it comes to money, nutrition, and | health. | prostoalex wrote: | The book I've seen recommended is "Consider your options" | https://www.goodreads.com/book/show/1635049.Consider_Your | _Op... | bcbrown wrote: | Learn the vocabulary. Look up things like 409a | valuations, 83b elections, NSO and ISO stock options, the | difference between long-term and short-term capital | gains, strike price vs exercise price (plus how and when | taxes on options are triggered and calculated), marginal | tax rate vs effective tax rate. Probably also worthwhile | to learn the basics of corporate finance, like annual | recurring revenue (ARR), costs of goods sold (COGS), | customer acquisition costs (CAC), differences between | cashflow and profit, EBITDA (plus what each of those | words mean), capital expenditure (capex) vs operational | expenditure (opex). If you understand the vocabulary, | it's a lot easier to evaluate whether a given source is | authoritative or not. | | Sign up for Matt Levine's newsletter. He's perhaps | starting to be a little overexposed on HN, but he's | informative and humorous, and his newsletter is a good | way to get a little exposure to finance every day. | | It's not not startup-equity specific, but check out | Bogleheads for generic investing advice. | mattficke wrote: | A lot of this information is also available in the company's | Articles of Incorporation. Can't hurt to ask in the interview, | but it's probably a good idea to pull the actual filing | anywhere you're seriously considering an offer (if it's a | Delaware corporation, you have to pay a registered agent to get | these documents, it's usually $50-$100.) | | Typically includes things like total outstanding shares, | conversion price of the various preferred rounds, liquidation | preference for the preferred shares, etc. The delta between the | most recent preferred round and the 409a is the best | approximation of the actual value of the equity at the time of | the grant. | ttymck wrote: | It's important to note that, unless I'm terribly mistaken, | the articles of incorporation are subject to change. By a | board vote, I presume. So your compensation is controlled, at | the end of the day, by the investors. And any acquisition | (change of ownership) likely renders the equity clauses null | and void (at the discretion of the buyer). | kleinsch wrote: | For any size company it's a waste of time asking equity | questions to most interviewers, just like it's a waste of time | asking questions about benefits. | | Assuming your interviewers are potential future teammates, ask | them questions about work. Ask your recruiter or future manager | benefits and comp questions. At most companies >10 people, your | recruiter will have a packet with all the answers to equity | questions. | claytonjy wrote: | I agree, but I'm generally disappointed with the information | the recruiter is able or willing to provide. | | Something I've noticed more recently is the standard equity | info they send everyone is both light on details and heavy on | "here's how much you stand to make if we exit at X". I can't | blame them for selling it, but I shouldn't have to ask for | shares outstanding, latest 409a or other simple numbers. | | I've also been screwed by joining just after a big raise and | having my strike price end up much higher than I was told | when interviewing. | davedx wrote: | Yeah this is why I work freelance (often for startups). | | The present value of cash flows is so much higher than the | future value of some illiquid, highly speculative startup | equity with way more restrictions than regular public stock | equity. | humbleguy wrote: | I contacted for 10 years and managed to save up about 200k. | Started at pre IPO company and walked away with 2.5m after | taxes in 7 years. Big difference. | ttymck wrote: | Alternatively, don't join startups for the equity. | | Even if you genuinely believe the person answering your questions | genuinely believes the answers _they are giving_ , there's | perilously little evidence to suggest their answers will be | binding or accurate. | | 4 years from now, anticipate something to the effect of: "I have | altered the deal, pray I don't alter it further", this could come | from the CEO, an investor or the acquirer. Anything more | favorable should be considered a statistical miracle. | | Joining a near-IPO company is something I can't speak to, but | have a more optimistic view of. Furthermore, joining a public | company with liquid equity is something I can personally say is | well worth it. | | Do not join startups for the equity. | daenz wrote: | >Do not join startups for the equity. | | If you're not a founding member, what reasons does that leave? | UkrainianJew wrote: | To learn by observing the founding members, understanding the | business model, the market, and eventually becoming a | founding member of the next company. | | Not something you can do on a full-time job of resolving Git | conflicts at FAANG. | runnerup wrote: | Great coworkers, fun work environment with high velocity of | innovation, decent enough pay, flexible work arrangements, | preferred geography, belief in the mission. | SOLAR_FIELDS wrote: | I recently did a round of interviews specifically targeting | series A and series B companies and this is a pretty | accurate summary. Some interesting things that were offered | to me: | | - Unlimited nomading or work anywhere in the world for the | same pay | | - Extremely generous PTO (by USA standards) | | - Quite generous WFH equipment stipends | daenz wrote: | You can get all of those things at a non-startup. Having | worked at a handful of startups and non-startups, I am | skeptical that a startup offers those things at above- | average rate the justifies the downsides, which are, from | my experience: * High pressure to work at | all hours, because a startup is fragile * Extreme | financial uncertainty * Many QoL concessions | | If you're not accepting a generous equity package in | exchange for ensuring that the startup thrives and | succeeds, you're missing a huge opportunity for exchanging | hard labor for potentially high return. It's like buying a | lottery ticket without filling in the numbers. | runnerup wrote: | > You can get all of those things at a non-startup. | | I mean I've been trying super hard for the past 10 years | and I haven't been able to find a workgroup at a large | corporation that has a high velocity of execution and is | actually innovating much. I'm personally taking a pay cut | to go to a startup to hopefully find this. | | I'd love to join Project Starline or similar truly | innovative groups within large companies, but I don't | have a degree from a top-10 school so startups are kind | of my only way that I can find to get to an environment | like that. Even with strong references from Staff | Engineers at Google my resume just gets thrown out, | haven't been able to secure even a first round interview | with FAANG in over 5 years of trying. Maybe they're not | interested in working with ex-oil industry engineers, or | maybe my resume just really really sucks. | | > you're missing a huge opportunity for exchanging hard | labor for potentially high return. It's like buying a | lottery ticket without filling in the numbers. | | Sure, but my reasons didn't have "make more money" they | had "decent-enough pay". | | Also currently my preferred geography is Houston to stay | with my incredible partner. Most of the large companies | here have a lot people that I don't enjoy working with -- | e.g. people who are outspokenly excited for an illegal | immigrant to try to steal tools out of their shed at | night so that they can legally kill them. So "great | coworkers" is also a bit hard with "preferred geography" | sometimes. Granted for a $250,000 role, we'd certainly | pack up and move somewhere, but I haven't been able to | get FAANG to even give me a first round interview! | | The bottom line is that it's entirely possible that the | best situation for me is to make _almost_ the same money | to work with what seems to be an incredible group of | really, really, really smart people on some super cool | technology. Yes it will be "more work", but with this | should come more skill development. I don't have and am | not planning on having kids, so I'm happy enough just | going to pilates at 7am and working my ass off all day on | something that I find personal reward in, and then doing | my hobbies (sailing, beer brewing) on the weekends. | wbl wrote: | If you want to do exciting tech in Houston, there is a | really obvious employer. Pay isn't great but the | intangibles are out of this world. | runnerup wrote: | You know, I actually somewhat agree but the pace of | innovation/execution at NASA is glacial. | vinceguidry wrote: | > my preferred geography is Houston to stay with my | incredible partner. | | The consideration that outweighs all the rest. Personal | reasons are, well, personal. | quickthrower2 wrote: | > people who are outspokenly excited for an illegal | immigrant to try to steal tools out of their shed at | night so that they can legally kill them | | If they do you can be a witness to their premeditation. | runnerup wrote: | I mean, obviously. But also it's just their fantasy. The | chance of it actually happening is absurdly low. The | chance of me having to listen to daily rants about | everything and just ignore them or go "uh huh." is 100%. | quickthrower2 wrote: | Yeah I meant in jest (they made something legal illegal | by saying it is legal). They most likely would do | nothing. The actual crime is spreading hate and making it | uncomfortable to work. | toomuchtodo wrote: | Buy lottery tickets instead ("startup equity equivalent") | and work for established companies who can offer the same. | Startup employees optimize for workism ("mission", trying | to obtain meaning from their work), let them, optimize for | quality of life and comp instead (many larger orgs have | embraced remote and even support global nomads if you | structure employment arrangement and finances | appropriately). | quickthrower2 wrote: | The usual reasons, compare it on everything else like any | other job. | | They may pay less but let you work without a gazillion | meetings and no legacy or technical debt for example. | | Or you might want to start your own startup so a way to make | connections and learn how they work. | gedy wrote: | Man, I don't know... I joined a startup last year thinking | that, but then found they were way more into process, Jira, | estimation, etc. Plus a bunch of tech debt from the CTO's | MVP and "don't touch it". | pavlov wrote: | The IPO market is fickle. Someone who joined a "near-IPO | company" last year may have been reasonably expecting a | liquidity event within 12 months, but now finds the IPO | indefinitely postponed and the company trying to raise | additional funding in a downround that may halve the value of | those illiquid shares. | | Personally I'd take my chances either early, with a meaningful | share of the company, or post-IPO when the amount of shares is | much smaller but its value reasonably predictable. | Gunnerhead wrote: | Completely anecdotal, but has friends join Instacart and | Stripe that are in this exact position. | waynesonfire wrote: | Is the motivation that asking these questions is going to be used | in some way to get better compensation? | | 1. Ask questions 2. ??? 3. Profit! | | The true is that equity in a startup us extremely risky. So | you're either going to get a large chunk and be a decision maker | or you're ganna be a passive participant and hope for the best. | No questions is going to change that. Even if the answers to | these questions may be desirable NOW, tomorrow you can be | diluted. It's meaningless to stress over this. Join because you | love the company or are going to be a decision maker. | awillen wrote: | It's not meaningless at all. | | First off, if you're comparing multiple offers with similar | salaries, equity considerations may be a good way to make a | decision. | | Beyond that, understanding how companies handle equity | compensation can tell you a lot about their culture and | treatment of employees. There are companies out there that are | eager to answer these questions because they give generous | stock compensation and want you to know it. There are also | companies that will obfuscate and hide behind misleading | numbers. I once had an offer and asked for more equity, only to | be told by the recruiter that the stock was about to split, so | I'd actually get twice as much (this is absolute nonsense, to | be clear, and a huge red flag). | | Lastly, with regard to your initial question about | compensation, asking these questions absolutely can be useful | to that end. When you're negotiating with early to mid-stage | startups, one of the things that you can negotiate is your | equity/salary split. I once took a pay cut from the initial | offer in exchange a much greater amount of equity than I was | initially offered. That was because I found a lot of positives | about the company and preferred higher risk and more reward | (thankfully it looks like that is going to work out very well | in my favor, but obviously that was in no way assured). If a | company's giving you bad answers as it relates to equity, you | may well want to try to negotiate for a higher salary in | exchange for less equity, so your financial circumstances | aren't tied as much to the company's performance. Understanding | equity gives you one more dimension on which to negotiate, and | the more things you can negotiate, the better off you are. | | There is this prevailing idea in Silicon Valley that you should | just ignore equity and treat it like a lottery ticket, and | while I think that is very good for financial planning, it is | otherwise awful advice. Just because you don't have full | control over the way things go with equity doesn't mean that | you shouldn't educate yourself on what can be a meaningful | portion of your compensation. | sokoloff wrote: | > only to be told by the recruiter that the stock was about | to split, so I'd actually get twice as much (this is absolute | nonsense, to be clear, and a huge red flag). | | It's nonsense, but coming from a recruiter, it's not a red | flag to me. If I red flagged every recruiter who didn't quite | know how the world worked, I don't how many I'd have left. If | a founder or a CFO tells you that, it's a red flag; if it's a | recruiter, they're still wrong, but I don't count it nearly | as sharply against the company. | akhmatova wrote: | _Is the motivation that asking these questions is going to be | used in some way to get better compensation?_ | | Could be. But these questions can also be useful as (1) | bullshit filters and (2) signalling (that you know your stuff | and are not to be toyed with). | | In particular as to (1): you should be able to readily get | answers to these questions; any hint at evasiveness, or a | refusal to answer, should be taken as a red flag. | bspear wrote: | Diligence on the startup so you know what you're getting into. | Also prevents early employee churn because people feel duped | once they look under the hood. | | The greatest frustration is usually around: 1. feeling like | your equity cut is not enough once you know what other people | are paid; 2. not knowing how much you pay in exercise cost / | taxes / exercise window until it's too late | | On 1, there's a growing DB of startup comp here: | https://topstartups.io/startup-salary-equity-database/ | daenz wrote: | I've asked some of these questions before, but always got the | answers in person or over video chat. What happens when what I | was told doesn't square with what actually happens (for example: | acceleration if the company is acquired)? Is there a | recommendation for getting the answers to these questions in | writing? Is there even any recourse? | jefftk wrote: | The standard way to convert verbal answers to writing is to | send out notes after. You write an email like: "It was great | getting a chance to talk to you this afternoon! I wanted to | send a quick summary of what I took away from the conversation, | just to make sure we're on the same page..." | akhmatova wrote: | Yup - this is a very useful tool. It doesn't have the same | status as a binding, legal contract. But it does make it a | lot harder for them to wiggle away from what they were | initially promising you. | fortran77 wrote: | It's been my experience with startups that there are different | classes of shares, too, and it's generally stacked so that the | founder's shares can retain their percentage of the company while | everyone else's can get diluted down to nothing. | jeffrallen wrote: | I recently got an equity offer that is a personal promise from | the founder to do X in the future if Y happens. Sounds good to | me. Because frankly, equity compensation is a total lottery | anyway, so why not have it also depend on the trustworthiness of | the founder too. | | Shrug. | victor9000 wrote: | In situations like this, I would use the ambiguity in the | equity component to negotiate up the base salary, or some other | benefit. Otherwise you're taking on increased risk relative to | other opportunities at no cost to the company. | yieldcrv wrote: | Why compound the odds against you? Is that a serious thought | process? | | Just get your contingent offer in writing, because that freezes | a time period of trustworthiness that remains applicable even | if they change their mind or their opinion about you. | bbarnett wrote: | The founder could be forced out; would a new board take an | outsted founder's word on a verbal for comp? | | What if the founder gets hit by a bus? Sad indeed, but who | will verify the cash owed? | | What if the company is insolvent? A buy out may result in | partial repay... but new owners are not going to pay on mere | word. | | Things are on paper for reasons. More than listed above. | jeffrallen wrote: | You're right, but a payout from equity compensation is | contingent, already, on those things and a thousand others | not happening. It's a lottery and not worth my time trying | to guess the odds. Better to use that time enjoying a fair | salary to work with interesting people, and then we'll see. | Maybe the promise is kept, maybe not. | | I think analysing equity compensation carefully is a good | idea. But one outcome of that analysis can be, "Yolo, let's | just give this a shot, take things a day at a time and | enjoy the ride." | | Not everything in life can or should be put into contracts. | (Despite my recent ode to them.) | yieldcrv wrote: | ushakov wrote: | i asked these when a company offered me to interview with them | | they didn't want to let me know until i pass the interview | | i politely declined to proceed with the interview | eweise wrote: | Companies should be required to open the books to employees if | they are offering equity. Without good data, employees are forced | to believe the founders BS. | babyshake wrote: | Not only open the books, but be forthcoming about answering | those questions in a way that is very easy for employees to | reference without needing to look through detailed cap table | info. | neilv wrote: | Maybe a mandated standard-format one-pager | periodic/occasional statement with all the pertinent | information in a form understandable to the layperson, so | that employees don't have to ask, nor try to interpret on | their own. | phphphphp wrote: | Most people don't know how to interpret financial information, | nor do they know how to value equity (with or without the | financial context). You can look at equity crowdfunding to see | how completely underprepared most people are for assessing | company financials: pretty much every normal person defers to | business leaders narratives to assess a business, and if you | trust a business enough to join it, then you probably trust the | leaders enough to buy their narrative -- with or without | financials. | eweise wrote: | Here's a recent example of why the help. Varo Bank is a | startup and decided to get a bank charter s now they are | required to make their financials public. | | Here's the CEO explaining how rosy things are back in | September https://www.cnbc.com/2021/09/09/fintech-varo-bank- | triples-va... | | Here's their latest income statement https://www.ibanknet.com | /scripts/callreports/viewreport.aspx... | | Pretty clear that things are not going as well as the company | would like to say they are. | diob wrote: | Yes! It's absolutely unbelievable we allow this charade. It's | usually akin to the crypto scams in that your equity is | worthless. | quickthrower2 wrote: | Yes to value the options you need to do the same DD as if you | are buying the company. In addition DD on the clauses about | those options and the many ways you can lose out. | dan-robertson wrote: | I quite like Ben Kuhn's discussions of the topic, e.g. | https://www.benkuhn.net/terms/ and https://www.benkuhn.net/offer/ | | I'd not really thought about it before reading the first post I | linked but it's clearly incorrect to take valuation = price payed | for preferred shares * shares outstanding because you're pricing | the preferredness at 0 when it is not worth 0. | akomtu wrote: | Why would a startup answer these questions honestly? The biggest | part of what they offer is an _illusion_ of future payout: they | 'll appeal to emotions, talk about the their mission and how they | help the humanity and how you will play a critical role there. | whiplash451 wrote: | Not all startups are like that. Some of them will be quite | upfront about the reality of things. In fact, the way they | answer the questions could be a signal in and on itself. | deathanatos wrote: | Even if you get these answers as an interview candidate, once | you've joined the answers will become outdated ... and for most | of it, you won't be getting updated information. | | While things like successful rounds of funding do get shared, | enough information about the health of the company (e.g., revenue | vs. expense? over time? runway? how expected projects you're | working on either will or do translate to revenue, and how much?) | to make a meaningful decision about whether the company is worth | investing in or not just isn't ever shared, IME. With no real | information, there is only one value that can be assigned to the | equity: $0. | quickthrower2 wrote: | It is a lemon market ___________________________________________________________________ (page generated 2022-06-04 23:00 UTC)