[HN Gopher] Questions candidates can ask about equity compensation
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       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       | time it's out of date quickly (next raise).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
        
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