

Ask YC: Employee stock options - burnout1540

I received a job offer this afternoon from a startup. The startup has about 15 employees, has $6.1 million in seed and Series A funding, and has gotten good press coverage.<p>They offered me 30,000 stock options. The problem is, they won't tell me the total number of outstanding or authorized shares. Without that information, I can't even begin to estimate whether the stock options could possibly ever be worth anything.<p>Is it unreasonable for the company not to tell me the number of outstanding shares? Does anyone else have any experience with this?<p>Thanks!
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cperciva
_Is it unreasonable for the company not to tell me the number of outstanding
shares?_

Yes. Your logic is absolutely correct -- they're refusing to tell you
something which is essential to you being able to evaluate their offer. You
(hopefully) wouldn't accept a job offer without being told what the salary /
hourly wage is; you should treat this situation no differently.

~~~
burnout1540
I told them I was going to take the night to think it over. I guess tomorrow I
will ask again for the number of outstanding or authorized shares. I feel like
if they continue to be sketchy about it, it might be an indicator of how they
will act in the future.

~~~
cperciva
There are two possibilities here, really: 1. They're trying to dupe you; 2.
They don't realize that this is an essential number for you to know.

In my books, dishonesty and incompetence both mean exactly the same thing: Run
away.

~~~
astrec
Depends a bit on who is doing the hiring - it may tend towards ignorance
rather than incompetence. Ask for a conversation with the CFO or equiv.

~~~
mrtron
Never attribute to malice that which can be adequately explained by stupidity.
(Hanlon's Razor)

~~~
Harkins
Sufficiently advanced incompetence is indistinguishable from malice.

~~~
Xichekolas
... and sufficiently clever malice is indistinguishable from incompetence.

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paul
That's a bad sign. Did they specifically refuse to tell you? Did they offer
any explanation?

It's important to be able trust the people you are working with.

At FriendFeed, we'll share just about any number with the people we've made
offers to.

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daniel-cussen
If they won't tell you what percentage you're getting, just ignore that part
of the equation and base your estimate on everything else, like salary and
health benefits.

Most companies issue about 10 million shares, or more, so 30,000 would come at
about .3%. If they sold the company for 20 million dollars, you'd gross about
$60,000 in options, and probably net around $10,000 after capital gains and
stuff. Give or take an order of magnitude. Just a very rough back of the
napkin.

~~~
ojbyrne
10 million was my initial thought as well.

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soundsop
_Is it unreasonable for the company not to tell me the number of outstanding
shares?_

In California, I believe it is a legal requirement for a company offering
stock options to disclose the number of outstanding shares.

A quick Googling found this web page
<http://www.jonesday.com/pubs/pubs_detail.aspx?pubID=S4587> , which states:
_The plan must specify the total number of securities that may be issued and
the class of individuals eligible to receive options and purchase securities
under the plan._

~~~
burnout1540
Very interesting. I don't think I'll bring up the law, but it's nice to know!

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challenjer
I founded four companies, and have always made them 'transparent' to
prospective employees. In fact, I show them a projected cap table that tells
them what they can expect -- 2 more financings to liquidity, the opportunity
to pick up an another ~30k options, $10/share exit = $600k and growing -- IF
we all work hard and pull together. If they're not forthcoming with you at
this point, they won't be down the line.

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burnout1540
I went to the website for the California Department of Corporations
(<http://134.186.208.228/caleasi/pub/exsearch.htm>) and found out that they
issued 3,000,000 in shares after their seed funding ($1 million) last year. I
can't find the latest filing because it was so recent.

Would it be reasonable to assume that the number of shares is now 6x that (6 x
3 million = 18 million) since they have around $6 million in funding now?

Of course, now that I know that the information is in the public records, I am
going to run away if they tell me I can't have that information after I talk
to them again today.

Thanks for all the helpful comments.

~~~
burnout1540
A little more research on Delaware's Department of Corporations website (which
is where they are incorporated) allowed me to find out the total number of
authorized shares: 52,503,000

30,000 / 52,503,000 =~ 0.06%

With the package they're currently offering (a little below market and not
very good benefits), I'm probably going to pass.

Thanks again everyone.

~~~
iamelgringo
So, with a $30 Million exit, you'll probably get enough out of the deal for a
nice latte at Starbucks. Or, if you do the math: 30000000*.0006=18000. Or,
after the dollar devalues a bit more and the price of coffee goes up, about
enough for a nice latte at Starbucks.

For my time and money, I'd look for a different gig that paid more. That is
unless you really want the startup experience and the company is really cool.

~~~
burnout1540
You must be really down on the dollar. But, yeah, I've figured that the
options are basically worthless. However, I really like the product and I got
them to up the salary significantly, so I said yes in the end.

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prakash
Let them know that not knowing the total number of outstanding shares is like
getting paid in a currency whose value is not pegged, and hence you can't
gauge your total compensation correctly, and hence you can't take the offer.

Remember, interviews are a two way street, the company is looking for the
right candidate, and you are looking for the right company. And, if a company
can't be upfront with you at the beginning, that sort of tells you what you
are in for once you start working there.

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CapnObvious
I've heard a similar BS line before "Oh, here's 100,000 shares, but we can't
tell you the total number of outstanding shares because _________" (fill in
the blank excuse: it's confidential, Mr Rogers likes chocolate, I'm
constipated, whatever).

If you don't know the total number of shares and the percentage stake of that
you've been offered, and the price of your options, the number of shares is
worthless.

I think in this situation, a startup will usually say this when they're trying
to screw you, but that's just my opinion. Keep in mind they will likely fail
and your 30k options will be nothing but a piece of paper.

My advice? Find another company to work for that is less shady.

~~~
burnout1540
It turns out the hiring manager was under the impression it was confidential
since no one had ever asked him before. He's an engineer, so I can forgive him
for not knowing.

While the stock options aren't great, I was able to get them to up the salary
by a lot, so I ended up accepting the job. If they didn't have such a good
track record I probably would have run the other way. Either way, the comments
on this board helped me negotiate a much better salary even if my options are
mostly worthless.

~~~
CapnObvious
well thats good then. you'll certainly learn a lot from this experience
whether the company is boom or bust.

good luck!

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aneesh
<http://blog.guykawasaki.com/2006/03/nine_questions_.html>

1\. How many outstanding shares of stock are there?

~~~
burnout1540
Thanks for the link.

This stinks because otherwise I really like the company. I just don't want to
deal with anyone who isn't completely upfront with me.

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Bluem00
In Virginia, I've used the website for the Office of the Clerk to look up the
number of shares in a particular private company. I assume that companies in
all states have to register the total number of shares, and that this
information is public if you know who to ask. For CA, you might try something
like <http://kepler.sos.ca.gov/list.html> . That said, if they really won't
tell you the total number outstanding, you might want to be concerned :)

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kradic
If they won't tell you the number of authorized shares, they're either
inexperienced or dishonest. And if they've raised $6.1m, they're not
inexperienced. So...

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vchakrav
Actually, not only do you want to know the number of outstanding shares, you
also want to find out what kind of liquidation preferences exist for the VC's.
Depending on the liquidation preferences you could end up making $0 even if
the company sells for 2-3X their series A funding.

It is absolutely unreasonable for the company to not specify the number of
outstanding shares.

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holygoat
You can't evaluate the offer without the number of outstanding shares.

The last offer I received I was told that it wasn't their usual practice to
tell. I talked to their HR director and she told me right away — in other
words, you might have talked to the wrong person.

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johnm
That's _very_ fishy. They should give you all of the information in the plan
because the details do matter when push comes to shove. I.e., you want to know
not just the currently outstanding shares but all of the authorized shares as
well. This is important in judging whether or not they've boxed themselves in
w.r.t. funding and valuation. I've been seeing more startups lately getting
themselves into needlessly tough positions by not raising enough money early
and so their pattern is set at too low a range for future rounds unless
everything goes hockey stick.

If they give you any BS about you not needing that information then you should
run away (and tell everybody about them).

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omfut
I think the company should be honest with you about the outstanding stock
options. I had a similar tale, but when I asked the management about the
outstanding stock option, they did reveal the numbers. That kind of says a
lot. I have worked for many startups, so based on my experience; you need to
be careful dealing with the startup founders/management. Its no big deal, if
they really want u, then they should address Ur concern. Don’t fall into trap;
let them be honest with the employees. Regardless of the idea or product, if
the founders/management are crooks, mark my words, those startups don’t make
it.

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tptacek
30,000 is probably not much; after the lawyers got done arranging their
financing, there are probably tens of millions of shares outstanding.

Just bear in mind, you can't really evaluate the deal even knowing the number
of shares outstanding; the shares will be valued as a percentage of a multiple
of forward revenue (unknowable) less liquidation preferences (which they won't
tell you, but will be skimmed off the top of any liquidity event by the VCs),
presuming no further dilution.

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subwindow
You can find out the number of authorized shares from the Secretary of State
of whatever state the company is incorporated in.

That won't tell you much (most companies never issue anywhere close to the
number they have authorized), but it least it will narrow it down. If they
have 1,000,000 authorized, 30,000 is pretty OK. But I'm guessing, given the
money they've raised, that they have >10,000,000 authorized. In that case,
30,000 is probably nearly worthless at this point.

~~~
mrtron
But if you initially got the 30k before they raised money, and now raise the 6
million, you probably get diluted to the same situation.

Or is this not the common scenario?

Also: do most people's options vest immediately and never expire or have
conditions on them?

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Tichy
You really should consider your options. I could probably find you a job that
pays a million dollars per month - Zimbabwe dollars, that is...

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ten-seven
You're not an employee, and they're a private company. It's a catch-22
situation. They'd probably tell you if you were an employee and option holder.
Such information might be held as company proprietary information, and as a
non-employee, you're not entitled to know. I know how this sounds, but they
apparently have a tight disclosure policy.

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mronge
Let us know how many outstanding shares there are, I'm curious what percentage
they are offering. I'm trying to get a general sense what a company like that
would give % wise.

~~~
blader
There are pretty standard numbers for post series A equity compensation -
these numbers are typically shared by VCs with their portfolio companies so
they're not going to be too different from company to company.

For a mid level engineer that number is around .1 to .3% of shares
outstanding.

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hooande
No startup I've ever worked for has told me the number of outstanding shares.
They generally gave me dirty looks whenever I asked. I figure it didn't
matter...the 30,000 options were take it or leave it and I've never been in a
position to haggle.

Thinking about it, it might be a matter of public record. Maybe you can look
up their articles of incorporation filed with whatever state they are in.

btw, 30,0000 shares sounds pretty standard in line with what I've been offered
at previous jobs.

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bcater
That sounds fishy.

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ideas101
you haven't mentioned what salary ($) they have offered you or whether is it
only stock options ... if salary is fair and good then dont bother about stock
options - if salary is below par then RUN !!

