
I have a job offer at a startup, am I getting a good deal? Part 1. - epi0Bauqu
http://venturehacks.com/articles/job-offer
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abas
Any advice for if the company has not received outside investment and has no
plans to seek it?

The best I've been able to come up with is to make a guess as to how much I
think the company might one day be worth and then estimate my stock's value
based as a percentage of the issued stock. I know my stock can be diluted, but
I'm not really sure how to take that into account at this point.

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nivi
That sounds like a good approach.

You should also include unallocated options in the calculation of your
percentage. For example, how many options does the company plan to issue in
the next 12-18 months?

This is like including unallocated options in a fully diluted basis.

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sanj
I don't understand how you calculate an acquisition share price without
knowing the size of the pool of shares.

Which leads you back to the fully dilute share question.

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nivi
Setting the acquisition share price to the preferred share price of the last
round is a good start.

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shimon
If I understand correctly, here's what this means:

\- Last round, the investors bought in at, say, $10/share. They got preferred
stock, which gives them access to more of the company's assets in the case of
failure and certain other rights (like maybe they have a say as to whether a
certain acquisition can go through), but otherwise represent the same portion
of equity as shares held by any other stockholder.

\- If you're getting incentive stock options, you'll be getting common stock.
This is worth much less than preferred stock, say $1 instead of $10, because
in the worst-case it is worth nothing whereas the preferred stock might be
worth a gently used Aeron or two.

\- If the company is doing well and on track to an acquisition, the acquirer
will buy all the stock. They'll pay at least $10/share, since that's what
it'll take to prevent the last round of investors from losing money.

In the acquisition, does the acquirer pay the same price for a share of stock,
whether preferred or common? If yes, then I think this all makes sense; if no,
I've clearly missed something important.

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nivi
In an acquisition, the preferred stock is converted to common and the acquirer
pays the same price for every share of common stock.

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mattmaroon
What if the preferred stock has a liquidation preference and the amount is
smaller than their investment? There are some cases where the preferred
shareholders can get paid and not the common right?

Obviously you weren't talking about that sort of acquisition, but it does
highlight the point that common stock would be worth somewhat less than
preferred due to that potential unless I misunderstand something.

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nivi
Agreed. We'll cover liquidation preferences in Part 2.

In general, I like to look at the "lottery ticket" value of the options. What
are the options worth if everything works out?

Especially when the startup can afford to pay a reasonable salary, I think of
the options as a free lottery ticket.

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mattmaroon
I'd like to hear more about exercising options early. I had no idea that could
be done. Not that I'll ever be in that situation, but I'm just curious how
that happens. Sounds like a bit of a legal hack. Did you mean with the 83b
form?

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nivi
You exercise the options before they vest and the company maintains a right to
repurchase the options that expires over time.

From the perspective of the company, it is like reverse vesting.

Talk to a lawyer for the myriad details but if you ever hire someone who knows
his stuff, he will want to exercise his options immediately.

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abstractbill
I did exactly this when I joined justin.tv - it's not very difficult to
arrange. The hardest part was actually finding a CPA who had any availability
to work with me, and who I felt I could trust (he came recommended by a
friend).

It's obviously important to keep in mind that to exercise your options you'll
need some cash. If your share is big and the company has been well funded
already, you might need a lot of cash. And you need to be prepared to lose it
all if the company fails.

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lbrandy
> 5\. Can I exercise my unvested options early?

Your answer here is completely unclear to me. I understand you don't want to
give out legal/money advice, but can you at least explain the capital gains
thing you were talking about.

I am neither a lawyer nor an accountant, so I don't know what the tax/legal
issues are with cashing out and/or capital gains, nor it's "clock". But I do
have stock options that are vesting and I do have to decide if I want to
exercise them early, or not. When this issue first came up, no one knew or
seemed to think there was any difference between exercising the options and
not exercising the options. I did it because everyone else did it. Probably a
bad idea, huh?

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sanj
I'm not a lawyer, but I can help to answer this. Culled from:

<http://www.efmoody.com/planning/options.html>

Here's the deal: you want the gain in stock value to be taxed as "long term
capital gains", which is a much lower tax rate (~15%) than as income tax
(~30%).

To do this, you need to sell the stock that you purchased with the options at
least 2 years after you _received_ the options and at least one year after you
_exercised_ the option.

What many people do is purchase options to 'start the clock' on that one year
window.

A much more complex way of doing this, which I've been on the receiving end
of, is to grant your employees their options _immediately_ upon them joining
and have an agreement where the company can _repurchase_ them (at no cost to
the company). The amount that the company can repurchase is reduced each
month.

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randy
What I don't understand is why your interest in the company isn't mentioned at
all on this "advice" page.

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nivi
Hi Randy, can you elaborate? Thanks!

