

Take a position with a startup that has no equity grant program yet? - Skeletor

I have an opportunity to join a startup on the west coast (this would involve relocating for me) that is offering an industry competitive salary, but it does not yet have a program to grant employee stock interests.  They are planning on working this out over the next few months.  How much risk am I taking by joining?  I'm afraid that I would lose any negotiating leverage over how much equity I would get since I don't know the amount before I join.  Would someone joining the company after I was there for a few months be able to negotiate a much better deal?
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ajross
If you like the company and are happy with the salary, sure: take the job. But
don't expect that they'll suddenly drop a big equity package in your lap in a
few months. You're absolutely right that you will lose most of your leverage
by taking the job first.

And let's be honest: it's not like this is brain surgery. If they _really_
wanted you and needed to put together a stock grant to do it, they would.

So treat it like any other job: if the compensation and work interests you, go
for it.

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pg
If this is a true startup, meaning a company where equity is a big component
of compensation, then you should negotiate the amount of equity you'll get (as
a percentage of the fully-diluted shares, not as a mere number of shares) when
they hire you. Taking a job at a true startup without knowing how much equity
you'll get would be like taking a job at an ordinary company without knowing
what the salary would be.

On the other hand, if they don't currently have an option plan, they're
probably not a true startup.

~~~
pchristensen
Plus, they're offering industry competitive salary, which also means they're
probably not a true startup.

~~~
tptacek
We offer competitive salaries, and we're definitely a startup. _Founders_
expect poor compensation from startups, at least in the first years.
Everything else is a matter of negotiation.

~~~
cperciva
Is "we" Matasano? Maybe I'm missing something, but my immediate reaction based
on the website would be to put it into the category of "consulting firm", not
"startup".

~~~
tptacek
Our consulting business funds two FTE devs. We haven't taken a dollar of VC,
we have two nice offices, we pay competitive salaries, we offer health
insurance and a 401k, and we can turn out products whenever we want. I don't
know what you'd call our company, but since you've never made payroll, I'm not
sure why I'd care, either.

~~~
cperciva
Congratulations, it sounds like you have a very successful business -- I'm
sure many people here would love to be as successful as you are.

But it still isn't a startup. :-)

~~~
tptacek
You're right. We didn't give up 6% of the company --- one year in, the
equivalent of 4-8 rock star employees, or a CEO --- in exchange for what a
single developer bills out in 2-3 weeks. We therefore do not meet Colin
Percival's stringent standards. I see now that "startup" is actually a
handicap measure, and not a description of a business ethic.

By the way, we launched product today. Obviously, we don't much give a shit
about our website at the moment; our "real" website is the blog.

~~~
dbrush
I think this is a case of you being hyper-sensitive rather than cperciva being
hyper-critical.

~~~
tptacek
You're probably right.

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ericb
You _will_ lose your negotiating leverage. Good faith and five bucks will buy
you a sandwich. You really have no idea what they "think is fair." That said,
if you want the job, the equity will be a pleasant bonus, and most employee
equity grants are easily diluted, anyhow. I think you're left with nothing but
trust and their own incentive not to dilute at the end when you're not a
cofounder.

~~~
notauser
You will lose one type of negotiating leverage and gain another.

Once you have been there a while your true value will be obvious (especially
when you produce, in a _nice way_, comprehensive documentation at your first
performance review).

Please be clear that I am not advocating salary blackmail (pay rise or I quit)
tactics. However reasonable and friendly negotiations periodically is not an
unreasonable thing to request.

For most of us the company at hiring time is seeing a choice beteen you (an
unknown risk) and someone else (also an unknown risk) and while they obviously
have a preference it may not be that strong. However after twelve months they
will be evaluating you (a known, and hopefully respected, certainty) and
someone new (an unkown risk) which is a whole different game.

~~~
tptacek
Abrupt ultimatums may be bad form, but if you take a job and later realize
your comp is unfair, you are under absolutely no obligation to accept that
situation.

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tptacek
This will probably run contrary to all the other advice you get here, but my
take is: it doesn't matter whether they have a stock plan yet. It is not as if
a pre-existing stock plan really protects you; after multiple rounds of VC,
any deal that was on the table when you started will have been rewritten many
times over.

~~~
pg
Though an option _plan_ doesn't protect you, once you've been granted a
specific number of options (or rather, restricted stock), there is little
anyone can do do take them away from you, short of firing you, without
diluting the founders equally.

~~~
notauser
That depends on your class of equity! Your terms might be different to the
founders - in the UK you can read the memorandum and articles to understand
the current equity structure and dilution rules for a company.

(Changing the mem and arts usually requires a shareholder meeting, and can be
contested in court if the interests of minority stock holders are not taken
sufficiently into consideration.)

In addition even if you do hold stock of the same class as the founders that
won't always prevent you getting screwed over. The board might sign up to a
sucky deal through innocence, incompetence or collusion and condemn you as a
side effect.

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jamiequint
Sounds like they are not funded (or self funded). Any VC or lead angel would
have required an options pool as part of the funding round. Assuming this is
not true, granting options from an existing options pool is as simple as a few
documents, if they can not do this it seems to me to be a sign of bigger
problems.

"it doesn't matter whether they have a stock plan yet. It is not as if a pre-
existing stock plan really protects you; after multiple rounds of VC, any deal
that was on the table when you started will have been rewritten many times
over."

Somewhat true, you are liable to be diluted over subsequent funding rounds,
but then so is everyone else. Its no excuse not to grant options immediately.
Its not as if the basics of options change with subsequent funding rounds. The
only thing that should matter is the strike price at the date they are
granted, which means you want to get them ASAP.

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prakash
I have heard this story many times, typically it takes longer than what's
actually promised to issue stock. Find out why it's taking so long, also speak
to current employees there to figure out what was promised to them and when
stock would be issued?

Even if they issue stock at a later date, I don't think they can start your
vesting date from they day you join (check on this). Also the price would
change every month and you will probably get it at higher price than right now
(in the cents not $).

All that said, if you like the people, the market for which they are building
a product, your role in the company go for it with ONE condition: Typically
companies have a 1 year cliff, in this case, if the company takes X months to
issue stock, you can ask the company to reduce the cliff by 12-X, which is
fair. If they take longer than 12 months, count this as experience and move
on.

good luck!

~~~
tptacek
I don't know if they can artificially backdate the vesting schedule, but they
can certainly make the vesting schedule shorter.

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notauser
If the salary is industry competative then the only thing you need the stock
for is to compensate you for risk of losing your job.

Given that any losses you have are likley to be limited to a few months salary
(unless you work in a field with low mobility, or they have a huge non
compete) I wouldn't worry too much and then consider any equity to be pure
bonus if it does turn up.

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tmarman
Good advice from ajross and pg. The fact that they don't have an option plan
in place suggests that it's definitely very early stages. What level of
funding do they have? Especially if you're that early, you should DEFINITELY
be seeking equity.

To put it in perspective, we just made our first non-founder employee - a
senior developer - and we gave up 4% to get him. It's on the high side, but as
a first hire and someone who we didn't want to lose, we were willing to give
that up.

That said, the legal costs with creating an option plan (and registering for
business in the state if it's a DE corporation) are not insignificant.
Especially if they don't have much money yet, and want to spend that mostly on
talent, that can be a factor here.

If they haven't done an equity round yet (i.e., valued the company), then the
stock is effectively worthless (par value is probably $0.001 per share or
something in that range, and normally you would see something like 5M shares
authorized and outstanding). So in this scenario, an option with this strike
price is effectively the same as an equity grant.

We were lucky - we're doing our initial stock purchase agreements now (we
incorporated awhile back but had to redistribute some equity as involvement
with co-founders changed) and we were able to include our first hire in that
plan. We all have the same vesting schedule - 4 yrs prorated with a 1yr cliff
- but our initial dates are a year or so earlier than his. This saved us at
least 5k in legal fees.

My advice would be, like ajross and pg suggested, to negotiate what equity
will be granted - even if they don't yet have the means to grant. And, if they
wanted, they could also sell you shares under the same original purchase
agreement (assuming they have a vesting schedule they're happy with, and they
had some authorized but unissued shares).

Basically, if you want the job and like the company, take it - but if you
don't negotiate the equity now (even if it can't be executed yet) then don't
expect it later.

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dusklight
It depends on how good you are at what you do: If you are a really great
developer and you become an vital part of the infrastructure after a few
months, that will significantly increase your leverage. In order for this to
work, you have to be able to walk out on the job for real if the negotiations
don't go as planned. That just involves keeping feelers out for replacement
jobs (always a good idea regardless when joining a startup since there's no
guarantee the company will survive for long) and having enough money saved up
to be out of work for a few months, and knowing how to apply for unemployment
benefits if you need to.

If you suck well there's no guarantee that they will keep you anyways.

Main thing would be -- would you enjoy relocating to the west coast? If you
never get any benefits other than the salary, would that be enough? Have you
considered whether the place you are moving to might have higher/lower costs
of living?

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vaksel
Just remember to get it down in written form, just to protect yourself from
all those fake promises companies always make when you join.

"Oh yeah you'll get a 15K raise if we like what we see after 3 months" - then
3 months later somehow you always fall short of their expectations

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axiom
This may be a special case, but it worked for me so take it for what it's
worth: take the job, work hard and take on as much responsibility as you can,
until you are indispensable. Then ask for (demand) equity. They will give it
to you.

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immad
I would, negotiate a deal now, if they don't stick to it at the time they
allocate or take too long to allocate than you can always leave and make that
clear from the start.

Unless you feel you have a better option...

~~~
ericb
Actually, leave or _sue_. If they make a deal and you have evidence of it,
they have to stick to it and courts will enforce it.

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mrtron
Your best chance at negotiating any salary related issues is before you start.

Don't think 'If I perform really well - they will compensate me fairly'.
(speaking from experience)

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coffeeaddicted
I did that once and the company failed after 18 months. But well, the pay was
still OK, I learned a lot in that time and the team consisted of people which
loved programming and were motivated enough to work in a startup. I still have
contact to many of them years later and it was worth it just for that.

So in my case I would say it worked out fine even though I didn't get rich.

