

If a Startup Founder Does This, Don’t Take the Job - doppp
http://blog.kirigin.com/percentage-ownership-ftw

======
birken
This is a good article, and I strongly agree with the general premise (which
is: when given an offer at a company involving stock options, get the
percentage, not just the raw number of shares).

However, most startup exits aren't going to occur via IPO, they are going to
occur via acquisition. This is where the "percentage" value can be somewhat
inaccurate, because the terms and amounts of the previous funding rounds will
have a massive influence on how much the common stock is going to be worth.
Not to mention retention bonuses.

And another massive factor that nobody ever talks about is the founder(s)
attitudes about cashing out. Do the founder(s) want to IPO? Are they capable
of running a company for that long? So few companies IPO. Would the founder(s)
be happy with a 20MM exit? 50MM exit? This is going to have a massive effect
on the value of your equity.

The whole thing is just really hard. Stock options, even with complete
information, are impossible to value. Certainly get as much information as you
can (including the recommendation of this post), but basically whatever
decision you make in regards to equity is going to be arbitrary anyways.
Negotiating based on salary is probably a far more productive use of your
time.

~~~
ivankirigin
Many exits and acquisitions are essentially zero for employees. They might be
slight bonuses, but it would be a rounding error on salary in many cases.

Think of it like expected value of the stock. IPO is contributing to the
lionshare of expected value, even if it is the least likely outcome.

That said, the basis of judgement of value is on how much of the company you
have. It all starts there.

Also, I completely agree about probing what is in it for the founders. What is
their goal? Unfortunately, it isn't unethical to bend the truth and project a
vision deep into the future. People call that leadership.

~~~
birken
But IPOs are essentially zero too. If I took a sample of 100 startup
employees, the number who have made any significant money in an IPO is way
below 1.

The fact that the fraction of a person made a really huge amount of money
doesn't matter if we are talking about the decision making process of these
100 people.

I'm just saying the whole thing is very arbitrary in acquisition, IPO, or
whatever. I agree that you should know how many shares are out there, if you
think you are getting 1% and you are getting 0.1%, that is a big difference.
But if one startup is offering you 0.8% and another is offering you 0.1%, how
the hell do you know which is a better offer? You don't.

Salary is very comparable and money is practically useful. Worry about that.
Maybe you can estimate if something has a big enough market that it _could_
IPO, do that. But you can't predict success. Look how bad investors are at it.

------
katcollin
Sometimes, it is just not a math prob. and if you can not trust the founders
even at the beginning, it's not a good sign to join the team.

~~~
gpjt
This, definitely. Whether or not they'll give you a simple percentage number
for your stock is a good indicator of whether you can trust them or they're
trying to pull the wool over your eyes. There are probably many others. At the
end of the day, if you don't get straightforward answers to straightforward
questions, then you probably can't trust them.

Caveat: some questions that sound (in the light of inexperience) like they are
straightforward are not to people with more experience of the issue in
question. For example, a naive computer purchaser might ask "can this laptop
run my Excel spreadsheets?". A naive salesperson might clinch the sale with a
simple "yes". An experienced salesperson who'd had to process many returns
after such sales might say "well, it depends on how large your spreadsheets
are". But the naive buyer might think that the experienced salesperson was
being non-straightforward and look for a different, less accurate salesperson
who seemed more trustworthy because his answers were simpler.

Luckily, percentage ownership is pretty easy to be straightforward about.
Except... I've met quite a lot of developers who, after I've explained their
options grants to them, were surprised and unhappy to discover that if they
get options over (say) 1% of the company, they won't always have options over
1% of the company. They didn't understand that when a company takes on new
investment, existing investors (including options holders) get diluted. They
thought that their 1% was 1% forever.

Which means that if a developer asked me "what percentage of the company will
my options amount to" I might respond "x% of the current fully-diluted shares.
But remember that that could go down in percentage terms if we took on further
investment." And a naive developer might think that the caveat in that
sentence meant that I was being less-than-sincere (rather than being as honest
as I know how) and move on.

So it's complicated.

------
Legogris
First time I notice clickbait headings on HN. Let's not make it a trend, shall
we?

~~~
ivankirigin
I wrote this article. I tried to fit the premise in the headline, but it is
too hard given the caveats.

"it is bullshit if your startup job offer doesn't include percentage
ownership"... unless they tell you valuation and share price

etc

I guess I could have gone with what is in the slug "Percentage Ownership is
Everything".

For an area of so much disinformation and confusion, I don't mind if a
clickbait headline gets more people to read it.

------
nasalgoat
The CEO laughed at me when I asked for dilution protection in my contract. So,
why does the percentage matter?

------
phazmatis
If a Startup Founder Offers Stock, Don't Take the Job

Fixed.

