
The information that companies share with employees is becoming a bigger issue - dmnd
http://techcrunch.com/2015/07/17/employees-wise-up/
======
phkahler
>> Though the startup is still debating how much information to give to the
candidate, it will likely need to produce a policy around such requests soon.

If you're going to offer an employee something that sounds like ownership in
the company, you should probably be willing/required to lay it all on the
table. Failure to do so is a sure sign that what you're offering is not what
you want them to think it is.

~~~
jsprogrammer
>This week, a Bay Area founder was taken aback when an engineer being
recruited by his startup asked for both its cap table and information
regarding the liquidation preferences of its venture backers.

Yep, if you are the engineer: time to nope the fuck out of there as quickly as
possible. The founder has no real consideration for you other than as a
resource in his fiefdom.

~~~
boomzilla
Now that's a bit extreme. A lot of engineers would consider the company as
nothing but "It's just a job as I'll jump ship as soon as some better gig
comes along", and that's totally fair .

You hire someone because there's work to be done. You would develop
professional, working and possibly personal relationships as you work together
for some time. That has nothing to do with the common hiring practices. For
the records, I always asked for the cap table when negotiating an offer and I
understand that founders are reluctant to share.

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babababa
Things to ask from any start-up:

Regarding your grant:

1\. How many outstanding shares (including as yet un-granted option pool
shares) - divide your grant by this number and you have your ownership share
of the company

2\. If you're granted RSUs, ask about whether you need to file an 83b

3\. If you're granted options, ask for the price of these options (or the last
common share 409A valuation). This is your cost value of each share

4\. Post-money valuation of the previous round (can't be calculated by 409A
since that's different, but rule of thumb is that 409A valuation X outstanding
shares x 5 ~= last round valuation).

5\. Post-money valuation/total outstanding shares is technically the paper-
worth of your options or shares (and you can subtract the 409A valuation to
get the current expected profit per share). Assuming nothing else, your shares
vested per year X (valuation-409A valuation) = your paper equity salary per
year

Regarding the company prospects:

1\. Money in the bank

2\. Monthly burn rate, at which point you can derive the amount of time left
for the company to keep going without raising more funding

3\. Revenue growth rate, and expense growth rate - this allows you to adjust 2

4\. Status of next funding round - when, and which investors. Ask if the same
investors will participate again in the next round of funding. Very very rough
rule of thumb - if yes, company is doing ok. if no, something's up (with the
exception of large growth rounds where smaller investors can't participate
anyway)

5\. Ask about liquidation preferences (so if there's a sale or exit, do
investors get their equity share or at least 1x their money back (the higher
of the two), or do they get a multiple of their money back (if that's greater
than their equity share)

*Edited formatting

~~~
siavosh
These are tough questions. Wondering if anyone has actually gotten concrete-
true answers to these during the interview process?

~~~
babababa
I'd save the questions for the offer negotiation, but most of the equity
questions are reasonable. I can understand someone not telling you the
revenue/cost numbers, and that's where your due-diligence on the company/gut
come in.

~~~
brandnewlow
At Perfect Audience we told our potential hires this info at the time of
giving them an offer sheet. It seemed only fair to let them know how the
company was doing and how much money they stood to make from an acquisition.

At the time it seemed like the only fair approach. We founders honestly didn't
know that most startups tell potential hires as little as possible about
company finances.

Knowing what I know now, I'd still tell folks this info as it unwittingly gave
us a hiring advantage over companies that don't.

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shostack
I know it will never happen, but I'd love to see some way of standardizing how
this information is presented based on various terms to help potential
employees make informed decisions.

Right now there is MASSIVE information asymmetry and companies are absolutely
leveraging that during their hiring processes. In many cases, they have to in
order to stand a chance at being competitive when hiring (which is a statement
in and of itself).

Given the complexity of these sorts of things for the average employee who has
never looked at a term sheet before, has no clue about the tax implications of
options, etc. what can be done to even the odds?

My personal rule of thumb right now is that the odds of getting equity that's
worth a damn if I'm not a co-founder would typically not be worth it, so I
make decisions based on the rest of the compensation package. It is simply the
safest way to play it when I know I'm not the smartest one at the table in an
equity-based discussion because of said information asymmetry.

~~~
7Figures2Commas
> My personal rule of thumb right now is that the odds of getting equity
> that's worth a damn if I'm not a co-founder would typically not be worth it,
> so I make decisions based on the rest of the compensation package.

This is, for most employees, the correct approach. The reality is that most of
the information you might ask for and be provided is usually going to be of
limited value and for a limited period of time unless you happen to join the
company right before its final financing or an exit. Put more simply, equity
structure is typically not static.

If you join a company in part because you like the equity structure at Series
A, you have no guarantee that the equity structure will be as appealing to you
after the Series B or C.

~~~
shostack
Yep, and further to that point, having the information doesn't necessarily
mean there are any fewer ways for you to be screwed out of said equity. It
just means that you might be more informed about the number of ways you can be
screwed.

------
angersock
So, there's clearly a lot changing in the winds of business, right, especially
in tech circles where a) skilled employees are really in demand and b) we
communicate a whole lot more than other sectors with each other.

I don't think anybody expects to really build a career long-term at a company
anymore unless they're a cofounder--5 years, _maybe_ , right? So, companies
are starting to say, "hey, wait...let's lure them in with equity".

Problem is, we as employees are wising up (due to this sort of constant gossip
we all have) that equity is basically not worth counting on at all, and is
just a way of tricking engineers who've avoided business learnings into
working for less than they produce.

I'm curious how long until we see an approach where the employees get a direct
stake in the company's revenue, growth, and expenditures, instead of this
silly equity proxy arrangement.

The problem that I see from a morale standpoint, especially for early
engineers and hires, is that the founders have massive massive massive equity
compared to you, but don't do nearly as much to actually build out the
company. They don't organize the teams, they don't write all the fiddly bits
of the code, they don't smile and dial all the customers.

And maybe that's just my own bitterness and experience, but it really seems
like a lie to treat equity as some actual stake in the company, because you'll
never get into the founder club.

~~~
jdmichal
I think what you're looking for is a "worker cooperative", which is basically
a company wholly owned and controlled (directly or indirectly) by the
employees.

[https://en.wikipedia.org/wiki/Worker_cooperative](https://en.wikipedia.org/wiki/Worker_cooperative)

------
matthewmcg
Here in the U.S., corporate charters are public documents and stockholders
have certain legally-mandated information rights.

The liquidation preferences and other downside protections available for each
class of stock must be set forth in the company's charter. These are public
documents and copies can be obtained from the secretary of state's office in
the state where the company is incorporated (typically Delaware).

Stockholders (but not necessarily option holders that haven't exercised
options) may also access the company's books and records for the purpose of
valuing their shares.

For example, Section 220 of the Delaware General Corporation Law gives
stockholders an explicit right to access certain records and allows a
stockholder to obtain a court order granting access to the records if the
corporation refuses to provide them.

[http://delcode.delaware.gov/title8/c001/sc07/#220](http://delcode.delaware.gov/title8/c001/sc07/#220)

Ideally, a company would make this information available long before it is
compelled to do!

~~~
choppaface
Thanks for bringing legal details to light here. These are _exactly_ the sorts
of details a startup would ignore; my former employer, a then-6-year-old-
startup, omitted these sorts of details when I started digging into equity
details.

Compliance would cost an unfortunate but necessary draw on a founder's
attention. It would be nice to see companies like Clerky (
[https://www.clerky.com/](https://www.clerky.com/) ) pick this up... I
remember seeing at least one other company doing similar legal services (e.g.
83(b) elections) if anybody can link them.

A significant risk is that the service might not handle the compliance
_exactly_ as the founder would like (for worse or for /better/). Perhaps a
blogpost comparing services would help the community.

------
dccoolgai
I turned down a recent offer from a startup aftet being offered x-thousand
shares of common stock because they wouldn't give me any details about what
other investors had priority shares over that among other basic questions.

~~~
pbreit
I'm not sure I would ding a prospective employer for withholding that
information. I would be OK with known the rough amount raised and that it's
probably all about 1x preferred. In addition to what % and strike price I'm
being offered. I don't think most employees need to know the details of all
the fundraising.

~~~
sosuke
If there was a better way to know the value of stock I'd take it. They are
going to give me 20,000. 20,000 of what? What is 1 worth, is it worth
something if the company sells now, tomorrow, over valuation, under valuation.

Those things are important if stock is part of your compensation.

~~~
dccoolgai
Exactly. That's what I ended up telling them: "Thanks for offering me 5000
shares of your company, but you won't give me any details about what they're
worth... did you issue 50 million shares? 5 million?

If someone is stupid enough to take something that you won't tell them how
much it is worth, you are going to end up with stupid/naive engineers and you
will fail.

~~~
pbreit
But the only concern you mentioned was about the priority of other
shareholders which I think is a bit much.

~~~
to3m
"among other _basic_ questions"...

If this stuff is being given as if it's worth something, you need to know what
that value is!

And it's no good asking the people offering it you. Of course they'll tell you
it's worth a lot! Whether they believe it or not - something about which I am
genuinely agnostic - for every cynical, reptile-eyed psychopath, there's
somebody who's downed a yard of koolaid - it's in their interest to emphasise
the potential value of non-hard-currency compensation, because it's cheaper to
pay you that way than it is to find the (supposed) equivalent in actual money.

------
adregan
Is there a good guide out there that lists very plainly:

1) All of the information one should ask for re. equity. 2) What to do with
that information.

I don't necessarily need to know all of the in and outs right away, but it
would be nice to know a some of the key things that I really ought to know in
order to get some kind of handle on it.

~~~
jxm262
I would like this , but one additional question is "when" should you ask? As
in, what part of the interviewing process does one ask about outstanding
shares, etc..

Should it be after an offer is extended, immediately after the technical part
of the interview, etc..?

I would feel awkward asking some of these specifics about financing early in
the process.

~~~
davemel37
Its only relevant after an offer is extended. View it as due dilligence...they
are giving you equity in exchange for cash/less salary..the burden should be
on them to prove its a good or fair deal.

------
sgs1370
It's great to get the answers to these questions, and I'm all in favor of
transparency. If you're joining a startup, however, you should realize the
majority of the shareholders of a company can make a decision at any time to
make a deal with a 3rd party which introduces enough dilution to make your
shares/options worth very little. Even if it means amending the charter of the
company or rewriting the shareholder agreement. They can also grant additional
shares or options to one or more people which shift the percentage of your
ownership in the company.

The most important thing (apart from thinking the company's mission is good
and achievable and the culture a good fit etc) is that you can trust the
majority shareholder(s). Or, as others have indicated, just focus on cash
compensation. Then again, if you can't prove to yourself that the
founder/majority-shareholder is trustworthy, you should run away anyhow, since
the cap table will be the least of your worries if there's a lack of ethics.

By the way, my experience working for a startup (I've also worked for large
companies, and for the government) is that they are difficult but if you like
independence, challenges, and the potential for large rewards (with risk!),
they're great.

------
defen
Given the huge information asymmetry problems between employees and employers
introduced by options, (see the comment by 'babababa for a good list of things
to ask, that not all companies will want to share) - would it just be easier
to have an agreement like "if the company raises $X million, employee gets a
bonus of $Y"? (you could have different X's and Y's for different tiers of
round e.g. 20K bonus if we raise 10-50 million, 100K bonus if we raise 50
million+, etc, and maybe a different one for "company goes public").

You lose the tax benefit of cap gains vs income tax, and you miss out on some
upside if you're an early employee at the next Dropbox (but you're probably
not one of those); on the other hand the downsides are at least quantifiable,
as compared to receiving an unknown percentage of the company at an unknown
valuation with unknown liquidity preferences and having unknown tax issues
(83b, AMT, etc).

This is literally something I just thought of now so I expect it to be full of
holes. What do people think?

~~~
jdmichal
The biggest hole is simply that -- according to the typical story -- startups
pay equity because it's cheaper than cash. They fundraise when they need more
cash. If they could afford to throw a portion of the cash at employees, they
theoretically would have been doing that already.

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throwawaways
One of the two big startups quoted in the article made me an offer for an
engineering job years ago, but wouldn't tell me the strike price of X options
they offered -- never mind the percent of the company or priorities.

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danieltillett
All this information should be able to be modelled into a distribution curve
of likely returns. It should be possible for the company to model the likely
returns and provide this as a nice probability curve of the value. This would
allow new employees to know the value of what they have been offered without
the company having to reveal all the details of everything.

It might be a nice little lifestyle business to offer a service/software where
the founders enter in all their financial data and possible outcomes and it
spits out a nice simple curve of the current valuation. It might be of value
to the founders too :)

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vsync
That someone would be "taken aback" by someone asking whether the air castles
you're painting pictures of are literally worthless says a lot about this
whole scene.

> The candidate presumably “worked somewhere where he discovered that these
> things matter,” says the founder, who asked not to be named in this story.

i.e., someone else screwed this guy before you got to him.

> “There are just so many complications involved” in sharing the nitty gritty
> of [how the employee is going to be paid last, if at all] in the event of a
> sale or a public offering. “We’re still thinking through all these things.”

Yeah, I bet you are.

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compostor42
Can anyone provide some details on what all I should ask about when evaluating
an offer from a startup company? I really have no clue where to begin.

~~~
7Figures2Commas
Runway, runway, runway. The intricate details of equity, for rank-and-file
employees, are usually red herrings.

It does you no good to make $ _xxx_ ,000/year and have _y_ options if the
company is at risk of not being able to make payroll in six months.

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imh
This seems like it should be a no brainer. Otherwise it's nearly as crazy as
accepting an offer where the company won't tell you the salary until after you
take the job.

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kelukelugames
I fell for FOMO once. Never again.

