I can't boil it down to 3 because there are many things you need to understand, some details can be gleaned via observation too.
So some of the top questions you should ask IMO are below:
- Runway left
- When was the last raise, what was the amount and time to raise it? What is the makeup of the investors (Angel vs. VC etc)?
- What is the next milestone on the fundraising side?
- What is the biggest competitive advantage/product feature the company has?
- What are the biggest issues facing product/development?
- How do you see my role helping the company?
- How can I best help the company if I come aboard?
- What is the biggest opportunity you feel the company has?
- What is the biggest risk the company faces?
- Who do I report to? -- this trips some startups up, but can highlight potential issues.
- How many employees are there today? How many do you plan to hire in the next 3, 6, 12 months? How many employees have left since founding?
- Equity and the vesting schedule details. Share class information as well. Current dilution, outstanding shares issued and reserved is nice to know too as well.
For what it is worth and this applies to any size company not just startups, you should also ask about what agreements they want you to sign and get them as early into the process as possible without being unreasonable. e.g. outside work policy, NDA, non-compete, non-solicitation, compensation, equity etc. Some of these they may not give you until you agree at least conditionally verbally, but there should be no reason you can't see them once you do. Companies that hide these until your first day make me nervous, at the same time that doesn't mean they are bad, just maybe been given bad advice or have a lack of understanding themselves.
- Understanding the company's place in the market & how they make money
- Understanding their expectations for you -- have they thought them through?
and finally
- How well they respond to questions that they won't answer. They won't show you the cap table, but how the conversation goes is a good indicator of how well you and the future manager will be able to communicate.
They offer you any sort of stock as compensation, and are privately held and won't show you the cap table it is a polite thanks but no thanks and exit.
Any company that isn't comfortable sharing that information isn't going anywhere fast -- or they are about to go public (but you would know that already as well).
No need to be that drastic - just treat the compensation package as if the equity grant is worth $0. With the liquidity and uncertainty involved, you probably want to do that anyway, since you care a lot about "how far away am I from not having enough money" and an equity grant that pays off with a power distribution a decade out helps you very little on that front.
Regardless of what the cap table says you should treat that grant as a $0.
I have heard "we dont have one". A sign to run.
I have heard "we dont share that sort of info with staff". Major failure to understand the information I would be entitled to owning even a SINGLE share.
No speaks volumes about management, about its confidence, about it's openness. These are thing that one who is going to work for a company should be HYPER concerned with.
These are all great questions. However, it is important to understand why you're asking some of these questions. For example:
- Runway left and when was the last raise: are important because you'd like to know when the company will run out of cash, but more importantly perhaps is to understand whether there's a dilution hit on the horizon so you can negotiate accordingly.
- Equity and the vesting schedule details..: if a startup company doesn't answer or provide you these details when you ask, then you might want to reconsider joining them. Getting 10K or 20K options might seem like a lot, but without knowing how many shares are authorized and issued you don't know how much equity you're really getting.
Most early-stage startup employees should price the equity grant at $0. If everything works out great, it'll be a lot of money you can't do anything with about 5 years from now and often only turn into actual cash a decade or more out. In the meantime, your personal finances has to work based on the cash salary you receive, without any raises (because "raises" for a start-up are achieved through equity grants becoming more valuable).
Yes, the grant has a positive expected value. This value is too uncertain and too illiquid to significantly affect your planning, which ought to care a lot more about what the maximin strategy suggests for your course of action.
One thing I'd add is if they don't have clear answers to any of these questions it should be a hard pass unless it's a brand new company. It's a huge red flag if they refuse to answer, skirt the question, or can't get you an answer.
I can’t say with an absolute. But in all likelihood no. The equity portion must be spelled out in detail. There are different ways to spell it out but it has to be specific.
Honestly, I understand what you are saying, but early in most startups founded by younger people this just is the case.
I certainly wouldn't rule out the company if I felt the people were good people and just inexperienced as that is why they have to bring on new people.
Where it is a warning sign IMO is if they are well funded and have the money to hire experience and they still choose to not, then I still can't say an absolute no, but I'd be far more cautious and picky.
This is so helpful for those not just asking but those who will have to answer as well. Thanks.
Which questions/responses are most critical to get right and should make someone run for the exit? I imagine there has to be a little flex on some of these.
Only if you consider all of them hard requirements and failure of any of them to be a showstopper.
The _do_ all make complete sense in the context of evaluating the risk of accepting an offer, which you can then trade off against your own personal acceptable level of risk and the rewards/benefits of the things you might love about that role.
For an early-career engineer, a company with less than 12 months runway and a poorly explained share allocation, but with a friendly/compatible team with a great mentor, and the ability to make contacts and connections in the industry - might be a great choice. Probably not so good for an established mid/senior engineer with a family and a mortgage though...
A company with no clear product market fit, and poor or ordinary answers for the business-related questions, but with a smoking hot technical idea/capability - might be really fun for someone who's had a recent successful exit which means payroll not being made isn't too problematic, and a swing-for-the-fences high-risk/high-reward/high-visibility project is something that sounds exciting and rewarding (even if it plows into the ground spectacularly).
I get that, and frankly I've worked with startups in the past that failed at a lot of these because I felt the culture and people were good even if there were lots of rough edges.
The questions just give you data, choice is still yours. But at least it will be an informed choice.
So some of the top questions you should ask IMO are below:
- Runway left
- When was the last raise, what was the amount and time to raise it? What is the makeup of the investors (Angel vs. VC etc)?
- What is the next milestone on the fundraising side?
- What is the biggest competitive advantage/product feature the company has?
- What are the biggest issues facing product/development?
- How do you see my role helping the company?
- How can I best help the company if I come aboard?
- What is the biggest opportunity you feel the company has?
- What is the biggest risk the company faces?
- Who do I report to? -- this trips some startups up, but can highlight potential issues.
- How many employees are there today? How many do you plan to hire in the next 3, 6, 12 months? How many employees have left since founding?
- Equity and the vesting schedule details. Share class information as well. Current dilution, outstanding shares issued and reserved is nice to know too as well.
For what it is worth and this applies to any size company not just startups, you should also ask about what agreements they want you to sign and get them as early into the process as possible without being unreasonable. e.g. outside work policy, NDA, non-compete, non-solicitation, compensation, equity etc. Some of these they may not give you until you agree at least conditionally verbally, but there should be no reason you can't see them once you do. Companies that hide these until your first day make me nervous, at the same time that doesn't mean they are bad, just maybe been given bad advice or have a lack of understanding themselves.