Ask YC: Employee stock options | Hacker News Reader

Ask YC: Employee stock options

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I received a job offer this afternoon from a startup. The startup has about 15 employees, has $6.1 million in seed and Series A funding, and has gotten good press coverage.

They offered me 30,000 stock options. The problem is, they won't tell me the total number of outstanding or authorized shares. Without that information, I can't even begin to estimate whether the stock options could possibly ever be worth anything.

Is it unreasonable for the company not to tell me the number of outstanding shares? Does anyone else have any experience with this?

Thanks!

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Is it unreasonable for the company not to tell me the number of outstanding shares?

Yes. Your logic is absolutely correct -- they're refusing to tell you something which is essential to you being able to evaluate their offer. You (hopefully) wouldn't accept a job offer without being told what the salary / hourly wage is; you should treat this situation no differently.

I told them I was going to take the night to think it over. I guess tomorrow I will ask again for the number of outstanding or authorized shares. I feel like if they continue to be sketchy about it, it might be an indicator of how they will act in the future.

There are two possibilities here, really: 1. They're trying to dupe you; 2. They don't realize that this is an essential number for you to know.

In my books, dishonesty and incompetence both mean exactly the same thing: Run away.

They won't tell unless you ask. If you explicitly ask and they still say no, that is a bad sign.

Depends a bit on who is doing the hiring - it may tend towards ignorance rather than incompetence. Ask for a conversation with the CFO or equiv.

Never attribute to malice that which can be adequately explained by stupidity. (Hanlon's Razor)

Sufficiently advanced incompetence is indistinguishable from malice.

No, malice requires intent.

... and sufficiently clever malice is indistinguishable from incompetence.

Don't ask for the number authorized, it is nearly useless. Outstanding and issued are the two ones that matter to you.

That's a bad sign. Did they specifically refuse to tell you? Did they offer any explanation?

It's important to be able trust the people you are working with.

At FriendFeed, we'll share just about any number with the people we've made offers to.

If they won't tell you what percentage you're getting, just ignore that part of the equation and base your estimate on everything else, like salary and health benefits.

Most companies issue about 10 million shares, or more, so 30,000 would come at about .3%. If they sold the company for 20 million dollars, you'd gross about $60,000 in options, and probably net around $10,000 after capital gains and stuff. Give or take an order of magnitude. Just a very rough back of the napkin.

10 million was my initial thought as well.

Capital gains tax would take that much?

Is it unreasonable for the company not to tell me the number of outstanding shares?

In California, I believe it is a legal requirement for a company offering stock options to disclose the number of outstanding shares.

A quick Googling found this web page http://www.jonesday.com/pubs/pubs_detail.aspx?pubID=S4587 , which states: The plan must specify the total number of securities that may be issued and the class of individuals eligible to receive options and purchase securities under the plan.

Very interesting. I don't think I'll bring up the law, but it's nice to know!

I founded four companies, and have always made them 'transparent' to prospective employees. In fact, I show them a projected cap table that tells them what they can expect -- 2 more financings to liquidity, the opportunity to pick up an another ~30k options, $10/share exit = $600k and growing -- IF we all work hard and pull together. If they're not forthcoming with you at this point, they won't be down the line.

I went to the website for the California Department of Corporations (http://134.186.208.228/caleasi/pub/exsearch.htm) and found out that they issued 3,000,000 in shares after their seed funding ($1 million) last year. I can't find the latest filing because it was so recent.

Would it be reasonable to assume that the number of shares is now 6x that (6 x 3 million = 18 million) since they have around $6 million in funding now?

Of course, now that I know that the information is in the public records, I am going to run away if they tell me I can't have that information after I talk to them again today.

Thanks for all the helpful comments.

A little more research on Delaware's Department of Corporations website (which is where they are incorporated) allowed me to find out the total number of authorized shares: 52,503,000

30,000 / 52,503,000 =~ 0.06%

With the package they're currently offering (a little below market and not very good benefits), I'm probably going to pass.

Thanks again everyone.

Where did you find this information on Delaware's site? I'd like to look it up for the company I work for.

https://sos-res.state.de.us/tin/GINameSearch.jsp

You have to pay $20 for all the information, but it's worth it.

So, with a $30 Million exit, you'll probably get enough out of the deal for a nice latte at Starbucks. Or, if you do the math: 30000000*.0006=18000. Or, after the dollar devalues a bit more and the price of coffee goes up, about enough for a nice latte at Starbucks.

For my time and money, I'd look for a different gig that paid more. That is unless you really want the startup experience and the company is really cool.

You must be really down on the dollar. But, yeah, I've figured that the options are basically worthless. However, I really like the product and I got them to up the salary significantly, so I said yes in the end.

Let them know that not knowing the total number of outstanding shares is like getting paid in a currency whose value is not pegged, and hence you can't gauge your total compensation correctly, and hence you can't take the offer.

Remember, interviews are a two way street, the company is looking for the right candidate, and you are looking for the right company. And, if a company can't be upfront with you at the beginning, that sort of tells you what you are in for once you start working there.

I've heard a similar BS line before "Oh, here's 100,000 shares, but we can't tell you the total number of outstanding shares because _________" (fill in the blank excuse: it's confidential, Mr Rogers likes chocolate, I'm constipated, whatever).

If you don't know the total number of shares and the percentage stake of that you've been offered, and the price of your options, the number of shares is worthless.

I think in this situation, a startup will usually say this when they're trying to screw you, but that's just my opinion. Keep in mind they will likely fail and your 30k options will be nothing but a piece of paper.

My advice? Find another company to work for that is less shady.

It turns out the hiring manager was under the impression it was confidential since no one had ever asked him before. He's an engineer, so I can forgive him for not knowing.

While the stock options aren't great, I was able to get them to up the salary by a lot, so I ended up accepting the job. If they didn't have such a good track record I probably would have run the other way. Either way, the comments on this board helped me negotiate a much better salary even if my options are mostly worthless.

well thats good then. you'll certainly learn a lot from this experience whether the company is boom or bust.

good luck!

http://blog.guykawasaki.com/2006/03/nine_questions_.html

1. How many outstanding shares of stock are there?

Thanks for the link.

This stinks because otherwise I really like the company. I just don't want to deal with anyone who isn't completely upfront with me.

In Virginia, I've used the website for the Office of the Clerk to look up the number of shares in a particular private company. I assume that companies in all states have to register the total number of shares, and that this information is public if you know who to ask. For CA, you might try something like http://kepler.sos.ca.gov/list.html . That said, if they really won't tell you the total number outstanding, you might want to be concerned :)

If they won't tell you the number of authorized shares, they're either inexperienced or dishonest. And if they've raised $6.1m, they're not inexperienced. So...

Actually, not only do you want to know the number of outstanding shares, you also want to find out what kind of liquidation preferences exist for the VC's. Depending on the liquidation preferences you could end up making $0 even if the company sells for 2-3X their series A funding.

It is absolutely unreasonable for the company to not specify the number of outstanding shares.

You can't evaluate the offer without the number of outstanding shares.

The last offer I received I was told that it wasn't their usual practice to tell. I talked to their HR director and she told me right away — in other words, you might have talked to the wrong person.

That's very fishy. They should give you all of the information in the plan because the details do matter when push comes to shove. I.e., you want to know not just the currently outstanding shares but all of the authorized shares as well. This is important in judging whether or not they've boxed themselves in w.r.t. funding and valuation. I've been seeing more startups lately getting themselves into needlessly tough positions by not raising enough money early and so their pattern is set at too low a range for future rounds unless everything goes hockey stick.

If they give you any BS about you not needing that information then you should run away (and tell everybody about them).

I think the company should be honest with you about the outstanding stock options. I had a similar tale, but when I asked the management about the outstanding stock option, they did reveal the numbers. That kind of says a lot. I have worked for many startups, so based on my experience; you need to be careful dealing with the startup founders/management. Its no big deal, if they really want u, then they should address Ur concern. Don’t fall into trap; let them be honest with the employees. Regardless of the idea or product, if the founders/management are crooks, mark my words, those startups don’t make it.

30,000 is probably not much; after the lawyers got done arranging their financing, there are probably tens of millions of shares outstanding.

Just bear in mind, you can't really evaluate the deal even knowing the number of shares outstanding; the shares will be valued as a percentage of a multiple of forward revenue (unknowable) less liquidation preferences (which they won't tell you, but will be skimmed off the top of any liquidity event by the VCs), presuming no further dilution.

You can find out the number of authorized shares from the Secretary of State of whatever state the company is incorporated in.

That won't tell you much (most companies never issue anywhere close to the number they have authorized), but it least it will narrow it down. If they have 1,000,000 authorized, 30,000 is pretty OK. But I'm guessing, given the money they've raised, that they have >10,000,000 authorized. In that case, 30,000 is probably nearly worthless at this point.

But if you initially got the 30k before they raised money, and now raise the 6 million, you probably get diluted to the same situation.

Or is this not the common scenario?

Also: do most people's options vest immediately and never expire or have conditions on them?

You really should consider your options. I could probably find you a job that pays a million dollars per month - Zimbabwe dollars, that is...

You're not an employee, and they're a private company. It's a catch-22 situation. They'd probably tell you if you were an employee and option holder. Such information might be held as company proprietary information, and as a non-employee, you're not entitled to know. I know how this sounds, but they apparently have a tight disclosure policy.

Let us know how many outstanding shares there are, I'm curious what percentage they are offering. I'm trying to get a general sense what a company like that would give % wise.

There are pretty standard numbers for post series A equity compensation - these numbers are typically shared by VCs with their portfolio companies so they're not going to be too different from company to company.

For a mid level engineer that number is around .1 to .3% of shares outstanding.

No startup I've ever worked for has told me the number of outstanding shares. They generally gave me dirty looks whenever I asked. I figure it didn't matter...the 30,000 options were take it or leave it and I've never been in a position to haggle.

Thinking about it, it might be a matter of public record. Maybe you can look up their articles of incorporation filed with whatever state they are in.

btw, 30,0000 shares sounds pretty standard in line with what I've been offered at previous jobs.

That sounds fishy.

you haven't mentioned what salary ($) they have offered you or whether is it only stock options ... if salary is fair and good then dont bother about stock options - if salary is below par then RUN !!

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