Negotiating Your Startup Job Offer | Hacker News Reader

Negotiating Your Startup Job Offer

rob.by

88 pointsfreerobby26 comments

I have definitely come to the view recently that a seed-stage startup is not a good thing for an experienced engineer to join unless it is as a founder. The odds of it being worth the salary cut are just too low.

I think it's one of the best posts I've ever seen on stock options. Too many people think too much of their stock options, while in reality in most cases they are worth close to nothing. This is something everyone has to consider when their employer offers them to trade salary for equity.

I made this mistake once, I wish I had read this post then...

Cool post - one correction:

Your stock was restricted, not common.

should be:

Your stock was common, not preferred.

You typically don't get restricted stock through exercise of a stock option, you get common. And investors get their liquidation preference through preferred stock, not common.

Thanks for catching this; I updated accordingly.

I think this was the most important point regarding equity: "The only thing that matters in terms of your equity when you join a startup is what percent of the company they are giving you. If management tells you the number of shares and not the total shares outstanding so you can’t compute the percent you own – don’t join the company! They are dishonest and are tricking you and will trick you again many times."

I have twice worked for companies that presented my options this way. Although one of them worked out very well for me, and the other is likely to as well, it's still sketchy. I wish this post had been around back then :) That being said, I will be referring back to it in the future!

I have no idea why a person would want to be an employee of a startup at an early stage. Seems like you get all of the downside with none/little of the upside.

Can anyone that sees things differently provide some reasons?

My goal at my first startup was to optimize for learning and it served me very well for that. The perks I got:

- Met investors and learned about the entire investing process

- Got immersed in metrics/data-driven product development

- Had a ton of autonomy even as a non-senior developer.

- Made a name for myself in the local ecosystem.

- Got to spend my time developing a product I loved and believed in.

These are all good reasons, but they strike me as being much more valuable to a person that is new in the industry, rather than one with several years of experience.

I can certainly see the appeal for someone looking for experience, but I still don't see it for a seasoned professional.

To me it seems as the only valid dichotomy is between being a founder yourself or working as an employee in a more established (but still perhaps small) business.

Bigger equity, more significant impact in the product and the learning experience. Those were my reasons.

Also, some people love the idea of being "employee number X". I guess it could be an egobuster, but not really useful unless your company becomes Google or Amazon.

There are lots of factors to consider. I joined an early-ish startup as an employee (still < 10 employees). My previous job was Dilbert-esque, so this has been awesome. Working in the same room with the entire company is great. Sure, I took a bit of a salary/benefits cut, but it is totally worth it. I'm having a lot more fun, and if I'm spending 40+ hours a week somewhere, I'll take actual happiness over material happiness.

A great read, all in all negotiation 101 techniques still work:

- Put your fence post out first by setting a number that you could get elsewhere - Mention that you love the company and are willing to take a partial cut on a higher alternative but cant do more than that - Assume the stock wont be worth much at all, explain although you strongly believe in the company most start-ups fail - Confidence is important

This is great, thanks for this!

Question regarding stock options: I have some but I'm not sure if the company will ever sell for enough to make it lucrative for me, however that assumption and my knowledge of the company are based on what I've casually been told, what I've observed, does being offered stock options (or purchasing stock) grant me access to financial information or some sort of "insider" information that would allow me to make a better informed decision?

Not if the company is privately held.

Your options agreement should tell you how many shares you have rights on and what your strike price is. The company, if run honestly and transparently, will tell you how many shares are outstanding and what the current valuation is. From there you can do the math on potential outcomes. If they won't give you formal disclosure of that information, assume the worst.

I'm pretty sure this is wrong. I think in California and Delaware (most startups) stockholders are entitled to see the financials of the company.

I doubt most companies would deny this right if you sent a notarized/certified letter with notice. And in the worst case a judge would most likely side with the stockholder.

IANAL

The problem is that he's not a stockholder. He doesn't become one until/unless he exercises the options.

So he buys one share?

At what point did it become OK for investors to eat such a gaping chunk of equity by simply contributing money, when founders/engineers/technical talent contribute not just money, but time and effort as well?

Is it simply because they are the ones holding the cards? If so, fuck that, and fuck investors.

> At what point did it become OK

When everyone agreed to it, I suppose.

> If so, fuck that, and fuck investors.

This seems rather naive. No one takes investors for the fun of it. Investment describes a mutually beneficial relationship that occurs when an enterprise needs funding. Investors shoulder the financial risk and burden and thus demand compensation in the form of (probably worthless) equity.

You are right, the burden is on those taking investment to make sure it is good for them. On the other hand, there may be negative externalities to a mutually beneficial deal between an investor and a founder, for an early employee.

How do I know how much a company is worth and how many shares it has? Is there some public source where I can look up for this information?

Startup job offers usually just give you how much stock they're offering you but without any information to see how much it's really worth

You can request an offer that specifies your stock options as a percentage of the company. You won't know what it's worth now, but 1) honest founders will tell you, and 2) either way, you'll be able to do the math on what it would be worth in varying exit scenarios.

This is not a sure bet, but just ask about their latest funding round and how much they got and how much of a percentage they gave to the investors. For example, Company X just closed a 1 million dollar Series A and gave up 50% equity. That means the company is valuated @ $2 million.

Aside from asking about internal company details such as financing valuations, you should also do research on similar companies that are a bit more mature. Find out details on their financings, revenue, exits, etc. It'll give you some idea of what could happen.

Good read as I'm currently entertaining a 1% stake in a seeded company for 1/2 my market rate, with a valuation of $5 mil.

Citing both the article and my personal experience, it would take more than that to make that deal worth taking.

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