The information that companies share with employees is becoming a bigger issue

>> 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.

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

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.

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.

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

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

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.

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.

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.

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?

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.

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 :)

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.

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.

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.

I fell for FOMO once. Never again.