So, I've been working for startups for a long time.
Finally I've reached two "rules"-
- Be a founder
- Restricted Stock Units or Preferred Shares are the only way to go.
Options are way slanted against employees. If you have a market value of $150k and you take $80k in salary, you're giving up $70k of real money each year. The value of your options in most situations that work out well (Eg: base hits) are going to be less than that (when accounting for risk).
If you get fired in the 11th month, you've lost about $70k and get nothing.
IF you get fired in the 13th month, you have 1 year and one month vested, and 90 days (most likely) to spend real money to turn those options -- which you've already paid for by giving up market salary-- into something valuable.
Options are basically a raw deal, and I'm not even getting into liquidation preferences.
IF you give up real salary of $70k a year, that is the same, literally, as the angel who puts $70k into your A round.
You should be getting the same terms as the A round in that case.
That you don't is part of how the game is rigged. You should vest almost from the beginning.
I think 90 days of trial period with a cliff (Eg: you vest 90 days on your 91st day then every 30 days after that you vest another 30 days) is ok. You don't want the cap table to be too complex.
Yes, Venture Capitalists wouldn't like this. Of course, because it's fair rather than tilted towards them.
I know this won't become popular because engineers are too easy to manipulate. They read some self serving VC blog about why liquidation preferences are perfectly acceptable and they buy it.
But if you're there the year before the VC you took a lot more risk than they did. You're investing your real salary that you're not getting and could be getting by working for a fully developed company, while they are investing other people's money.
I've heard of programs called Slicing Pie and the like that make this easy.
Why you want to be a founder?
Well, after over 20 years working for startups, I have spent al to of time asking CEOs and CFOs specific pointed financial questions. I have gotten the runaround from them, and that's a flag that makes it easy to pass on the company. But when I haven't gotten the run around, way too often what they have told me was false.
Many times the CFO when asked for the number of authorized shares or the total shares on a fully diluted basis would give me some BS number. I don't know if he didn't actually know. (Many times the startup doesn't even have a CFO at that point.)
Many times I've been told that options accelerate, on acquisition, only to find out that the founders deal was that way but they wrote a new option plan for later employees that didn't have as nice of terms.
Just recently I saw a plan that gave the "compensation committee" the ability to do anything they wanted including cancelling all outstanding options grants, in the event of an acquisition.
I really don't know who wrote that document but I think it was one of the investors, and the "executive management" of the company never actually read it. They didn't believe it said that when I pointed it out. (Who am I, I'm just an engineer (this time, been a founder in the past, but I thought this company had reduced a lot of risk and so the tradeoff was worth it.)
So, another piece of advice- work for a company where the founders are hard asses when it comes to investment and terms. These people didn't even read the stock option plan (and weren't going to give it to me, despite requiring all of us employees to sign an agreement agreeing to its terms, because our CFO didn't realize that there was a separate plan document- he kept saying (or thought) that the agreements were the plan!)
This kind of lack of attention to detail is very common, in my experience in startups.
Working for a startup that fails is pretty lame, but working for a startup that succeeds and you get screwed out of the upside is much, much worse.