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Understanding Startup Offers

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Re: Understanding Startup Offers

#11

Post by synergy20 »

Chatted with some early-stage-then-IPO-ed engineers yesterday, I asked "aren't your company IPO-ed and you should have retired?", the answer is, after multiple dilutions in rounds of fund raises, his options ended up worth just a few thousands, not useful at all.

There is no way the startup you have been working for will keep your interest a priority, and you never know if your share will reach zero in the process of multi-stage VC rounds.

Unless you're the founders who will always be at the negotiation table for new rounds, I saw no point to work for startups, not at all.

Re: Understanding Startup Offers

#12

Post by quokkafriend »

qqtt wrote: post #3

It would be interesting to see some analysis comparing pre-IPO offers versus standard FAANG-style engineering offers and see what the monetary difference actually is. In the not-so-distant past, start ups were pretty much the only avenue to secure a multiple-million dollar personal liquidity event, in the off chance you join a successful start up, work your tail off, and the company gets to a point where that exit ha…

My equity grants as a non-eng (but involved in prod dev) have ranged from 0.05% to 0.6% over the course of 10 years in startups (age 25-35). All Series A to Series B.

My take is that unless you are very good at judging leadership teams and company prospects, that joining a FAANG or a Series C+ scale-up (and even that takes thoughtful research and luck) is the better play.

Early stage at my past grant levels has to hit a unicorn valuation for the equity to match FAANG packages. I'm not even sure a $1B exit is enough after dilution, investor preferences, and god forbid down/flat rounds. Certainly not at the grants that I started at in my career.

Plus keep in mind that FAANG stock also appreciates. I see some folks not accounting for that growth and only startup valuation growth. Comp packages for mid level ENG and PMs are 400-500k / yr, not even including appreciation!

Re: Understanding Startup Offers

#13

Post by quokkafriend »

clpm4j wrote: post #9
preseedthrwwy wrote: post #8

Earlier quoted context omitted.

throwaway for obvious reasons.. I joined a seed company w/ a $10m valuation in early 2014, starting offer was 1%. after series a, b, c, and some smaller retention grants, I had about 0.4%. Left before fully vesting, so ended up with 0.3%. Company was acquired for $4b and I made $12m. After taxes, netted about $7.5m Joined another seed company with $10m valuation in 2016, starting offer was 3%. after a few dilutive fu…

This is a good 'best-case' example that anyone could hope for, and like you say - you probably need to be one of first few engineering hires to have a shot at this type of outcome.

Yea I think this is a top 0.1% survivorship bias. Hitting 2 startup lotteries in a row at that kind of exit. Kudos.

Re: Understanding Startup Offers

#15

Post by preseedthrwwy »

clpm4j wrote: post #9
preseedthrwwy wrote: post #8

Earlier quoted context omitted.

throwaway for obvious reasons.. I joined a seed company w/ a $10m valuation in early 2014, starting offer was 1%. after series a, b, c, and some smaller retention grants, I had about 0.4%. Left before fully vesting, so ended up with 0.3%. Company was acquired for $4b and I made $12m. After taxes, netted about $7.5m Joined another seed company with $10m valuation in 2016, starting offer was 3%. after a few dilutive fu…

This is a good 'best-case' example that anyone could hope for, and like you say - you probably need to be one of first few engineering hires to have a shot at this type of outcome.

absolutely agree - wasn't trying to give the indication that I think my situation is a likely outcome

Re: Understanding Startup Offers

#16

Post by clpm4j »

synergy20 wrote: post #11

Chatted with some early-stage-then-IPO-ed engineers yesterday, I asked "aren't your company IPO-ed and you should have retired?", the answer is, after multiple dilutions in rounds of fund raises, his options ended up worth just a few thousands, not useful at all. There is no way the startup you have been working for will keep your interest a priority, and you never know if your share will reach zero in the process of…

I think the main advantage of working at a startup is when you're relatively young and inexperienced - you're being compensated in the experience and accelerated job titles that you can then leverage to ramp up your career by joining other companies or starting your own. Getting an exit is a cherry on top.

Re: Understanding Startup Offers

#17

Post by dhd415 »

clpm4j wrote: post #16
synergy20 wrote: post #11

Chatted with some early-stage-then-IPO-ed engineers yesterday, I asked "aren't your company IPO-ed and you should have retired?", the answer is, after multiple dilutions in rounds of fund raises, his options ended up worth just a few thousands, not useful at all. There is no way the startup you have been working for will keep your interest a priority, and you never know if your share will reach zero in the process of…

I think the main advantage of working at a startup is when you're relatively young and inexperienced - you're being compensated in the experience and accelerated job titles that you can then leverage to ramp up your career by joining other companies or starting your own. Getting an exit is a cherry on top.

In my experience, getting a FAANG job accelerates your career as well or better than titling up quickly in a startup. Having a FANG position on your resume is more of a known quantity for future potential employers than being promoted quickly in an unknown startup.

Re: Understanding Startup Offers

#18

Post by fasteddie »

This is a great, clean explainer.

Series B seems to be the sweet spot to me if you would like to avoid working at a FAANG but want similar EV in your comp package, assuming you are decently good at guessing winners.

At that point the company is meaningfully de-risked but the equity offers are still pretty good for mid-career folks that you end up with millions in a good exit.

Re: Understanding Startup Offers

#19

Post by quokkafriend »

preseedthrwwy wrote: post #15
clpm4j wrote: post #9

Earlier quoted context omitted.

This is a good 'best-case' example that anyone could hope for, and like you say - you probably need to be one of first few engineering hires to have a shot at this type of outcome.

absolutely agree - wasn't trying to give the indication that I think my situation is a likely outcome

What is next for you?!

Re: Understanding Startup Offers

#20

Post by ganoushoreilly »

toomuchtodo wrote: post #4

It would be helpful to explain how an early employee (whether still employed or separated from the company) is able to obtain the following documentation from their company to demonstrate QSBS treatment to the IRS (or if a letter indicating such from a finance department or the CFO would suffice): > Even though reporting QSBS is simple, you should still keep financial statements and other supporting documents to supp…

This is a good point. A lot of founders seem to want to protect or hide this information. Usually that's a red flag for me, but it's common. I think it needs to me more normalized and formalized.
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