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Questions to Ask Before Joining a Startup

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Re: Questions to Ask Before Joining a Startup

#31

Post by kodisha »

peterlk wrote: post #21
kodisha wrote: post #7

Earlier quoted context omitted.

In scenario of: - If you get the money and opportunity to hire really senior/well known dev to lead your eng. team, would yo do it - Ummm no, we believe in our team, and their strong knowledge, there is no problem they cannot solve (or something along those lines) Run.

I think I understand what you're saying, but I think you're oversimplifying, and that would do a disservice to people who may be new to the job market. Just because someone is a big name doesn't mean they're the right fit to lead a team - some of the best engineers I've ever met have no interest in leading teams, but are very valuable to have on the team. Hiring well, and believing in the team that you've hired is im…

Exactly, thanks for clarifying.

I've seen this behaviour where existing employees were forming a "cult" to cover each other, and promote one another, while technical debt piled up, and at the end basically brought products to a halt.

I'm not saying that VIP hire is some magic stick that will fix everything, but if they consider a taboo to even mention such a thing, this is not a environment to be in.

Re: Questions to Ask Before Joining a Startup

#32

Post by lazerwalker »

maddening wrote: post #28

I believe that equity is mostly SF thing. One of my friends works in a startup in Berlin where he was offered equity as one of the founders (10th engender or sth like that). Chances that he will be able to liquidate them in foreseeable future is non existing. Nobody else that I know was offered an equity, even though quite a lot of my friends work for well funded startups. I worked in some and nobody offered me anyth…

FWIW, Germany specifically has complicated tax laws that make equity tricky. Namely: if your equity ever increases in value — e.g. if your startup raises a round of funding and gets a higher valuation — you owe capital gains taxes on the increase, even if the equity itself isn't liquid (which it might very well never be). There are workarounds, but they're a hassle. None of this is an issue in the US, where you're only taxed when you sell.

I've never been an employee of a German company, but I'm in the process of founding a startup here in Berlin. I totally get how saving early employees from having to deal with that headache would be a blessing.

(In general, the advice in the article tracks with my experience working not just with SF-based startups but companies in other top-tier tech cities like London and NYC. If you get a job at a startup in SF, you'll absolutely get equity as meaningful part of your job offer, even if you actively don't want it. A large part of startups' ability to hire depends on them being able to convince you it's okay you're being paid literally less than half of what Facebook pays because someday your 0.01-0.1% equity stake might be worth something)

Re: Questions to Ask Before Joining a Startup

#33

Post by jbaczuk »

A few comments from prior experience:

Equity in a startup is often used as a way to entice people to work without having to pay them market rates. If you suspect this is the case, definitely keep in mind that this equity could very well never be worth more than $0.

If you are interested in the value of the equity, then you have to be interested in the value of the business. You must understand whether you think the business value can grow. And this requires much more research and business strategy evaluation than most jobs offers.

Re: Questions to Ask Before Joining a Startup

#34

Post by PacifyFish »

jasode wrote: post #8

>It is also important to note that early employees experience more dilution events. An example of a dilution event would be raising another round of funding. This is another reason why joining a company early should offer more equity. I disagree that it's important to note that early employees experience more dilution events. I know you're trying to educate but this type of advice unintentionally misinforms people an…

I disagree. The most common way to predict payout is to compare to other companies' exit valuations.

E.g. "Oh, company X got acquired for $250 million. We do something similar. If I own .025% of the company, I'd make $62,500 if we exited at that valuation. Cool."

It's important to be aware of dilution events so that you realize when you accept the offer that your .025% will be more like .008% if you're lucky enough to have a successful exit.

Re: Questions to Ask Before Joining a Startup

#36

Post by _bfhp »

i_am_nomad wrote: post #18
jpmoyn wrote: post #15

Earlier quoted context omitted.

Can you elaborate on why your payoff is $0 if you have 1% vested common stock in the company?

Liquidation preferences mean that some shares have rights that others don't. In a liquidity event (IPO or acquisition), the people holding the "preferred" shares get paid out first, according to the number of shares and the valuation of those shares. If all the cash and other assets from the acquisition are given out to them, then anyone else holding the less-preferred shares get nothing. Usually, the founders and VC…

I don't even understand what half the words here mean and the alienation of human beings still comes through. We can offer advanced college calculus in public high schools but we can't teach basic finance. I don't think anyone but a handful of workers at my job understands any of this

Re: Questions to Ask Before Joining a Startup

#37

Post by deathanatos »

i_am_nomad wrote: post #18
jpmoyn wrote: post #15

Earlier quoted context omitted.

Can you elaborate on why your payoff is $0 if you have 1% vested common stock in the company?

Liquidation preferences mean that some shares have rights that others don't. In a liquidity event (IPO or acquisition), the people holding the "preferred" shares get paid out first, according to the number of shares and the valuation of those shares. If all the cash and other assets from the acquisition are given out to them, then anyone else holding the less-preferred shares get nothing. Usually, the founders and VC…

Are "liquidation preference" shares just tagged as being worth more than their actual value though? I can't reconcile how they could get paid "according to the number of shares and the valuation of those shares" and have there be nothing left over for the non-preferred stock. If the founders/VCs have any n% of a, say, $10M acquisition, that still has to leave money for everyone else, unless the total number of shares is >100%, someone has a funny idea of a $10M company being worth more than the $10M that was paid for it, or there is something else going on.

My understanding is that you're perfectly correct, however — I'm just trying to demonstrate how I don't really "get" it. I presume there's some other number involved in the "liquidation preference" that is visible to those involved that make it more than a mere n% of company calculation.

Edit: Googling this, it seems like these special investors get to recoup their investment if the company is selling for less than what they valued it at at their time of investment. (And since it seems like this generally applies to VC firms, I gotta say, this is really lame. It was a bad investment, but you know the actual employees took a lot more risk in it, and yet the VCs get a better return — albeit a loss.)

Re: Questions to Ask Before Joining a Startup

#38

Post by i_am_nomad »

harlanji wrote: post #22

5 years ago this would’ve been awesome, I asked all of this to 5 employers in SF. Now in 2018 Silicon Valley we’re treated like chattle as coders/lower so I don’t see the relevance of any of these questions beyond signalling. You can be laid off at any time and for no reason or because of prejudiced liars who want you off the team. Call me jaded, I’ve been screwed at almost every startup and told simply that the patt…

Maybe off-topic here, but: you sound very bitter, and that bitterness is no doubt understandable. I'm currently being pushed around at work by incompetent people who have lied routinely, and it stings. I'm sure the same has happened to many if not most people in the industry.

But you and I both should let go of that bitterness and even forgive the liars if we're to move on as people. I'll quote an old saying, "Holding a grudge is like drinking poison and expecting your enemy to die."

Re: Questions to Ask Before Joining a Startup

#39

Post by throwaway4000 »

Having worked at several start-ups, I'd say the employment risks are not worth the cost. In most of my cases, when the start-up hasn't raised enough money, you end up with a poor work environment - pissed off/stressed bosses, weird work hours, "do anything" to save the business mentality... Generally layoffs/firings occur pretty abruptly and you're left filing for unemployment without a "thank you". My advice would be to wait for a start-up to be "derisked" / 3-5 years old with a solid run rate above $100m in revenue.

The few success stories, such as Airbnb and Facebook, are the extreme exception.

Re: Questions to Ask Before Joining a Startup

#40

Post by aestetix »

>> Technically there are 23 questions but I grouped the last one together as a question for new potential teammates. Also 23 questions to ask before joining a startup didn’t have as good a ring to it.

Actually, I'd argue 23 has a way better ring to it: https://en.wikipedia.org/wiki/23_enigma

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