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Questions to Ask Before Joining a Startup

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Re: Questions to Ask Before Joining a Startup

#41

Post by jiveturkey »

ironchef wrote: post #20
gesman wrote: post #11

Option piece is misleading. You own 1% of options and company is bought for $10m. Your payoff? Likely $0. He forgot to mention preferred shares given to VC’s with liquidation preferences that likely never disclosed to new engineers. This is what makes new engineer to sacrifice his salary for a possible liquidation even that likely either never happens or there is no money left for him after VCs took their xN ratios o…

Good call. I was going to suggest they should be able to see: * preference stack * strike price * last valuation with board/investors If you can't get those, then unless the equity is just butter to you, walk .. as you don't really know what the comp looks like.

so are you saying you’ve ever been able to get those numbers? i never have.

Re: Questions to Ask Before Joining a Startup

#42

Post by seibelj »

The only valid reasons for working at a seed-stage / series A startup:

You are a founder.

They are working with a technology or in an industry that you specifically want to work with and it is very hard to work on it professionally, and doing side projects are infeasible.

You need experience and you have no other option to get experience.

You are getting a significant title bump that moves your career forwards.

Invalid reasons for working at a startup:

Equity (getting rich off stock options) - this is very likely to be worthless unless you are a co-founder.

Salary - you would make (much) more at a big company.

Work life balance - you will work harder than you ever have.

Stability - does not exist.

Benefits - very bad.

Learning - they will not have any formal training nor time to train you, so be prepared to self-learn.

---

All that said, I enjoyed my time as an employee at multiple startups. Just go in for the right reasons and your eyes wide open.

Re: Questions to Ask Before Joining a Startup

#43

Post by doingmyting »

PacifyFish wrote: post #34
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 t…

I'm glad you said this. Many got burned including myself due to dilution events. When your 2% stake turns into 0.25% over time and you get paid last, there needs to be a very large buyout/IPO for you to get anything substantial. Add in the taxes paid on that and I would have been 10 times better working a corporate job with less headaches.

Re: Questions to Ask Before Joining a Startup

#45

Post by seanhunter »

I'd treat the specific questions here with a grain of salt but directionally the emphasis on making sure you inform yourself about the things you care about is good. I wouldn't expect that asking questions of the prospective employer is the best way to inform yourself about a lot of things though. A lot of devs for example could use some advice about options, how they work and what the tax consequences are when you receive or exercise options. Your prospective employer really can't give you this advice in any credible way - you need to seek it out independently and do your own research.

Some of the specific questions are not great depending on cultural context. For example if someone joining my dev team asked me to pay to ship their car somewhere I'd ask them why they needed a car to code. But I'm in London, where having a car has marginal/negative utility versus being essential in other places.

On the equity side, if someone asked these questions I'd know they don't understand equity. What would really help is to see the cap table so you get liquidation preferences etc but you're not going to get to see the cap table most places if you're just going for a dev job. As it is, he says you might not get told the strike price on your options, which in many/most countries your employer would be legally obliged to tell you as it's part of the valuation of your comp for tax purposes.

Re: Questions to Ask Before Joining a Startup

#46

Post by maddening »

lazerwalker wrote: post #32
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 on…

Well, I know people working not only in Berlin, but also in USA, just not in SF. One blockchain startup from Utah wanted to develop some advanced stuff, got investors hyped, ICO and stuff.

They paid their employers quite well, really good rates. All of programmers (besides 2 founders I believe) are contractors - no equity. They negotiated their hourly rates pretty high, because they knew that even if it will be a great success, they won't get anything else than a salary.

Re: Questions to Ask Before Joining a Startup

#47

Post by habitue »

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…

It's not quite as straightforward as you're implying either. If you graph the total value of an employee's shares over time, dilution drops the value of that graph. You can say after the fact "look, after six months your total share value was higher than it started" but it doesn't change the fact that that graph has a big drop somewhere in it. If share price is constantly growing, dilution is always a bad thing for an employee. The pretense that they care about what percentage of the company is owned is specious.

The real reason employees should put up with dilution is because the share price doesn't always grow. Sometimes, the company runs out of steam and it drops to zero. They should put up with dilution because it gives the company a better chance to end up profitable and for their shares to be worth anything at a liquidity event.

Re: Questions to Ask Before Joining a Startup

#48

Post by amyjess »

seibelj wrote: post #42

The only valid reasons for working at a seed-stage / series A startup: You are a founder. They are working with a technology or in an industry that you specifically want to work with and it is very hard to work on it professionally, and doing side projects are infeasible. You need experience and you have no other option to get experience. You are getting a significant title bump that moves your career forwards. Inval…

I agree with you, though I'd say that this may not apply fully to late-stage startups in Series C or Series D.

Re: Questions to Ask Before Joining a Startup

#49

Post by leroy_masochist »

> A good rule of thumb is 25% of take home pay should go towards housing and up to 40% in the Bay Area. 40% can be done if you minimize costs like going out or have a second income.

This is an interesting, and perhaps telling, assertion. 40% can be done if you minimize costs, not only in the Bay Area, but anywhere else. Thus, the implicit point here is apparently that the opportunity set in the Bay Area is so great that it's justifiable to allocate an additional 15% of pretax income just to live there, relative to anywhere else on the planet.

I'm not sure if I buy that, especially within the context of taking a job that you've already been offered that has a defined comp package vs. moving somewhere to find a new job.

Re: Questions to Ask Before Joining a Startup

#50

Post by weka »

seibelj wrote: post #42

The only valid reasons for working at a seed-stage / series A startup: You are a founder. They are working with a technology or in an industry that you specifically want to work with and it is very hard to work on it professionally, and doing side projects are infeasible. You need experience and you have no other option to get experience. You are getting a significant title bump that moves your career forwards. Inval…

> You need experience and you have no other option to get experience.

This was me and I paid for it. Right now I'm on week 8 of 30 hour weeks. It sucks.

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