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Questions to Ask Before Joining a Startup

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Re: Questions to Ask Before Joining a Startup

#51

Post by seibelj »

amyjess wrote: post #48
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.

This is more seed / A stage. Once solid revenues are established it's a different game. I edited the original comment to reflect this.

Re: Questions to Ask Before Joining a Startup

#52

Post by aw1621107 »

weka wrote: post #50
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.

I thought standard work weeks were 40 hours (at least in the US)? Are your work weeks normally shorter?

Re: Questions to Ask Before Joining a Startup

#53

Post by paulcole »

weka wrote: post #50
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.

Do you mean you're being worked too hard or not hard enough?

Re: Questions to Ask Before Joining a Startup

#54

Post by jasode »

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…

>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%

But you're repeating the same error of prioritizing the wrong thing: dilution.

What employees ultimately care about is their wealth calculation: shares_multiplied_by_price.

Example of the type of math people actually care about:

  0.008% (because dilutions) a $1 billion company is $80k
  0.025% (no dilution) of a $100 million company is $25k.
People would rather have $80k than $25k. The dilutions that dropped them from 0.025% to 0.008% is irrelevant trivia.

For most employees that are minority shareholders, dilution is a side-effect calculation in the realm of academic trivia. Dilution is not a purposeful strategy in this situation. Highlighting "dilution" in advice for employees in an attempt to make them more financially more sophisticated has the opposite effect!

The scenarios for dilution to be a calculated strategy would be something like a founder considering 2 different offers from potential investors. One VC offers $20 million for 15% of the company. Another offers $30 million for 25% of the company. Or some founders selling too much of a percentage such that the dilution crosses some boundary such as 51% ownership where they collectively lose control of the company. These deliberate decisions around dilution are very different from employees realistically worrying about dilution dropping them from 0.025% to 0.008%!

Re: Questions to Ask Before Joining a Startup

#55

Post by [deleted] »

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…

[deleted]

Re: Questions to Ask Before Joining a Startup

#57

Post by geophile »

Major omission: Does the business model make sense to you?

More specifically: Is there a demand for the product? Are there competitors? If not, why not -- are you sure the product is actually something that somebody wants? If there are competitors -- how will your startup compete with them? Do you trust the people running the company to guide it to success, either directly, or because they have plans to hire people who can? Is the technology feasible, or are the founders embarking on an R&D project?

There are no guarantees of course, and you can learn a lot and have fun at a startup that fails, but do your best to join with your eyes wide open.

Re: Questions to Ask Before Joining a Startup

#58

Post by Spoom »

deathanatos wrote: post #37
i_am_nomad wrote: post #18

Earlier quoted context omitted.

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…

If you have preferred shares, you often have a "2X liquidation preference"[1] or other multiple. This means that you are guaranteed to get at least two times your initial investment in a liquidation event, even if the value of your shares at the time is less than that amount.

This can (and often does) eat into the common stockholders' (e.g. employees) liquidation amounts.

1. https://www.businessinsider.com/how-liquidation-preferences-...

Re: Questions to Ask Before Joining a Startup

#59

Post by nirvdrum »

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 think your overall point is fair -- you own less, but of a more valuable asset now, so you should come out ahead. However, in my experience the ones that say dilution doesn't matter are often the ones that are likely to be "made whole" at dilution events or have anti-dilution protections. If you're not experiencing dilution the same way that rank-and-file employees are, I think it's a bit disingenuous to tell them that it doesn't matter.

As for its overall importance, most companies simply aren't going to be homeruns. I was at one company that passed on an acquisition offer of $X and opted to take an additional round of funding. A year later, the company sold for the same $X that it passed on. For sure, it was hoping to go much bigger than it ultimately did. But in addition to having to wait for all liquidation preferences to be settled, the employees all got to experience additional dilution for no additional gain.

It's great to shoot for the stars and everyone joining a startup hope that's the outcome. But I don't think it's out of place to also think about the median case. An early stage employee takes a lot of risk with few protections.

Re: Questions to Ask Before Joining a Startup

#60

Post by Cursuviam »

onion2k wrote: post #17
latch wrote: post #4

I've been thinking about low-friction options for getting a sense of the engineering quality. I don't think I'm alone in thinking that technical debt and bad software development practices are a top concern. Being quite senior now, I'd feel comfortable asking: 1 - To see their CI dashboard 2 - To see a sample of their production systems stdout & stderr 3 - Asking to review a recent non-trivial commit (with the person…

"How do you feel about Friday afternoon deploys?" is a great question for that. Many interviewers assume you want to hear about how they refuse to do them in order to protect your Friday night and weekend time. Really, the answer you want is that they've automated the deploy process and made it robust enough not to break production so it doesn't matter when a deploy happens.

Automated deploys aren't a magic bullet and can still break production, even at a big megacorp with tons of infra and tests to keep prod safe.
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