[HN Gopher] Questions candidates can ask about equity compensation
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Questions candidates can ask about equity compensation
Author : Ozzie_osman
Score : 104 points
Date : 2022-06-02 14:33 UTC (2 days ago)
(HTM) web link (www.holloway.com)
(TXT) w3m dump (www.holloway.com)
| buro9 wrote:
| Whether you get answers depends a lot on the size of the company.
|
| Fewer than 10 employees... those interviewing likely know the
| answers and will share.
|
| Between 10-50 employees... those interviewing may still know the
| answers and may still be open to sharing them.
|
| Above 50 employees... it is increasingly likely that this
| information isn't known by more than a few people (those involved
| in the fundraising, accounts, senior leadership), and that your
| interviewers do not know it - if they know it at one point in
| time it's out of date quickly (next raise). It quick becomes
| something that only a very few people know and the information
| isn't useful/constructive to those focusing on execution (those
| who will be interviewing you).
|
| The questions are good... but if you don't get answers and would
| choose not to take the roles on that basis, then you might want
| to chat to a lot of people who have been early stage and done
| well - because very few got answers to those questions.
| TimPC wrote:
| Start-ups who don't solve these issues will see more
| knowledgeable potential employees walk away. The fact is start-
| ups pay a fair bit below the market wage and people have every
| right to know what sort of equity you're getting in exchange
| for that. If a start-up is unwilling or unable to answer fairly
| basic questions about how their equity works it's totally
| reasonable to not work for them.
| ttymck wrote:
| Knowledgeable about their job != knowledge about corporate
| equity.
|
| There's a large share of capable engineers who are still
| wide-eyed over startup equity. Folks I know personally and
| greatly respect. Startups have had no trouble duping
| engineers into lower compensation while delivering
| serviceable results, and will continue to have no problem.
| ryandrake wrote:
| This might be a harsh, unpopular opinion, but if someone is
| going to accept a job where equity is a significant portion
| of their compensation, they _really need_ to understand the
| essentials of equity, how options work, their tax
| implications, how to read basic financial statements, and
| so on. This is your livelihood we 're talking about. Would
| you accept a job that paid in Bitcoin without understanding
| the basics of cryptocurrency? How about one that paid in
| Beanie Babies? I'm not saying go back to school and get a
| Finance degree, but people need to get informed about their
| compensation!
| kjeetgill wrote:
| As a wide-eyed engineer who absolutely should have the
| knowledge you're talking about but doesn't. Any good
| comprehensive resources?
|
| Random googling never gives me confidence I'm getting the
| right information when it comes to money, nutrition, and
| health.
| prostoalex wrote:
| The book I've seen recommended is "Consider your options"
| https://www.goodreads.com/book/show/1635049.Consider_Your
| _Op...
| bcbrown wrote:
| Learn the vocabulary. Look up things like 409a
| valuations, 83b elections, NSO and ISO stock options, the
| difference between long-term and short-term capital
| gains, strike price vs exercise price (plus how and when
| taxes on options are triggered and calculated), marginal
| tax rate vs effective tax rate. Probably also worthwhile
| to learn the basics of corporate finance, like annual
| recurring revenue (ARR), costs of goods sold (COGS),
| customer acquisition costs (CAC), differences between
| cashflow and profit, EBITDA (plus what each of those
| words mean), capital expenditure (capex) vs operational
| expenditure (opex). If you understand the vocabulary,
| it's a lot easier to evaluate whether a given source is
| authoritative or not.
|
| Sign up for Matt Levine's newsletter. He's perhaps
| starting to be a little overexposed on HN, but he's
| informative and humorous, and his newsletter is a good
| way to get a little exposure to finance every day.
|
| It's not not startup-equity specific, but check out
| Bogleheads for generic investing advice.
| mattficke wrote:
| A lot of this information is also available in the company's
| Articles of Incorporation. Can't hurt to ask in the interview,
| but it's probably a good idea to pull the actual filing
| anywhere you're seriously considering an offer (if it's a
| Delaware corporation, you have to pay a registered agent to get
| these documents, it's usually $50-$100.)
|
| Typically includes things like total outstanding shares,
| conversion price of the various preferred rounds, liquidation
| preference for the preferred shares, etc. The delta between the
| most recent preferred round and the 409a is the best
| approximation of the actual value of the equity at the time of
| the grant.
| ttymck wrote:
| It's important to note that, unless I'm terribly mistaken,
| the articles of incorporation are subject to change. By a
| board vote, I presume. So your compensation is controlled, at
| the end of the day, by the investors. And any acquisition
| (change of ownership) likely renders the equity clauses null
| and void (at the discretion of the buyer).
| kleinsch wrote:
| For any size company it's a waste of time asking equity
| questions to most interviewers, just like it's a waste of time
| asking questions about benefits.
|
| Assuming your interviewers are potential future teammates, ask
| them questions about work. Ask your recruiter or future manager
| benefits and comp questions. At most companies >10 people, your
| recruiter will have a packet with all the answers to equity
| questions.
| claytonjy wrote:
| I agree, but I'm generally disappointed with the information
| the recruiter is able or willing to provide.
|
| Something I've noticed more recently is the standard equity
| info they send everyone is both light on details and heavy on
| "here's how much you stand to make if we exit at X". I can't
| blame them for selling it, but I shouldn't have to ask for
| shares outstanding, latest 409a or other simple numbers.
|
| I've also been screwed by joining just after a big raise and
| having my strike price end up much higher than I was told
| when interviewing.
| davedx wrote:
| Yeah this is why I work freelance (often for startups).
|
| The present value of cash flows is so much higher than the
| future value of some illiquid, highly speculative startup
| equity with way more restrictions than regular public stock
| equity.
| humbleguy wrote:
| I contacted for 10 years and managed to save up about 200k.
| Started at pre IPO company and walked away with 2.5m after
| taxes in 7 years. Big difference.
| ttymck wrote:
| Alternatively, don't join startups for the equity.
|
| Even if you genuinely believe the person answering your questions
| genuinely believes the answers _they are giving_ , there's
| perilously little evidence to suggest their answers will be
| binding or accurate.
|
| 4 years from now, anticipate something to the effect of: "I have
| altered the deal, pray I don't alter it further", this could come
| from the CEO, an investor or the acquirer. Anything more
| favorable should be considered a statistical miracle.
|
| Joining a near-IPO company is something I can't speak to, but
| have a more optimistic view of. Furthermore, joining a public
| company with liquid equity is something I can personally say is
| well worth it.
|
| Do not join startups for the equity.
| daenz wrote:
| >Do not join startups for the equity.
|
| If you're not a founding member, what reasons does that leave?
| UkrainianJew wrote:
| To learn by observing the founding members, understanding the
| business model, the market, and eventually becoming a
| founding member of the next company.
|
| Not something you can do on a full-time job of resolving Git
| conflicts at FAANG.
| runnerup wrote:
| Great coworkers, fun work environment with high velocity of
| innovation, decent enough pay, flexible work arrangements,
| preferred geography, belief in the mission.
| SOLAR_FIELDS wrote:
| I recently did a round of interviews specifically targeting
| series A and series B companies and this is a pretty
| accurate summary. Some interesting things that were offered
| to me:
|
| - Unlimited nomading or work anywhere in the world for the
| same pay
|
| - Extremely generous PTO (by USA standards)
|
| - Quite generous WFH equipment stipends
| daenz wrote:
| You can get all of those things at a non-startup. Having
| worked at a handful of startups and non-startups, I am
| skeptical that a startup offers those things at above-
| average rate the justifies the downsides, which are, from
| my experience: * High pressure to work at
| all hours, because a startup is fragile * Extreme
| financial uncertainty * Many QoL concessions
|
| If you're not accepting a generous equity package in
| exchange for ensuring that the startup thrives and
| succeeds, you're missing a huge opportunity for exchanging
| hard labor for potentially high return. It's like buying a
| lottery ticket without filling in the numbers.
| runnerup wrote:
| > You can get all of those things at a non-startup.
|
| I mean I've been trying super hard for the past 10 years
| and I haven't been able to find a workgroup at a large
| corporation that has a high velocity of execution and is
| actually innovating much. I'm personally taking a pay cut
| to go to a startup to hopefully find this.
|
| I'd love to join Project Starline or similar truly
| innovative groups within large companies, but I don't
| have a degree from a top-10 school so startups are kind
| of my only way that I can find to get to an environment
| like that. Even with strong references from Staff
| Engineers at Google my resume just gets thrown out,
| haven't been able to secure even a first round interview
| with FAANG in over 5 years of trying. Maybe they're not
| interested in working with ex-oil industry engineers, or
| maybe my resume just really really sucks.
|
| > you're missing a huge opportunity for exchanging hard
| labor for potentially high return. It's like buying a
| lottery ticket without filling in the numbers.
|
| Sure, but my reasons didn't have "make more money" they
| had "decent-enough pay".
|
| Also currently my preferred geography is Houston to stay
| with my incredible partner. Most of the large companies
| here have a lot people that I don't enjoy working with --
| e.g. people who are outspokenly excited for an illegal
| immigrant to try to steal tools out of their shed at
| night so that they can legally kill them. So "great
| coworkers" is also a bit hard with "preferred geography"
| sometimes. Granted for a $250,000 role, we'd certainly
| pack up and move somewhere, but I haven't been able to
| get FAANG to even give me a first round interview!
|
| The bottom line is that it's entirely possible that the
| best situation for me is to make _almost_ the same money
| to work with what seems to be an incredible group of
| really, really, really smart people on some super cool
| technology. Yes it will be "more work", but with this
| should come more skill development. I don't have and am
| not planning on having kids, so I'm happy enough just
| going to pilates at 7am and working my ass off all day on
| something that I find personal reward in, and then doing
| my hobbies (sailing, beer brewing) on the weekends.
| wbl wrote:
| If you want to do exciting tech in Houston, there is a
| really obvious employer. Pay isn't great but the
| intangibles are out of this world.
| runnerup wrote:
| You know, I actually somewhat agree but the pace of
| innovation/execution at NASA is glacial.
| vinceguidry wrote:
| > my preferred geography is Houston to stay with my
| incredible partner.
|
| The consideration that outweighs all the rest. Personal
| reasons are, well, personal.
| quickthrower2 wrote:
| > people who are outspokenly excited for an illegal
| immigrant to try to steal tools out of their shed at
| night so that they can legally kill them
|
| If they do you can be a witness to their premeditation.
| runnerup wrote:
| I mean, obviously. But also it's just their fantasy. The
| chance of it actually happening is absurdly low. The
| chance of me having to listen to daily rants about
| everything and just ignore them or go "uh huh." is 100%.
| quickthrower2 wrote:
| Yeah I meant in jest (they made something legal illegal
| by saying it is legal). They most likely would do
| nothing. The actual crime is spreading hate and making it
| uncomfortable to work.
| toomuchtodo wrote:
| Buy lottery tickets instead ("startup equity equivalent")
| and work for established companies who can offer the same.
| Startup employees optimize for workism ("mission", trying
| to obtain meaning from their work), let them, optimize for
| quality of life and comp instead (many larger orgs have
| embraced remote and even support global nomads if you
| structure employment arrangement and finances
| appropriately).
| quickthrower2 wrote:
| The usual reasons, compare it on everything else like any
| other job.
|
| They may pay less but let you work without a gazillion
| meetings and no legacy or technical debt for example.
|
| Or you might want to start your own startup so a way to make
| connections and learn how they work.
| gedy wrote:
| Man, I don't know... I joined a startup last year thinking
| that, but then found they were way more into process, Jira,
| estimation, etc. Plus a bunch of tech debt from the CTO's
| MVP and "don't touch it".
| pavlov wrote:
| The IPO market is fickle. Someone who joined a "near-IPO
| company" last year may have been reasonably expecting a
| liquidity event within 12 months, but now finds the IPO
| indefinitely postponed and the company trying to raise
| additional funding in a downround that may halve the value of
| those illiquid shares.
|
| Personally I'd take my chances either early, with a meaningful
| share of the company, or post-IPO when the amount of shares is
| much smaller but its value reasonably predictable.
| Gunnerhead wrote:
| Completely anecdotal, but has friends join Instacart and
| Stripe that are in this exact position.
| waynesonfire wrote:
| Is the motivation that asking these questions is going to be used
| in some way to get better compensation?
|
| 1. Ask questions 2. ??? 3. Profit!
|
| The true is that equity in a startup us extremely risky. So
| you're either going to get a large chunk and be a decision maker
| or you're ganna be a passive participant and hope for the best.
| No questions is going to change that. Even if the answers to
| these questions may be desirable NOW, tomorrow you can be
| diluted. It's meaningless to stress over this. Join because you
| love the company or are going to be a decision maker.
| awillen wrote:
| It's not meaningless at all.
|
| First off, if you're comparing multiple offers with similar
| salaries, equity considerations may be a good way to make a
| decision.
|
| Beyond that, understanding how companies handle equity
| compensation can tell you a lot about their culture and
| treatment of employees. There are companies out there that are
| eager to answer these questions because they give generous
| stock compensation and want you to know it. There are also
| companies that will obfuscate and hide behind misleading
| numbers. I once had an offer and asked for more equity, only to
| be told by the recruiter that the stock was about to split, so
| I'd actually get twice as much (this is absolute nonsense, to
| be clear, and a huge red flag).
|
| Lastly, with regard to your initial question about
| compensation, asking these questions absolutely can be useful
| to that end. When you're negotiating with early to mid-stage
| startups, one of the things that you can negotiate is your
| equity/salary split. I once took a pay cut from the initial
| offer in exchange a much greater amount of equity than I was
| initially offered. That was because I found a lot of positives
| about the company and preferred higher risk and more reward
| (thankfully it looks like that is going to work out very well
| in my favor, but obviously that was in no way assured). If a
| company's giving you bad answers as it relates to equity, you
| may well want to try to negotiate for a higher salary in
| exchange for less equity, so your financial circumstances
| aren't tied as much to the company's performance. Understanding
| equity gives you one more dimension on which to negotiate, and
| the more things you can negotiate, the better off you are.
|
| There is this prevailing idea in Silicon Valley that you should
| just ignore equity and treat it like a lottery ticket, and
| while I think that is very good for financial planning, it is
| otherwise awful advice. Just because you don't have full
| control over the way things go with equity doesn't mean that
| you shouldn't educate yourself on what can be a meaningful
| portion of your compensation.
| sokoloff wrote:
| > only to be told by the recruiter that the stock was about
| to split, so I'd actually get twice as much (this is absolute
| nonsense, to be clear, and a huge red flag).
|
| It's nonsense, but coming from a recruiter, it's not a red
| flag to me. If I red flagged every recruiter who didn't quite
| know how the world worked, I don't how many I'd have left. If
| a founder or a CFO tells you that, it's a red flag; if it's a
| recruiter, they're still wrong, but I don't count it nearly
| as sharply against the company.
| akhmatova wrote:
| _Is the motivation that asking these questions is going to be
| used in some way to get better compensation?_
|
| Could be. But these questions can also be useful as (1)
| bullshit filters and (2) signalling (that you know your stuff
| and are not to be toyed with).
|
| In particular as to (1): you should be able to readily get
| answers to these questions; any hint at evasiveness, or a
| refusal to answer, should be taken as a red flag.
| bspear wrote:
| Diligence on the startup so you know what you're getting into.
| Also prevents early employee churn because people feel duped
| once they look under the hood.
|
| The greatest frustration is usually around: 1. feeling like
| your equity cut is not enough once you know what other people
| are paid; 2. not knowing how much you pay in exercise cost /
| taxes / exercise window until it's too late
|
| On 1, there's a growing DB of startup comp here:
| https://topstartups.io/startup-salary-equity-database/
| daenz wrote:
| I've asked some of these questions before, but always got the
| answers in person or over video chat. What happens when what I
| was told doesn't square with what actually happens (for example:
| acceleration if the company is acquired)? Is there a
| recommendation for getting the answers to these questions in
| writing? Is there even any recourse?
| jefftk wrote:
| The standard way to convert verbal answers to writing is to
| send out notes after. You write an email like: "It was great
| getting a chance to talk to you this afternoon! I wanted to
| send a quick summary of what I took away from the conversation,
| just to make sure we're on the same page..."
| akhmatova wrote:
| Yup - this is a very useful tool. It doesn't have the same
| status as a binding, legal contract. But it does make it a
| lot harder for them to wiggle away from what they were
| initially promising you.
| fortran77 wrote:
| It's been my experience with startups that there are different
| classes of shares, too, and it's generally stacked so that the
| founder's shares can retain their percentage of the company while
| everyone else's can get diluted down to nothing.
| jeffrallen wrote:
| I recently got an equity offer that is a personal promise from
| the founder to do X in the future if Y happens. Sounds good to
| me. Because frankly, equity compensation is a total lottery
| anyway, so why not have it also depend on the trustworthiness of
| the founder too.
|
| Shrug.
| victor9000 wrote:
| In situations like this, I would use the ambiguity in the
| equity component to negotiate up the base salary, or some other
| benefit. Otherwise you're taking on increased risk relative to
| other opportunities at no cost to the company.
| yieldcrv wrote:
| Why compound the odds against you? Is that a serious thought
| process?
|
| Just get your contingent offer in writing, because that freezes
| a time period of trustworthiness that remains applicable even
| if they change their mind or their opinion about you.
| bbarnett wrote:
| The founder could be forced out; would a new board take an
| outsted founder's word on a verbal for comp?
|
| What if the founder gets hit by a bus? Sad indeed, but who
| will verify the cash owed?
|
| What if the company is insolvent? A buy out may result in
| partial repay... but new owners are not going to pay on mere
| word.
|
| Things are on paper for reasons. More than listed above.
| jeffrallen wrote:
| You're right, but a payout from equity compensation is
| contingent, already, on those things and a thousand others
| not happening. It's a lottery and not worth my time trying
| to guess the odds. Better to use that time enjoying a fair
| salary to work with interesting people, and then we'll see.
| Maybe the promise is kept, maybe not.
|
| I think analysing equity compensation carefully is a good
| idea. But one outcome of that analysis can be, "Yolo, let's
| just give this a shot, take things a day at a time and
| enjoy the ride."
|
| Not everything in life can or should be put into contracts.
| (Despite my recent ode to them.)
| yieldcrv wrote:
| ushakov wrote:
| i asked these when a company offered me to interview with them
|
| they didn't want to let me know until i pass the interview
|
| i politely declined to proceed with the interview
| eweise wrote:
| Companies should be required to open the books to employees if
| they are offering equity. Without good data, employees are forced
| to believe the founders BS.
| babyshake wrote:
| Not only open the books, but be forthcoming about answering
| those questions in a way that is very easy for employees to
| reference without needing to look through detailed cap table
| info.
| neilv wrote:
| Maybe a mandated standard-format one-pager
| periodic/occasional statement with all the pertinent
| information in a form understandable to the layperson, so
| that employees don't have to ask, nor try to interpret on
| their own.
| phphphphp wrote:
| Most people don't know how to interpret financial information,
| nor do they know how to value equity (with or without the
| financial context). You can look at equity crowdfunding to see
| how completely underprepared most people are for assessing
| company financials: pretty much every normal person defers to
| business leaders narratives to assess a business, and if you
| trust a business enough to join it, then you probably trust the
| leaders enough to buy their narrative -- with or without
| financials.
| eweise wrote:
| Here's a recent example of why the help. Varo Bank is a
| startup and decided to get a bank charter s now they are
| required to make their financials public.
|
| Here's the CEO explaining how rosy things are back in
| September https://www.cnbc.com/2021/09/09/fintech-varo-bank-
| triples-va...
|
| Here's their latest income statement https://www.ibanknet.com
| /scripts/callreports/viewreport.aspx...
|
| Pretty clear that things are not going as well as the company
| would like to say they are.
| diob wrote:
| Yes! It's absolutely unbelievable we allow this charade. It's
| usually akin to the crypto scams in that your equity is
| worthless.
| quickthrower2 wrote:
| Yes to value the options you need to do the same DD as if you
| are buying the company. In addition DD on the clauses about
| those options and the many ways you can lose out.
| dan-robertson wrote:
| I quite like Ben Kuhn's discussions of the topic, e.g.
| https://www.benkuhn.net/terms/ and https://www.benkuhn.net/offer/
|
| I'd not really thought about it before reading the first post I
| linked but it's clearly incorrect to take valuation = price payed
| for preferred shares * shares outstanding because you're pricing
| the preferredness at 0 when it is not worth 0.
| akomtu wrote:
| Why would a startup answer these questions honestly? The biggest
| part of what they offer is an _illusion_ of future payout: they
| 'll appeal to emotions, talk about the their mission and how they
| help the humanity and how you will play a critical role there.
| whiplash451 wrote:
| Not all startups are like that. Some of them will be quite
| upfront about the reality of things. In fact, the way they
| answer the questions could be a signal in and on itself.
| deathanatos wrote:
| Even if you get these answers as an interview candidate, once
| you've joined the answers will become outdated ... and for most
| of it, you won't be getting updated information.
|
| While things like successful rounds of funding do get shared,
| enough information about the health of the company (e.g., revenue
| vs. expense? over time? runway? how expected projects you're
| working on either will or do translate to revenue, and how much?)
| to make a meaningful decision about whether the company is worth
| investing in or not just isn't ever shared, IME. With no real
| information, there is only one value that can be assigned to the
| equity: $0.
| quickthrower2 wrote:
| It is a lemon market
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