[HN Gopher] Ask HN: Is it appropriate to ask a startup to let me...
___________________________________________________________________
Ask HN: Is it appropriate to ask a startup to let me see their cap
table?
Hi, I'm expecting an offer from an early stage start-up. Would I
sound unreasonable to see their cap table? Are there other
questions that I can ask that can help me determine what % of the
company I'd be getting in this stage? Thank you!
Author : golly_ned
Score : 62 points
Date : 2023-04-07 18:57 UTC (4 hours ago)
| [deleted]
| brk wrote:
| Unless you offer is for a CFO role, yes, you would probably seem
| unreasonable to ask to see the cap table.
|
| While this is definitely anecdata, my personal experiences with
| potential hires asking to see the cap table, or overly dig into
| some of the corporate stock allocations and financials in the
| very early stages are always indicative of employees that turn
| out to be regrettable hires.
|
| For an early stage company, the future of the company, and your
| personal share of it, are 1000 times more impacted by everything
| that is yet to happen, not the cap table at this stage.
|
| Ask about share class, percentage of your grant, salaries, cash
| on hand, burn, fundraising plans, etc. But understand that almost
| every answer you receive at this point is likely to be out of
| date in a few months anyway.
| dsr_ wrote:
| Let's suppose that you are not a founder of this company, and
| that there will be at least one more funding round before they
| get to think about any shares being worth anything. Here's what
| you should expect:
|
| A 1% chance that equity in the company is worth anything, ever.
|
| A 100% chance that whatever percentage you are promised after
| vesting will be diluted by an unknown multiplier.
|
| Together, this means that you should consider the cash equivalent
| of the promised shares as something between one dollar and ten
| bucks. Don't let it convince you to reject a cash offer
| elsewhere, or a cash + actual stock plan in an established
| company.
|
| What you should ask for is a percentage equivalent to other
| people of about your capabilities working for the company, and a
| promise to continue to make you at least equal to similar folks
| hired in the future. Remember that business promises are made in
| writing and signed by a responsible officer of the company.
|
| Actual numbers right now are likely irrelevant.
| balls187 wrote:
| > Are there other questions that I can ask that can help me
| determine what % of the company I'd be getting in this stage?
|
| Ask directly.
|
| Or, if it's truly early stage, you could _ask_ for what % you
| want instead.
| ketzo wrote:
| I have never gotten a startup offer that did not make clear what
| percentage of equity I was getting.
|
| If I saw "40,000 shares" with no idea what the denominator was, I
| would definitely ask clarifying questions.
| supernova87a wrote:
| Why? Would it even make a difference if you could see it?
|
| Isn't it pretty much up to the founder and board whether you get
| diluted (and how much) in the future, and whether any number you
| see there continues to be accurate (for your own purposes, or
| others in the table) or not? And unless you're one of the top
| people at the company, your net worth is going to ride largely on
| how much of a success the company becomes, not your particular %
| / exact small share of it.
|
| The VCs and next funders care about the exact numbers. What would
| you do, use it to negotiate more?
|
| I suppose you could take it as some indication, but it's by no
| means some kind of binding assurance of the future. This is a
| thing I have a fundamental gripe about SV startup practices --
| there are a lot of things associated with being employed at one
| that have the _appearance_ of legal obligations and securities
| regulations to the novice eye, but under the surface they are
| _not at all_ , and you are largely at them whim of whoever owns
| the company. The value of your options could evaporate in
| practice, even though you hold "100,000" of them (either through
| decline in company's future, or active dilution, or the CEO just
| doesn't like you).
|
| Or am I exaggerating what I feel after a decade in the area?
|
| There are a lot of questions that people ask, where I feel, is it
| even meaningful information you would act on or are you trying to
| feel better about something? (see all the useless 20-year-old-
| something comments/questions in threads after some company CEO
| announces the possibility of layoffs... "Can you share the exact
| formula by which people will be laid off?" "Why are you doing
| this in successive rounds and not all at once?" etc. etc. What
| would you do even if you knew the answer?? )
| [deleted]
| jpm_sd wrote:
| Yep, this is 100% accurate. Unless you hold a founding partner
| sized stake, you have no influence over the cap table and it's
| going to change drastically with each round of investment
| anyway.
|
| Startup options are about as valuable as lottery tickets -
| worthless, unless by some lucky chance they're not worthless.
| arcticbull wrote:
| The cap table tells you who else thinks the company is worth
| something at that stage. It can be a great indication not of
| like future dilution, but of who else is on board.
|
| If you take the lotto ticket perspective, you should do
| everything you can to maximize your odds and part of that is
| doing as much diligence as you can on the company.
|
| If I were joining as a first/early engineer, or at a senior
| level - particularly early stage - I'd want to see the cap
| table.
| supernova87a wrote:
| But then all you care about is the names, not the $ figures
| they've invested and the % they received, is that right? If
| you assume that any deal with some VC entails a certain $
| amount minimum of interest, why don't I just show you the
| press release of who's invested then?
| arcticbull wrote:
| I think that's fair, yeah. There's some value especially
| early on in terms of feeling trusted by your new coworkers,
| etc, but the bulk of it IMO comes from the names.
| philsnow wrote:
| > Isn't it pretty much up to the founder and board whether you
| get diluted (and how much) in the future
|
| Yes, but if your grant is in the same class as all the other
| regular folks (vs founders, C-suite, and investors), your
| protection, such that it is, is that the founders want to keep
| their good reputation.
|
| If they choose to dilute the normal stock classes to nothing
| for their own benefit, word gets around and it will be much
| harder for them to hire at their next startup. If they have no
| other choice than dilution to keep the company afloat, and can
| demonstrate that to the rank and file, that's still a negative
| signal, but less of one.
| phkahler wrote:
| >> Why? Would it even make a difference if you could see it?
|
| If they're just an employee then you can argue "who cares" but
| also "why not?". If they're offered any options I'd say yes
| they _should_ ask.
| dehrmann wrote:
| If they're offering equity as part of your compensation,
| absolutely. How else are you supposed to gauge their value?
|
| ...not that you'll really know how to. And the company probably
| doesn't, either. Their TAM is probably way off, and most of their
| projections will just be guesses.
| dopeboy wrote:
| As a founder of a seed stage company, this is a completely
| reasonable request for someone who's late into the hiring
| process. I might screen share instead of hand it over to you out
| of sensitivity to investors.
|
| Also, what percentage of the company you're getting and the
| valuation can be answered without seeing the cap table.
| dmitrygr wrote:
| > what percentage of the company you're getting
|
| IFF you have only one class of shares and no liquidation
| preferences. Else the number is meaningless, because you might
| own 2%, but due to the above things, even on a big exit make
| nothing.
| dopeboy wrote:
| Good point, true.
| solumos wrote:
| This is a very west-coast view. I've had east-coast
| founders/execs laugh in my face and tell me that no decent
| founder would ever disclose the latest 409a or any cap table
| information to a candidate.
| jerkstate wrote:
| I've worked for several early stage startups in my career and not
| a single one has paid off. In fact, I've lost money (a few
| thousand $$) purchasing ISOs at each company. If you want to work
| at an early-stage start-up, do it because you want to learn fast,
| want a lot of responsibility, and you love the industry, not
| because of the chance of getting rich - because if that's the
| only reason you're doing it, you might as well buy lotto tickets.
| Value your ISOs at zero, make sure your cash comp is reasonable,
| and ask for the same amount of ISOs are the previous person hired
| at your level.
| w10-1 wrote:
| "Appropriate" depends on the kind of relationship you want to
| have.
|
| For cap tables, remember than a board can issue as many shares as
| it wants to whomever it wants, diluting anyone at any time. So
| even if you could see the cap table, it offers no guarantees.
|
| Maybe what you're looking for is whether their incentives are
| aligned around developing and keeping talent. For that you can
| look to the history of the principals: whether they are in for
| the long haul, if they stick together, and if they are happy to
| grow offshoots.
| dmitrygr wrote:
| > Is it appropriate to ask a startup to let me see their cap
| table?
|
| Yes, and do not let anyone tell you otherwise. If you accept
| monopoly money, you have every right to know how many notes were
| printed and how many more were promised to others.
|
| Will they show it to you? Usually, no. Because that kind of
| exposes the entire sham. But you can try.
| bfung wrote:
| Similar to other comments, you can always ask.
|
| Maybe the line items of the cap table have sensitive info, so if
| you ask cap table directly, they'll say no. But asking summary
| level questions about the cap table relevant to you may give you
| the info you're looking for.
|
| For example, you probably don't care if VC#1 has X shares and
| VC#2 has Y shares... you only care:
|
| * how many shares there are
|
| * what percentage have Preference (founders, VCs, investors)
|
| * employee pool / your offer
| frenchman_in_ny wrote:
| Related questions -- would it be appropriate to ask for their
| most recent 409A valuation? And what are your options as it
| relates to the vested options that you have, if & when you leave
| the company?
| brailsafe wrote:
| In this ridiculous job market, what leads you to believe you'll
| get an offer?
| paxys wrote:
| If all you want to know is what % of the company you are getting,
| why not ask them just that? The cap table has a _lot_ more
| information about the internals of fundraising and ownership that
| the founders may not be willing to share with every employee.
|
| Number of shares outstanding and current 409a valuation are both
| semi public info, and you should absolutely be getting access to
| them as part of your offer.
| jpgvm wrote:
| The full cap table probably not. But you generally don't need
| that to ascertain the most important parts of startup
| compensation.
|
| I generally ask these questions:
|
| 1. What was the pre/post money valuation of the company at the
| last round.
|
| 2. How much runway do they have right now including already
| planned increases in burn (i.e hiring plans for the
| quarter/year).
|
| 3. What % interest in the company would my options grant
| represent? (you use this in combination with the information
| about the valuation to determine value of said grant)
|
| 4. Who are the major non-founder investors in the company? (this
| is generally public knowledge because investors love to announce
| these but it's worth asking). Sometimes the CEO will also divulge
| details about how they work with their investors, level of
| involvement, board seats etc. CEOs love to talk about these
| things for some reason.
|
| 5. When do they plan to raise money next and do they feel like
| they are meeting the metrics required for an up round? If not
| then how does my hiring or other planned hiring seek to address
| that?
|
| The last question is actually really important and generally how
| I a) tie my employment to actual value at the company and b)
| justify my compensation in negotiation stage and/or later
| negotiations when I can show how my performance has directly
| affected these important metrics.
|
| Any company worth their salt at the sort of stage where these
| questions are relevant will answer these, the degree of detail
| will depend on transparency of the leadership.
|
| Generally speaking when looking to join a company of this size
| you will be meeting with the CEO, usually after meeting everyone
| else and before negotiating compensation - that is when you ask
| these questions and this is exactly what that meeting is for.
|
| If they don't want to answer these then take that as a sign
| things are worse than they seem and perhaps negotiate for a more
| cash rich compensation and don't bet hard on the companies
| future.
| IG_Semmelweiss wrote:
| 3) i would ask what are total issued shares instead. staff
| refer to % interest to be based on the total outstanding shares
| , which will tend to vary.
|
| Of course. The company may still issue more shares but in those
| cases everyone is getting squashed anyway
| babyshake wrote:
| Ask about the preference stack
| (https://www.holloway.com/g/venture-
| capital/sections/liquidat...).
| jpgvm wrote:
| It's interesting sure but generally speaking if that comes
| into play you are already getting nothing. Use the time and
| patience of the CEO wisely IMO, ask the most important
| questions and focus on the risk/reward of the optimistic
| case. The downside case you are always getting nothing even
| if the preferences would imply something investors make sure
| you get screwed first.
| lbotos wrote:
| How can you gauge the optimistic case if you don't know the
| risk?
|
| Interview stage: Can you share with me what the liquidation
| preferences look like?
|
| The company can either say, yes, (good sign, they are at a
| minimum confident, but also possibly competent) or the
| company can say no (What are they hiding?)
|
| And you are right, if liquidation preferences are on the
| table, you should expect your equity to be worth 0. At that
| point does that change your calculus working with the co?
|
| All of your questions above + liquidation prefs are key IMO
| lumost wrote:
| I would disagree. Presumably the individual taking a job at
| this startup has other offers, or other jobs they could get
| - they are taking some risk by joining the startup.
|
| If everyone wants to say that the equity is fake... then
| ok, it's fake and we can move on. If the firm is
| representing 50k options are a lot, then I should be able
| to put a dollar value on those options. In most cases, an
| employee will expect to get something in between the
| downside of nothing, and the upside of infinity dollars.
| The liquidity preference determines whether you in fact get
| nothing, ever.
|
| Source: Worked at a firm with a 2x liquidity preference on
| a Series D which ultimately didn't move the needle for the
| company. Realized ~1.5 years in that the equity would have
| inconsequential worth in any reasonable outcome for the
| company.
| e10jc wrote:
| I've been both a cofounder and early stage employee. I think it's
| definitely appropriate to ask, but also fine for the company to
| deny. The cap table can contain some red flags: founders with A
| class shares and no vesting schedule, for example.
| samvher wrote:
| Just to check if I follow - is this a red flag because these
| founders are then not properly incentivized, because their
| ownership is a sure thing? (Although I guess you could then
| still argue that the incentive is growing the value of their
| share.)
| e10jc wrote:
| It's a red flag because they could sell their shares and exit
| way too early. In my experience, said founders basically
| cashed out at the A round, while everyone else was left to
| try and grow the company with little to no leadership.
| jkingsbery wrote:
| Having worked at a couple startups where my stock options didn't
| end up meaning much: the percentage of the company is kind of a
| funny thing. What I would ask them about more specifically is
| their plans for the employee stock pool. Stock options are
| (mostly) not liquid until there's been at least a couple rounds
| of funding, and each round of funding brings dilution to the
| existing shares.
|
| Another bit of advice I wish I received before negotiating with
| start-ups: stock options are worth what they're worth _now_ , not
| what they might be worth later. If you get 10,000 shares at a
| fair-market value of $0.01 that vests over 4 years, that
| compensation is worth $25 per year. (10,000 * 0.01 / 4). They
| will try to sell you on the shares sometimes being worth a lot
| more. I hope the shares are a lot more some day! But their
| expected value is their fair market value.
|
| > what % of the company I'd be getting
|
| A large percent of nothing is still nothing. Besides your own
| stock, ask questions to understand the financial maturity of the
| company. If it's a consumer product, how many customers have they
| signed up? If it's an enterprise product, have they signed any
| deals? If they haven't (which happens, signing enterprise deals
| can take 12-18 months) understand where the deals they are
| working on are in the pipeline. If they have 12 months of run-way
| but most of their deals are in the 18 month out horizon,
| understand that you are taking a lot of risk in joining that
| company. Also ask about potential customers that are not doing
| business with the company yet: why not? What are the blockers?
|
| Don't be satisfied with answers like "our founders know this
| space, they've been here before." No start-up that has funding
| has an unimpressive founding team. There's no shortage of Ivy
| League/Stanford grads with years of experience at <whatever
| company impresses you these days>. Even with those pedigrees, 70%
| of those companies aren't going to be successful.
| soamv wrote:
| > help me determine what % of the company I'd be getting in this
| stage?
|
| Just ask them what % of the company you'd be getting at this
| stage. They should absolutely tell you that; that's the high
| order bit of equity compensation negotiations. If they don't tell
| you up front they're wasting your time.
|
| Early-stage startups need mutually trusting relationships in the
| team. If they don't trust you enough to tell you, or you don't
| trust them enough to believe their answer, equity comp numbers
| are not the issue here.
| icedchai wrote:
| I worked at an early stage startup as the second employee and had
| full cap table access. It wasn't very enlightening, and
| ultimately meaningless when the company was forced to take a down
| round, diluting all common shareholders to single digit %'s.
| tptacek wrote:
| You can ask. You should. It's not unreasonable to ask. But
| because by convention it's not unreasonable for the employer to
| decline, you don't learn anything interesting when they say "no".
| Be mindful when you read all the comments here suggesting that
| startups that won't share cap tables are somehow shady; they're
| communicating an aspirational view of how startups work, and not
| reality.
| kwindla wrote:
| Just one data point: I'm a startup founder and have no issues
| showing potential employees (almost) all the investors on our cap
| table and who led or was a major investor in each round. In
| general, the only thing that's sensitive is exact ownership
| percentage of each investor.
|
| We do have one small angel investor from our first funding round
| that asked us not to publicly name them as an investor, so we
| just don't include them when we share the cap table. That's a
| rare situation, though, in my experience. This investor is
| relatively high profile in their non-angel-investing life and
| they don't want to publicize angel investments.
|
| And the number of fully diluted shares, the ownership percentage
| that the prospective employee's grant equates to, the strike
| price of the options, and the price that investors paid (and
| valuation) of the last round should absolutely be shared with
| you.
| akomtu wrote:
| Look up an old post here on HN that talks about cap tables.
| Someone (VC?) did a great breakdown of typical startup
| financials.
|
| If I were you, I'd an innocent question: "how much of the work do
| you want me to do?" Then lean back and watch how they are trying
| to square what they're offering with what they expect you to do.
| The problem is all the employees get allocated a 10% pool of
| shares, yet they are expected to do all the work.
| ultra_nick wrote:
| What do y'all think of this equity valuation method for early
| startups?
|
| Startups have a 95% failure rate and an average exit of $243M.
| Therefore, equity could be considered a lottery ticket with an
| expected value = Equity% * (1-0.95) * $243M.
|
| That'd value 1% at around $122k.
| jaynate wrote:
| The chances that you are going to get rich off a VC-funded
| startup as an individual contributor are very low. I'd focus on
| whether the opportunity is a good one to grow your career. Do
| they have solid leadership. Do you like the market and does the
| product serve a legitimate need (need to have vs. nice to have).
| rce wrote:
| I would say if you want to know what % of the company you'd own,
| you should just ask that. The cap table generally has details
| like how much every other employee owns and a company is unlikely
| to tell you how much everyone who works there is compensated.
| Mizoguchi wrote:
| If a substantial portion of your compensation is coming from
| equity should be able to ask for any information you think you
| need to accept the offer. I find the language in these agreements
| pretty difficult to understand if you don't have experience with
| startups and valuations, so knowing what % you are getting is
| meaninglessness if you don't have and understand the terms (many
| startups don't disclose that information until you sign the
| offer). Early stage startups are always risky, much more so in
| the current economic environment, so in my opinion when joining a
| startup pre Series C take as much cash as you can.
| Ozzie_osman wrote:
| Cap tables are generally pretty closely-guarded, and most
| startups would not let you see the full cap table.
|
| That said, things you could ask for could be: the number of
| fully-diluted shares (to calculate your ownership), whether they
| have any convertible notes and what the terms are, what their
| last valuation was (pre or post-money), how much runway they have
| at current burn, whether existing investors have any liquidity
| preference, etc. They may not answer all of those, but they
| should be able to give you enough to know where you stand.
| 908B64B197 wrote:
| You can always ask.
|
| Their level of secrecy should tell you how serious they are. If
| they are too opaque, my advice would be to switch to a mostly
| cash comp.
| timr wrote:
| In fact, you _should_ ask, especially if you think they 'll
| say no. Don't be an ass, just ask the question professionally
| and politely, and be a little insistent about it (i.e. don't
| just roll over when they say no the first time. It's OK to
| ask again, and explain why it's important to you!)
|
| How an employer responds to a difficult question that they
| don't want to say "yes" to will tell you volumes about their
| skill and demeanor. And if they gladly answer this question,
| keep pushing until you find one they _won 't_ answer.
|
| If someone revokes your offer because you asked a question,
| you just dodged a HUGE bullet.
| htag wrote:
| > If someone revokes your offer because you asked a
| question, you just dodged a HUGE bullet.
|
| I was once in the compensation negotiation phase of an
| interview. I asked all the root comment questions about
| equity. They refused to answer any. I was insistent. Their
| tone changed. They pulled out of negotiation, citing
| "cultural fit" which I took to mean I was savvy enough to
| not be suckered.
| s1k3 wrote:
| The cap table can have sensitive information on it that might
| compromise employees and or investors or the founders
| themselves.
|
| I don't think being secretive about the exact details of the
| cap table is indicative of anything.
|
| They should be able to tell you broadly how many shares there
| are and how valuable your equity grant is tho.
| Kiro wrote:
| In my country cap tables are public information and I've
| never heard of a case where someone was compromised or
| otherwise hurt by this.
| atdrummond wrote:
| This is silly. You can literal export a high level view and
| change VC names to "VC #1" and employees to "Individual #1"
| and still easily relay the info that the employee needs. I
| don't buy the privacy or security arguments.
| mcculley wrote:
| The degree of secrecy also tells you how much of an owner
| you would be.
| surgical_fire wrote:
| Honestly, it's easier to just avoid startups entirely.
|
| The vast majority of them fail anyway, and it's a long
| shot to ask me to trust them not to fuck me over with
| equity based compensation.
| actionfromafar wrote:
| 100%
|
| Working in a startup can easily turn into a rough ride -
| for not much benefit.
|
| So you might just as well start a company of your own.
| [deleted]
| sokoloff wrote:
| It sounds like you agree with some degree of secrecy and
| privacy in sharing the details of the cap table with an
| outsider (the not-yet-employee).
| s1k3 wrote:
| The range in equity grants can still cause problems. The
| reality is exposing this information only works against
| you and limits your ability to negotiate with employees
| if you know it will be exposed to others.
|
| I disagree completely.
|
| That being said I believe company's and founders should
| be as transparent as possible but sometimes that can come
| at a price and so it's not ideal to be completely
| forthcoming.
| Xcelerate wrote:
| > the number of fully-diluted shares (to calculate your
| ownership)
|
| This is something I've always been confused about. Suppose
| there are 100M fully diluted shares and you as an employee are
| granted (and vest) 20,000 shares, so you have 0.02% of the
| total shares. And suppose the company has a private post-money
| valuation of $10B and then IPOs to a stable $10B market cap. So
| you would think (0.02%)x($10B) = $2M payout.
|
| But! This doesn't include the fact that during an IPO, the
| company creates additional shares, right? And none of these new
| shares are sold directly to the public; they are first sold to
| banks or other prioritized buyers, and only _then_ is the
| public able to purchase shares from anyone who owns them. Would
| this not decrease the employee payout? Assume the company
| creates 100M new shares for the IPO at a price of $50 per
| share. Now the banks pay the company (100M)x($50) = $5B for
| those shares, and then they sell them the next day on the open
| market. The final share price for the day would now have to be
| $10B /200M = $50 to have a market cap that is equivalent to the
| private valuation of $10B. But that means the employee's payout
| is actually $1M, not $2M.
|
| Is my understanding of this correct, or am I missing something?
| It seems like you can't just take your percentage of private
| shares and multiply it by the private valuation to estimate
| your IPO payout.
| zopa wrote:
| If the company sells $5B in stock, the value of the company
| should increase to account for $5B in additional cash
| holdings. That still gives a smaller payout than the pre-IPO
| estimate, but it's a lot closer.
| paulddraper wrote:
| The IPO is simply a funding round.
|
| Like any funding round, there is dilution.
|
| The value of your equity is premoney_percentage x
| premoney_valuation or postmoney_percentage x
| postmoney_valuation.
|
| As you say, don't make the mistake of premoney_percentage x
| postmoney_valuation.
| andruby wrote:
| > the company has a private post-money valuation of $10B and
| then IPOs to a stable $10B market cap.
|
| If that's the case, and they issue 100M new shares on IPO,
| then the IPO is effectively a serious "down round" that
| halves the value of all shareholders pre-IPO.
|
| More realistically would be that the post-money valuation
| after IPO is $20B or more.
| kooshball wrote:
| you're right that in any funding round (private or public
| ipo) there is dilution. your ownership in % will go down.
|
| however no company will be able to predict future dilution so
| this is not really something they can tell you with
| confidence.
|
| the only thing you can do is gauge current state of the
| company (funding, readiness for ipo) and try to estimate
| future dilution but even this is non trivial for early stage
| companies.
| jpm_sd wrote:
| Definitely not. There's also lock-up periods to consider.
|
| https://www.investopedia.com/terms/i/ipolockup.asp
|
| Not to mention, you probably don't hold shares, you hold
| options, unless you were clever/daring/solvent enough to
| exercise early. Substantial dollar amounts involved, and big
| tax implications.
|
| So really it's a question of what the share price is when
| you're eventually allowed to sell shares, minus the cost of
| options exercise.
| tylerhou wrote:
| Of course you'll be diluted as the company grows, so the
| point of asking is not to calculate exactly what your payout
| will be. But you can use the fully diluted # to estimate your
| ownership based on average/expected dilution from the current
| stage to IPO/liquidity.
|
| I.e. suppose a startup grants you 20,000 shares. There is a
| big difference between the startup having 1M fully diluted
| shares (2%), 100M (0.02%), and 100B (0.00002%). In the first
| two cases you're getting a reasonable share of the startup
| (depending on the stage); in the last case you are likely
| getting scammed.
| Ozzie_osman wrote:
| Yes, you can't just take your percentage of private shares
| and multiply it by the private valuation to estimate your IPO
| payout. But there are two reasons. The first which you
| identified: dilution. This happens at _each_ fundraise,
| because the company has to issue new shares, so your % will
| go down at each funding round.
|
| The second reason is that the valuation of the company
| changes (typically, it should go up at each round, but in our
| current climate, down flat-rounds are very likely for many
| companies).
|
| So your % ownership should go down, BUT if the valuation goes
| up by the right amount, the value of your ownership should go
| up too (ie your price-per-share goes up).
| voisin wrote:
| > Cap tables are generally pretty closely-guarded
|
| Why is this?
| sulam wrote:
| Because it's like salary transparency for investors. Not
| popular.
| sokoloff wrote:
| Agreed. You could also ask who their major investors are, but
| the exact and fully-enumerated cap table is, bluntly, none of
| your business. (Knowing what fraction of the company your
| proposed grant is, of course.)
| ttul wrote:
| If your goal is to know the risk-adjusted value of an equity
| grant, you need more than just the cap table. You need the bylaws
| and articles of the corporation, all the shareholder agreements,
| and all the loan agreements the company might be a party to.
|
| Without knowing what special rights are attached to different
| equity and debt holders, you have no idea how the rights ascribed
| to your equity will rank against them in the event of a
| liquidation or exit.
| Animats wrote:
| If you're getting equity, yes. Otherwise you can't price it.
| thruflo wrote:
| It's totally valid and acceptable. If equity is part of your
| comp, you're investing your time in exchange for equity in the
| company. The first document any investor would ask for is the cap
| table.
|
| Beyond the % it also helps you evaluate whether the shares are
| worth anything. Lots of companies have badly structured cap
| tables. This impacts investability, which impacts your likely
| return.
| timr wrote:
| As long as it's legal and not weird/personal/insulting and you're
| polite, you should _never_ be scared of asking a question!
|
| In fact, you should _find_ a question they don 't want to answer
| "yes" to, and you should push on it. It will tell you volumes
| about who they are, how much they respect you, and their skill as
| professionals, negotiators, and more. I've lost offers in the
| past for being insistent about things. That's fine. I dodged a
| bullet and saved years of my life.
|
| Directly responsive to your question: you want to know the shares
| outstanding, the liquidation preferences (if any) of prior
| investors, if there are any weird share structures (e.g. series
| FU preferred, which converts 10,000:1 to common and is held
| exclusively by the CEO's dog), if there's a single- or double-
| trigger clause for employees, the terms of the stock
| agreement...there are lots of things you might ask about.
| mannyv wrote:
| You could ask, and they'll say "yes" or "no."
|
| If you have a question I'd just ask it straight out. I mean,
| you're at an early stage startup. It's a ton of risk for you, so
| you should know what you're getting.
|
| But remember, 2% of $0 is still $0.
| bombcar wrote:
| And even if you get the 2%, you should consider it as $0 when
| evaluating your options. Almost all startup equity ends up
| worthless; but the connections you may make could be quite
| valuable.
| NotYourLawyer wrote:
| The real equity was the friends we made along the way.
| akavi wrote:
| Y'know, a lot of people _say_ they value it at 0 $, but are
| oddly hesitant to take me up on my offer to buy it off them
| for a hundred bucks...
| maratc wrote:
| If we're valuing a thing that will turn out to be $0 with
| 99% certainty, or $1M with 1% certainty, then "a hundred
| bucks" is not a good proposal. 1% of $1M and there might be
| something to talk about.
| akavi wrote:
| If they perceive that 1% chance of 1 M$ as having nonzero
| value, then they're not "valu[ing] it at 0 $"
| maratc wrote:
| Maybe these people just don't know how to properly
| calculate the expected value?..
| bombcar wrote:
| Offer to buy it for a hundred and give them a perpetual
| right to call it back at ten thousand ... I wonder where
| the math would put the various values to make it basically
| break-even.
| maratc wrote:
| The amount of money someone needs to spend on a lawyer to
| actually have "a perpetual right to call it back at ten
| thousand" will most likely be above a hundred.
| Moissanite wrote:
| For someone with a six-figure income, the marginal utility
| of an extra $100 is basically nothing - but "notionally
| worthless" shares are a bit like getting a free lottery
| ticket every week. You don't expect anything to come of it,
| but it's nice to dream - and the regret-avoidance factor of
| not wanting to let go of your lottery ticket is huge. Of
| course none of this considers the true downside, which is
| the opportunity cost of working at a startup in the first
| place, versus a more stable or better-paying alternative.
| bombcar wrote:
| It'd be kind of fun to work out the actual math; working
| at a startup and getting options can probably be
| converted into "Powerball tickets per month".
| [deleted]
| bradstewart wrote:
| Just ask them what % of the company you'd be getting, directly.
| They should answer that.
|
| That's a question I've always used personally, and I've refused
| offers from companies that wouldn't answer it.
| philsnow wrote:
| Knowing the % of the company your grant represents allows you
| to deduce the current valuation of the company, which is
| considered by many companies to be secret.
| eschneider wrote:
| It also lets you put a value on the equity portion of an
| offer. W/o info to price that, you might as well value it at
| zero.
|
| That said, I don't think I've ever interviewed with a startup
| that gave me an offer with equity that wouldn't share #
| shares outstanding, amounts invested, and liquidity
| preferences. If a company won't share that at the offer
| stage, I'd have concerns.
| robocat wrote:
| > you might as well value it at zero
|
| That is the usual advice. The median return for common
| shares is $0 (most startups fail).
|
| Founders can screw up their own ownership
| https://grayscale.vc/blog/how-that-safe-note-is-screwing-
| you... and there is no way most people can understand the
| cap table value without a lawyers help.
|
| Also you have no influence over future rounds, so a good
| equity deal now could easily be worthless in the future (or
| even worse, negative returns due to taxation on paper gains
| that subsequently disappear).
|
| Concentrate on your other benefits, whether you think the
| founders and investors have integrity, and whether you
| think the market opportunity might be a winner.
| matthewmcg wrote:
| Which is a bit silly as the price per share of the last
| preferred equity financing round and the authorized number of
| shares are filed in the corporate charter which anyone can
| access. That gives you at least a lower bound on the
| valuation.
| justrealist wrote:
| I've never had trouble getting a % of the company that a
| grant represents.
| CamperBob2 wrote:
| That sounds a lot like the company's problem to me.
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