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How do I think about this equity offer?

Sherrie218·Jul 29, 2021

Posted in:Compensation Job Hunting Startups Money

Hi - I am super excited - just got a job offer. I have never worked for a start up before. Can you help me think about the equity?

The company is series B, they expect series C to be the last round and there will be no more dilusion. I would get 1500 shares (options?) at a strike price of $2.80. The hiring manager showed me a spreadsheet showing how much that could be worth. It showed $1.5million at IPO.

Is this too good to be true? How do I think about this? I have another offer from a public company and can't imagine that I could get so much from their stock. Trying to decide which offer to take and this could be a big factor.

Any other questions I should ask? Thank you!

anjaligattani·Jul 29, 2021

Hi Sherie - It can be true but please remember with start-up's you are taking on higher risk. It can or can't be true. In a worst case (external or internal factors can affect), you may not get anything. When evaluating a start-up, in my opinion, it is very important to look at the basics: founding team, who their investors are, current growth rate, number of customers etc.If you do decide to go with them, please inquire about early exercise of options and plan your options exercise. If not done at the right time, you may owe a lot in taxes, if company does go IPO and you sell.

Ethyl95·Aug 14, 2021

what are some examples of early exercise for stocks if I may ask?

Sherrie218·Jul 29, 2021

Thank you.

Chitraf·Jul 29, 2021

Hello Sherrie- This is great if the company does end up going IPO or gets sold at a good price. Since this is a start up there is a big risk. I would consider the history of existing founders....have they had other successful start ups. Also how long until IPO? I have worked with start ups which were a total bust where a got a got amount of shares and after a few years they went belly up. I also worked for start up where I was able to make some money. It's a risk, but it can pay big if it is successful. I also think if you are getting a decent salary, then the risk might be worth it.

Sherrie218·Jul 29, 2021

Thank you!

wendygrus·Jul 30, 2021

Hi Sherrie,Congrats on your offer! Definitely ask about the exit strategy. Do they have plans to IPO? Do they have plans to be acquired? Are those long-term or short-term plans? Do you know what % of the total shares 1500 represents? If there is no exit plan in the near future, you have to consider how long you might have to work in the company to see any benefit from that equity.When my partner gives advice about startup offers (he has worked at a few), he always says "Assume the equity is worth 0. Are you okay with the compensation if the equity is worth 0?"Good luck!

Sherrie218·Jul 30, 2021

Thank you.

Filomena21·Jul 30, 2021

What is the rationale for why the Series C would be the last private round before an IPO? Are they already very close to being profitable?They probably aren't going to answer that question or show you all of their financials, but that's the statement that sounds most suspicious to me. It's certainly not impossible, but it seems like a very strange and unnecessary thing to tell a prospective employee.Just to give one example, AirBnB operated for 10 years between its Series B round and its IPO. Other startups have gone public much more quickly, but you never know, and it can be outside of the founder's control if the capital markets shift around or if the stock market goes down and the IPO market closes temporarily.I agree with the other advice here - if you assume the equity is worth zero, is the salary enough for you to live on? It could certainly pay off to take the risk, but make sure you could handle the downside scenario. Also keep in mind you'll likely be giving up other financial perks; for example, the startup might not do 401k matching whereas the public company probably does it. That can also be a huge part of your compensation.