As an ambitious young developer, recent graduate, you are looking to make your name in the Bay Area, can be dauting. Perhaps you are already working for an established company in a nice, stable but somewhat rudamentary job, and have had a startup send out a feeler for you. The salary isn't exactly huge, the company may or may not have enough money in a year's time. A lot of taunting questions clouding your mind and judgement.
In this article, we take a look at the 3 Points to Consider when deciding to join a Startup.
Negotiate the right salary & equity
I am never in favor of a company where the founders pay you less than what is comfortable for you to live in, in lieu of equity. Equity is just a promise, a promise of an option to buy at a certain rate. Especially at an early startup hovering in the realms of having only raised a pre-seed, it’s a very risky proposal.
Ultimately, if the company goes belly up in a year, would you have any regrets, knowing the salary you got? If the answer is no, then you probably are in the mindset to take the job, but if the answer is yes, and you are lured merely by promises of fortunes by the founders, then the risk increases.
“Don’t think in terms of number of shares or the valuation of shares when you join an early-stage startup. Think of yourself as a late-stage founder and negotiate for a specific percentage ownership in the company. You should base this percentage on your anticipated contribution to the company’s growth in value.” according to Stock Option Attorney Mary Russell, where early-startup companies expect to drastically jump in value between founding and Series A.
“You’ll be negotiating your equity as a percentage of the company’s ”Fully Diluted Capital.“ Fully Diluted Capital = the number of shares issued to founders (”Founder Stock“) + the number of shares reserved for employees (”Employee Pool“) + the number of shares issued or promised to other investors (”Convertible Notes“). There may also be warrants outstanding, which should also be included. Your Number of Shares / Fully Diluted Capital = Your Percentage Ownership.”
And many founders when making you the offer, neglect to include covertible notes, issued to angel investors before financing, which ultimately gets converted to preferred stock, so it’s best to ask the founders to include estimate for conversions so you can estimate your ownership.
You generally get offered around the 1% equity which is standard, as long as you bare in mind that your ownership will be fully dilluted during financing (unless you state you want post-financing).
To work out what the average salary for your type of role in the Bay Area is, go to the AngelList salaries and equity data website which gives you a great graph of what type of salary or equity people in your field get.
Determine the viability of the startup
A handy app that I often refer to is Mattermark allows you to gain insights into startups. When you get an angellist message from a startup that you haven’t come across before, this app is able to give you valuable information on the startup.
You can check news and commentaries on the startup, historical growth rates over time, what stage the company is at, funding rounds, and a how many employees they have (including how many have come on or left month-over-month).
Another thing you need to assess when considering a startup, is the culture of the startup. When you are interviewed, use this as an opportunity to interview the founders. Find out how the management style works, whether they have a background in management and IT (and working in other startups), or they are just fresh drop-outs out of college.
Have a chat with some of the other guys in the company, observe how they all work, look at how the tasks are structured. How the team functions is a clear indicator of how the company will work. Has the company had a huge turnover of employees? Are all the other employees based on the Ukraine?
It’s your career, you need to make sure they are a right fit for you, as much as you are a right fit for them.
Get legal advice before signing
Lastly but not least, seek legal advice. Working with equity, and understanding your vesting rights is complicated area, and depending on how your contract is worded, it could play a huge impact on what the contract is worth.
Stockoptioncounsel discuss the intricacies of companies exerting rights over repurchashing rights over an employee’s vested shares, that prevent proper ownership, which could mean that if you left hte company willingly or unwillingly, you could forfeit your equity.
In other words, you have infinite vesting as you don’t really own the shares even after they vest. This can be called “vested share repurchase rights,” “clawbacks,” “non-competition restrictions on equity,” or even “evil” or “vampire capitalism.” (source : Stockoptioncounsel)
A lot of techies like me wouldn’t know about this, until we end up leaving and it’s too late. If you are in the Bay Area, Stock Option Counsel offer excellent services for individuals that will help you negotiate your package, whilst ensuring your contract is proper, without surprises.