Startup Offer: The Opportunity and Risk

How do you evaluate and negotiate your startup offer?

This year is a crazy year for IPOs. Some have gone well, some have gone terribly wrong, and others never even made it to the finish line (yet). Many of the more eccentric CEOs are now getting pummeled by news media, when they once were media darlings.

This doesn’t just affect CEOs, but all employees that trusted that CEO to take them to success. The impact this drama has on employees can be draining and cause anxiety to the point they look at new opportunities. Kind of reminds me of how the news outlets treat stock market coverage…

Anyways, this craziness may have finally pushed you to see what else is out there.  No more golden handcuffs! Chances are you are in one of three categories:

• you may be looking at a larger tech firm post-startup burnout, 
• looking to join another startup with your gained wisdom, or 
• leave the industry entirely

For this blog post, we will cover how to think about your startup offer. This is how we begin the conversation with our clients who are going through the interview process.  

In a prior blog post, we covered the main levers in negotiating a better offer.  This article is more about the types of questions you should be asking in the process and other resources we are aware of.  

We’ve helped techies at all levels consider new offers using the below questions and further analysis.  In the end, it breaks down to three things:

• Are you asking the company the right questions?  Sometimes, we are so focused on the recent hurts/pain we went through that we look to what was lacking and not the whole picture in pursuing our next role.
• Have you thought about the effect this job will have on yourself?  Just because things may look dire, in your eyes, doesn’t mean you should jump ship for the next shiny object.  Make sure you are sure this is right for you.
• Analysis to do:  I love it when a tech company throws out a number of shares or a total stock value for your stock grant.  This doesn’t tell the whole picture and may not help you understand what you are really getting

Questions to Ask the Company

For private tech companies, once you get toward the end of the process, these questions will help you understand a little more.  The goal is to learn more about the immediate risks in the business, the direction the business is taking, and what your startup offer compensation actually represents…

1. When was the last 409A valuation done? Will there be a new 409A valuation required for issuing shares in connection with this position?
2. How much runway does the company currently have? 12 months or less of cash?
3. How close are you to raising your next round? What is the high-level impact of the money? Further building out the product? Expansion only? New line of business?
4. Are you positioning yourself for IPO or looking at an acquisition? If acquisition, who are you targeting? What is your expectation for when an exit might happen?
5. What kind of accelerated vesting provisions are available for your stock grant?  Double trigger or single trigger acceleration? RSUs that required double trigger for vesting?

Questions to Ask Yourself

Start-ups have their own risk, and depending upon your personal situation it may be the risk you need to take to get to where you want to be. Or, it might be a shiny object that is distracting you from what you really want in life.

1. What is driving you to look at this position right now?
2. Imagine your best work life, what does it look like to you? What does it allow you to do? Where do you want to go with your career in general?
3. If you feel you are making less than market rate: if your current company gave you a counter offer for the same compensation, would you take it? How much longer would you be willing to stay?
4. Do you want ‘walk away money’ at some point? This may mean exiting tech, building your own thing, etc. What would life after ‘walking away’ look like for you?  How does this role fit into that goal?
5. What are your plans for maximizing your current job stock compensation?
   • If ISOs, how much cash out of pocket are you willing to risk?
   • If RSUs, what will be your strategy for using them vs saving them?
6. Do you currently budget? Do you feel you have a sense of how much in annual expenses you have? What about savings? What kind of risks can you take at this point in your life?

Analysis to Do

1. Review the company in crunchbase.com.  Find the company and look at:
   • recent funding rounds, 
   • information on the executives and investors, and 
   • look into what their previous experience or exits may have been.
2. Try to find out more about what your market rate for the position might be. Websites like https://www.levels.fyi/ or https://angel.co/salaries may be a good place to start.  Search for other sites or use your network to see how much more information you can find out.
3. Put together a spending forecast for yourself to see what a comfortable cash target could be.

Once You Get a Startup Offer

1. Evaluate the offer(s) and ask for more information.  Often, start-ups and private tech company offer letter state cash salary, number of shares granted, and the strike price.  That isn’t the whole picture though! You still need total shares outstanding (i.e. KEY piece of information), ongoing share grant opportunities, or other details around benefits to help make it a more apples to apples comparison.
2. Understand the dilution risk and chance of what your equivalent total annual comp would be.  We’ve put together a basic spreadsheet to help you think about what the all in may be one day.  Sign up for your free copy HERE
3. Look at your current company stock and vesting parameters.  What are you giving up? Is it worth it? Understand what decisions you may need to make when you terminate.  Remember, most vested options expire within 90 days of termination, so now is the time to consider the costs to exercise and whether it makes sense to.