We frequently place candidates at early-stage high-tech start-ups in Silicon Valley. A common question we hear is, “Is this a good offer?” in regard to the shares that are offered as part of a package. We don’t have a crystal ball that lets us see the future, but we can offer some basic insight into how you can evaluate this part of your offer. Hopefully it will help you decide whether or not to take that next job.
(A) The following is a brief summary of things to remember, in regard to stock options, when you are negotiating an offer from a startup:
When joining a startup, and negotiating the offer, make sure that you ask the following questions:
(1) What is the valuation of the company at the present time? In general, you can use the company’s value during the latest round of financing.
(2) What is the current number of outstanding shares?
From the answers, you can calculate what percentage of the company you will be receiving and the stock price at the time.
(B) The following is the typical option grant by percentage after Series-A financing, based on the position you are being offered:
Title % capital
CFO (usually hired at a later time) 1-2%
Essential employees 0.25%
All others 0.05%
Standard practice is usually 4 years vesting and a one-year cliff, no acceleration, no bonuses, and no severance.
(C) Here are a few other things to consider when you negotiating your offer:
Other than the typical salary/stock benefits, you may also choose to negotiate for the right to exercise options for 12 months (typically it's 3 or 6 months) after you leave the company.
Financially speaking, the worst time to join a startup is immediately after Series-A financing is closed. (This is because you will get less equity, and take a higher risk as at this point as the startup is not revenue-generating.)
The best time to negotiate salary/stock options is at the time the company makes you an offer. Therefore, it’s not wise to accept a “We will re-evaluate the number of shares in 6 months” scenario, as it typically doesn’t work out well for the employee. Also, remember that salary and stock options stated in a job offer are always subject to approval by the board. So while it is unlikely that the offer will change, please keep in mind that there is a slight chance that it could.