You’ve read Paul Graham’s article, and understand that the amount of equity you should ask for is based on some basic math. You ask for 5%. n is 5%, so 1/ (1-0.05)=1.052. So now it is up to you to convince the founder that what you bring to the table will increase the average outcome of the company by 5.2%.
How much stock options should I give my startup employees?
The percentage method of assigning startup stock options. Assigning stock options based on percentage is relatively simple. You say “You, employee, own X% of this company.” So, if we throw some numbers in there, you could give an employee 1% of your company. If your company exits for $100 million, they would make $1 million. Pretty clear, right?
How much equity should I ask for in a startup?
You’ve read Paul Graham’s article, and understand that the amount of equity you should ask for is based on some basic math. You ask for 5%. n is 5%, so 1/ (1-0.05)=1.052. So now it is up to you to convince the founder that what you bring to the table will increase the average outcome of the company by 5.2%.
How many shares should I buy as a startup founder?
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.
Should you invest in stocks or startups?
There are four main reasons why it’s worth it: Stocks can make up a gap between salary and market rate. Startups can offer a lot to employees. The chance to work on something new and exciting.
How much stock should I ask for when joining a company?
You typically can ask for 0.25% to 2.0%. The company has NOT issued a stock option during its last fundraising: Then it's a little trickier again. You will be promised stock options that will happen in the next fundraising.
How do you ask for stock options in a startup?
Here's what smart people ask about their stock options:Ask how much equity you're being offered on a fully-diluted basis. ... Ask how long the company's "option pool" will last and how much more cash the company is likely to raise, so you know whether and when your ownership might get diluted.More items...•
How much stock do startups give?
At a typical venture-backed startup, the employee equity pool tends to fall somewhere between 10-20% of the total shares outstanding. That means you and all your current and future colleagues will receive equity out of this pool.
How much stock do early employees get?
Steinberg recommends establishing a pool of about 10% for early key hires and 10% for future employees. But relying on rules of thumb alone can be dangerous, as every company has different cash and talent requirements.
What is a participating preferred stock?
Participating preferred – Participating preferred comes with a set of terms that increase the amount of money preferred holders will get for each share in a liquidation event. Participating preferred stock places a dividend on preferred stock, which trumps common stock when a startup exits.
How much did Bleacher Report sell for?
When Bryan Goldberg's first startup, Bleacher Report, sold for more than $200 million, employees with stock options reacted in one of two ways: "Some people's reactions were like, 'Oh my God, this is more [money] than I ever could have imagined,'" Goldberg previously told Business Insider in an interview about the sale.
Can common stock make you rich?
Common stock can make you rich if your company goes public or gets bought at a price per share that is significantly above the strike price of your options. But most employees don't realize that common-stock holders only get paid from the pot of money left over after the preferred stockholders have taken their cut.
How long should stock options be covered?
Experts recommend that this gap be covered for generally around two years — but each company’s mileage may vary.
Why are stock options good for employees?
Stocks are relatively low-risk for employees. “Stock options are great because employees participate in the upside without taking on any downside risk ,” James Seely, head of Marketing at the ownership management platform Carta tells Startups.co.
What are the disadvantages of stock options?
Stocks are really tricky. “The first disadvantage of stock options is that they are complicated and most employees require a base level of education to understand them,” James says. “Many of the companies we work with at Carta invest in educating new hires and periodically host training sessions for existing employees.”.
What does it mean to be a partial owner of a stock?
A stock is a portion of ownership in a company and, for some people, being a partial owner is a great motivator for working even harder. People feel a greater sense of investment and pride in anything — a house, a business, a car — when they own it.
What is restricted stock?
Restricted Stock: “shares in a company issued to employees as part of their pay, but which cannot be fully transferred to them until certain conditions have been met.”. Shares: “a part or portion of a larger amount that is divided among a number of people, or to which a number of people contribute.”. Stock Options: “a benefit in the form of an ...
Can stocks make up a gap?
Stocks can make up a gap between salary and market rate. Startups can offer a lot to employees. The chance to work on something new and exciting. More flexibility in the workplace. “Casual Friday” every day. But one thing many startups can’t offer is a salary that meets market rate.
1. Job-Specific Questions
You will want to inquire about the specific role and opportunity, with questions such as the following (tailored to be relevant to you):
2. Compensation and Benefits Questions
Before joining a startup, you will want to have a clear understanding of compensation, bonus, and benefits for the job, so consider the following questions as relevant to you:
3. Capitalization and Financial Questions
You will want to understand the company’s financial situation, so consider the following questions. A company with a great culture can still fail if it has financial viability issues.
4. Company Mission, Vision, and Positioning Questions
When you are contemplating joining a startup, you should get an understanding of the company’s mission, vision, and plans for growth, so consider asking these questions:
5. Legal Questions
For anyone planning on joining a startup, a few key legal questions may be appropriate, as follows:
The myth of joining a startup: the series A success
The reason everyone wants to get in at a series A or series B startup is because there are so many incredible stories from people who did just that. My personal favorite early startup employee story is Doug Edward's " I'm Feeling Lucky ", which documents his experience as Google employee #59 (stock options and all).
When is a good time to join a startup? After Series B, C, or later?
So... if I am so smart and I have this figured out so well, when would I join a startup? As you would imagine, this isn't an exact science, but I do have some ballpark figures to guide my own judgement.
A real life example to back up my statistics: Uber
There has to be someone who is reading this and thinking, "Yea yea, but what if I had joined Uber early? Wouldn't I miss my meal ticket by joining so late." First of all, as I already established, the chances of any series A or series B company ending up a Unicorn are in the 2-3% range...
To summarize..
It's almost impossible to tell what the next game changer will look like. That's why the VC game is so tough, and why it doesn’t makes sense for me to join a series A or series B startup unless I get in as a founder.
