This, definitely. Whether or not they'll give you a simple percentage number for your stock is a good indicator of whether you can trust them or they're trying to pull the wool over your eyes. There are probably many others. At the end of the day, if you don't get straightforward answers to straightforward questions, then you probably can't trust them.
Caveat: some questions that sound (in the light of inexperience) like they are straightforward are not to people with more experience of the issue in question. For example, a naive computer purchaser might ask "can this laptop run my Excel spreadsheets?". A naive salesperson might clinch the sale with a simple "yes". An experienced salesperson who'd had to process many returns after such sales might say "well, it depends on how large your spreadsheets are". But the naive buyer might think that the experienced salesperson was being non-straightforward and look for a different, less accurate salesperson who seemed more trustworthy because his answers were simpler.
Luckily, percentage ownership is pretty easy to be straightforward about. Except... I've met quite a lot of developers who, after I've explained their options grants to them, were surprised and unhappy to discover that if they get options over (say) 1% of the company, they won't always have options over 1% of the company. They didn't understand that when a company takes on new investment, existing investors (including options holders) get diluted. They thought that their 1% was 1% forever.
Which means that if a developer asked me "what percentage of the company will my options amount to" I might respond "x% of the current fully-diluted shares. But remember that that could go down in percentage terms if we took on further investment." And a naive developer might think that the caveat in that sentence meant that I was being less-than-sincere (rather than being as honest as I know how) and move on.
This is a good article, and I strongly agree with the general premise (which is: when given an offer at a company involving stock options, get the percentage, not just the raw number of shares).
However, most startup exits aren't going to occur via IPO, they are going to occur via acquisition. This is where the "percentage" value can be somewhat inaccurate, because the terms and amounts of the previous funding rounds will have a massive influence on how much the common stock is going to be worth. Not to mention retention bonuses.
And another massive factor that nobody ever talks about is the founder(s) attitudes about cashing out. Do the founder(s) want to IPO? Are they capable of running a company for that long? So few companies IPO. Would the founder(s) be happy with a 20MM exit? 50MM exit? This is going to have a massive effect on the value of your equity.
The whole thing is just really hard. Stock options, even with complete information, are impossible to value. Certainly get as much information as you can (including the recommendation of this post), but basically whatever decision you make in regards to equity is going to be arbitrary anyways. Negotiating based on salary is probably a far more productive use of your time.
Many exits and acquisitions are essentially zero for employees. They might be slight bonuses, but it would be a rounding error on salary in many cases.
Think of it like expected value of the stock. IPO is contributing to the lionshare of expected value, even if it is the least likely outcome.
That said, the basis of judgement of value is on how much of the company you have. It all starts there.
Also, I completely agree about probing what is in it for the founders. What is their goal? Unfortunately, it isn't unethical to bend the truth and project a vision deep into the future. People call that leadership.
But IPOs are essentially zero too. If I took a sample of 100 startup employees, the number who have made any significant money in an IPO is way below 1.
The fact that the fraction of a person made a really huge amount of money doesn't matter if we are talking about the decision making process of these 100 people.
I'm just saying the whole thing is very arbitrary in acquisition, IPO, or whatever. I agree that you should know how many shares are out there, if you think you are getting 1% and you are getting 0.1%, that is a big difference. But if one startup is offering you 0.8% and another is offering you 0.1%, how the hell do you know which is a better offer? You don't.
Salary is very comparable and money is practically useful. Worry about that. Maybe you can estimate if something has a big enough market that it could IPO, do that. But you can't predict success. Look how bad investors are at it.
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[ 5.0 ms ] story [ 34.8 ms ] threadCaveat: some questions that sound (in the light of inexperience) like they are straightforward are not to people with more experience of the issue in question. For example, a naive computer purchaser might ask "can this laptop run my Excel spreadsheets?". A naive salesperson might clinch the sale with a simple "yes". An experienced salesperson who'd had to process many returns after such sales might say "well, it depends on how large your spreadsheets are". But the naive buyer might think that the experienced salesperson was being non-straightforward and look for a different, less accurate salesperson who seemed more trustworthy because his answers were simpler.
Luckily, percentage ownership is pretty easy to be straightforward about. Except... I've met quite a lot of developers who, after I've explained their options grants to them, were surprised and unhappy to discover that if they get options over (say) 1% of the company, they won't always have options over 1% of the company. They didn't understand that when a company takes on new investment, existing investors (including options holders) get diluted. They thought that their 1% was 1% forever.
Which means that if a developer asked me "what percentage of the company will my options amount to" I might respond "x% of the current fully-diluted shares. But remember that that could go down in percentage terms if we took on further investment." And a naive developer might think that the caveat in that sentence meant that I was being less-than-sincere (rather than being as honest as I know how) and move on.
So it's complicated.
"it is bullshit if your startup job offer doesn't include percentage ownership"... unless they tell you valuation and share price
etc
I guess I could have gone with what is in the slug "Percentage Ownership is Everything".
For an area of so much disinformation and confusion, I don't mind if a clickbait headline gets more people to read it.
However, most startup exits aren't going to occur via IPO, they are going to occur via acquisition. This is where the "percentage" value can be somewhat inaccurate, because the terms and amounts of the previous funding rounds will have a massive influence on how much the common stock is going to be worth. Not to mention retention bonuses.
And another massive factor that nobody ever talks about is the founder(s) attitudes about cashing out. Do the founder(s) want to IPO? Are they capable of running a company for that long? So few companies IPO. Would the founder(s) be happy with a 20MM exit? 50MM exit? This is going to have a massive effect on the value of your equity.
The whole thing is just really hard. Stock options, even with complete information, are impossible to value. Certainly get as much information as you can (including the recommendation of this post), but basically whatever decision you make in regards to equity is going to be arbitrary anyways. Negotiating based on salary is probably a far more productive use of your time.
Think of it like expected value of the stock. IPO is contributing to the lionshare of expected value, even if it is the least likely outcome.
That said, the basis of judgement of value is on how much of the company you have. It all starts there.
Also, I completely agree about probing what is in it for the founders. What is their goal? Unfortunately, it isn't unethical to bend the truth and project a vision deep into the future. People call that leadership.
The fact that the fraction of a person made a really huge amount of money doesn't matter if we are talking about the decision making process of these 100 people.
I'm just saying the whole thing is very arbitrary in acquisition, IPO, or whatever. I agree that you should know how many shares are out there, if you think you are getting 1% and you are getting 0.1%, that is a big difference. But if one startup is offering you 0.8% and another is offering you 0.1%, how the hell do you know which is a better offer? You don't.
Salary is very comparable and money is practically useful. Worry about that. Maybe you can estimate if something has a big enough market that it could IPO, do that. But you can't predict success. Look how bad investors are at it.
Fixed.