Stock options and equity are words you may see in the ‘career perks’ section of many Work in Startups job descriptions. What does this perk actually mean for you, a potential startup job-holder? Here is our run-down all about startup equity as an employee.
Mini-Glossary
Option: an agreement to purchase a share in a company at a future point in time for a set price.
Vest: the period over which the options issued are earned by you. Once vested they can generally not be taken away from you unless you chose not to exercise.
Exercise: The action of buying the share off the company for the option price. You pay the company cash and then become a shareholder.
A Liquidity Event: This is the time when you get to cash in your stock (often an IPO or an exit).
What to look for in equity
If equity and stock options are something you want in a startup job then it is worth finding out a few pieces of information either when looking for a role or at the point of interview:
Quantity: how much of the company do you or will you own? Pretty self explanatory!
Type: do you have stock options or restricted stock?
- Stock Options – this is the right to buy shares at a predetermined price (or “strike price”). You then exercise these at a time of your choosing and acquire ownership of the shares.
- Restricted Stock – the stock is granted (given) to you under conditions, like vesting…
Vesting: how long will it take, and under what conditions, do you assume all the shares you are entitled to. More often than not: you don’t accrue your shares in the first year of employment and then gradually gain them over the next three years (although this is different in each startup). Bare in mind that if you switch jobs you may not have acquired your whole equity package!
Exit Strategy – does the company plan to go public, and if so, when? If the startup fails or plans to never sell then you may not see the cash behind the stock.
So: what have I got to lose?
Should you look for stock options when considering a startup role? In short: it depends.
Obviously, the value of your shares depend on the success of the company as a whole, so make sure you are investing your time (and money) into a project you believe in. This is particularly true for co-founding roles where equity is the main form of compensation. We also do not recommend applying for a role unless there is an interesting day-to-day and it benefits your career long term.
There are so many roles that are both interesting and reward you with awesome benefits like equity on Work in Startups. Give them a look!
