Whether you’re joining an early-stage startup, with seed funding or a startup that’s already raised big chunks of venture capital, it’s important to know the (at the very least) basics of equity. Most startups will offer equity as part of the compensation package, coming in the form of stock options that allow you to buy shares at a prearranged price in the future.
1. Majority of startups never reach the market
You must keep in mind that a startups chances of succeeding are low, even if the idea/product is great there are often external factors at play that cause the failure. If a startup goes bankrupt whatever equity you had becomes worth nothing.
Do your own research into the company, every kid sounds perfect when described by their parent. Look into the company and its product, do you think this is something that can be successful.
2. Understand what equity is and how it works.
Option: You will be given the option to purchase the shares at a certain price that won’t change.
Vested: You will be given the share but will have to work for X amount of time to unlock the rights to it.
3. Ask questions.
Unless you are applying for a very high-up role, chances are you won’t be able to negotiate for anything other than the number of shares. Even so, you should be asking questions such as.
- What is the value now?
- Is there an exit strategy?
- What is the timeframe?
- Do they have a value estimation when the exit happens?
- How much of the company do you own with your shares?
- Can you sell your shares, and what is the process if you leave?
4. With the previous points in mind and it’s time to negotiate, remember that your salary is what you are living off right now. A potentially large pay-out in 5 years will not pay your rent today. Make sure you are not giving up a large amount of salary for a maybe payment later down the road.
- You do not have to tell them what you are currently making or what you made in your previous role. Instead, ask them what range they have in mind for the role.
- Research, research, and research. Know what the going rate is for your skillset, what could you be making elsewhere. Ideally, you’ll be in discussions with other companies as well and can give them an indication of what you could get there.
- Come in with a plan, have a minimum salary and salary/equity value in mind before you sit down at the negotiation table. It makes it easier to draw the line during the talks. Know what is more important to you.
- Remember that you are there for a reason if you’ve got far enough to be discussing equity, they value your skillset. Keep that in mind when negotiating and understand you are there to bring value to the company and should be compensated accordingly.