Startup Equity 101

Understanding the salary/equity split of a startup job offer can be tricky to understand, but is extremely important. Here are questions that we recommend every Hired job-seeker should ask about their stock options:

Basic:

• How many shares you might be offered, & how many shares are currently outstanding?

  • By dividing your shares by total outstanding, you’ll be able to calculate what your options are worth as a percentage of the company.

• What are the options currently valued at?

  • This will tell you the value of these shares, so you can see how they affect your total package. To do this, you’ll need to ask about the company’s preferred share price -- ie what did investors pay for each share at the last round. Read more about figuring out what your options are worth here.

• What is the standard range for equity at [company X] and is there a sliding scale?

  • This will let you understand the full extent of your offer package. Many companies are impressed by candidates who want more equity than comp, so you may be able to get a better package by asking for more equity than salary.

Advanced:

• Are your options represented on a fully-diluted basis.

  • If you ask this, the company will tell you about all of the stock the company they are obligated to issue in the future -- not just the stock that's already issued. This number will also take into account the entire option pool -- aka: the stock that is set aside for other employees.

• How long will the company's "option pool" last and how much more cash is the company likely to raise.

  • This will help you’ll know if, when & by how much your ownership might get diluted.  If the company will be raising more money over the next several years, therefore, expect dilutions. Read more on option pools here.

• Understand how much preferred stock has been issued.

  • Most investment comes in the form of preferred stock. If your company has issued preferred stock (read about preferred stock here) or participating preferred stock (read about participating preferred stock here) you should expect less stock to be left over for the common shareholders (i.e. employees and regular stockholders) in the case of an exit below the company’s last valuation. Bonus tip: Ask if any classes of preferred stock have liquidation preferences associated with them.

Good explanatory articles to check out:

• Wealthfront’s The 14 Crucial Questions About Stock Options

• Business Insider’s Stock Option Questions Startup Employees Should Ask

• Angellist’s I have a job offer at a startup, am I getting a good deal?

• AVC’s Employee Equity

If you have any additional questions about the interview process, don’t be afraid to reach out to your Talent Advocate.