Uber IPO - Lessons for Negotiating Startup Equity Offers - Spring 2019 Newsletter - Stock Option Counsel, P.C. - Legal Services for Individuals

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Hello Startup Community!

Uber's IPO is a great lesson for startup employees on negotiating their startup equity. Unicorn startup recruiters have been telling hires for the past few years to value the offered RSUs at many multiples, even 10X, of the most recent investor valuation in negotiating their compensation offers. Since Uber's value has not risen even 2X in that time, any hires who accepted offers based on this calculus have lost significant value compared to their opportunity cost.

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Individuals need negotiate for enough shares in a startup to balance their risk. The calculation for the right number of RSUs at a late-stage startup with a public-company-size valuation is the current investor value per share, not the potentialfuture value. 

Shira Ovide explored this issue in Bloomberg Opinion last week with input from Stock Option Counsel:

Uber's example shows that employees at startups – particularly those who come aboard when the company is more mature – often don't get rich, even when the companies are successful. Many workers are at the bottom rung of stock holders and tend to have less information about their company's value and prospects than just about anyone else who holds shares. ... Mary Russell of Stock Option Counsel, which advises employees on compensation at startups, said people evaluating job offers at more mature startups should analyze only what the proposed equity is worth at the time of negotiation, not what it could possibly be worth in a dreamy future. That’s not always easy, because Russell said startup recruiters sometimes suggest that a 10-fold increase in valuation in the past is an indication of what prospective employees can expect from their wealth.

For more on using current value to evaluate startup equity offers, see this video from the Stock Option Counsel blog

Stock Option Counsel, P.C. - Legal Services for Individuals. Thank you for your enthusiasm for my practice and for the Stock Option Counsel Blog! I will continue to send quarterly updates on important topics in the market for startup equity for individual founders, executives and employees. Please keep in touch. 

Best,

Mary

Mary Russell | Attorney and Founder
Stock Option Counsel, P.C. | Legal Services for Individuals

You are welcome to contact Stock Option Counsel, P.C. - Legal Services for Individuals for guidance on your startup equity, including:

  • Founder interests at incorporation, financings and exits

  • Job offers, equity grants and employment agreements

  • Executive compensation design

  • Acquisition terms and post-acquisition employment agreements

Or check out our blog and social media for great posts on startup equity for founders, executives and employees. 

Winter 2019 Newsletter - Stock Option Counsel® - Startup Offer Letter? The Equity Issues Hidden Between the Lines

Hello Startup Community!

If you have an Offer Letter from a startup, you may notice that it’s light on information about stock options or other equity. See this new post on the Stock Option Counsel Blog to learn the key issues hidden between the lines. It covers:

Grant Timing. The exercise price is not negotiable, but you will want to follow up after your start date to be sure that the board grants the options promptly. Delays are common and can increase the exercise price dramatically and reduce the value of your stock options.

Protection for Unvested Shares. The standard vesting schedule will not protect unvested shares in an acquisition. Consider negotiating for double trigger acceleration upon change of control.

Clawbacks and Other Red Flags. The equity incentive plan and stock option agreement are usually not provided with the Offer Letter. However, it makes sense to request and review those documents before signing the Offer Letter to identify clawbacks for vested shares or any other red flag terms

Tax Structure. The right tax structure will balance your interests in total value, low tax rates, tax deferral, limited tax risks and investment deferral. 

You can see the full post on the Stock Option Counsel Blog, along with other great information on startup equity negotiations. Happy reading. 

Stock Option Counsel, P.C. - Legal Services for Individuals. Thank you for your enthusiasm for my practice and for the Stock Option Counsel Blog! I will continue to send quarterly updates on important topics in the market for startup equity for individual founders, executives and employees. Please keep in touch. 

Best,

Mary

Mary Russell | Attorney and Founder
Stock Option Counsel, P.C. | Legal Services for Individuals

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Is the battle for talent delaying unicorn ipos?

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Frederic Kerrest, Chief Operating Officer and Co-Founder of Okta lists recruitment as one of a few factors that influenced their choice to delay their IPO. 

There’s a few reasons specifically that we thought about when we went through the calculation [of taking another private financing rather than having an IPO]. Five or ten years ago, companies like us would have gone public at this point instead of doing this financing round, because it’s about the same amount of money you would raise in a typical IPO.

First of all, it’s interesting for potential employees who want to come join the company. The opportunity to join a pre-IPO company is something that’s interesting to them, even if it’s just 6 or 9 months before.
— Frederic Kerrest, Chief Operating Officer & Co-Founder, Okta
Do you think it’s harder to hire certain folks if you were public as opposed to being pre-public?
— Dan Primack, Fortune
I think it’s a slightly different kind of person who wants to join a pre-public versus a ... public company. They have different profiles, they’re looking for different things. They’re looking for different things in terms of the company, in terms of the job, in terms of other things.
— Frederic Kerrest, Chief Operating Officer & Co-Founder, Okta

Stock Option Counsel, P.C. - Legal Services for Individuals.  Attorney Mary Russell counsels individuals on equity grants, executive compensation design, employment agreements and acquisition terms. She also counsels founders on their personal interests  at incorporation, financings and exit events. Please see this FAQ about her services or contact her at (650) 326-3412 or by email.

Skype Repurchase Rights = Vampire Capitalism

I agree that it is unethical as it goes against the expectation of employees as to how their contributions are valued. If they don't know about it before they choose the company, they are making a choice without an essential term of the deal.

And it goes against the most idealistic ethic of Silicon Valley – that capitalism should be used by groups to organize and cultivate their own creative efforts rather than as a tool of vampires.

But it is not illegal. And I've seen worse in my Stock Option Counsel practice (twice this month alone). Congratulations on paying attention.

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