The Increasing Burden on Startups to Convince Good Candidates to Join - Q4 Newsletter - Stock Option Counsel, P.C.
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
Happy New Year, Startup Community!
Here's our latest update from the world of startup equity on a new service from Stock Option Counsel and excerpts from a fascinating discussion at Hacker News on the increasing burden on startups to convince good candidates to join.
Tell Your Boss. We now offer on-site programs at later-stage startups to help employees and executives plan for future liquidity. Our CPA and financial planning partners present in groups or individual power sessions. This is a huge help to startup HR and finance executives who are restricted from providing individual advice to their employees and executives. Let them know this service is available so they can offer it as a benefit to you!
Startups' Increasing Burden in Hiring Top Talent. We counsel individuals on negotiating their startup job offers. We see on a daily basis that startups have to make meaningful and well-designed equity offers to recruit talent from big tech. Here's some excerpts from a fascinating conversation on this topic at Hacker News:
Waving a fraction of a percent in equity in front of candidates simply does not work anymore. … Coming into 2020, I think startups’ best bet is to [be] transparent and honest with candidates about all risks involved when joining a startup and factoring all this into the amount of equity they offer which should be something considerable. - Zain Amro, a software engineer based in Berkeley, California, from his blog
I believe [Zain's] post does a very good job of bringing the elephant in the room into the discussion. The current structure of equity compensation for early-stage startup companies is simply not enticing enough to get people to choose that over the salary and predictable path of BigTechCos. ... We should ... give more equity to early employees and have favorable terms around vesting for these employees and better timing around the loss of options after leaving a company. … Ensuring your early employees will be taken care of means they'll work harder for your company and this will increase the chance you'll survive long enough to see an event that makes anyone a return on their investment. - Grimm1 at Hacker News
This is easy. Offer relatively competitive TC with a real potential upside to the equity package and a work environment that's attractive. BigCorp is mired in politics and decision-making that's grounded in risk mitigation. Do something legitimately interesting and folks will come. Give them some agency and the ability to really get things done and they'll stay. - halbritt at Hacker News
What’s a more democratic funding model to spread net innovation? - bhl at Hacker News
There are already 372 comments in the discussion. I hope it grows in 2020!
Stock Option Counsel, P.C. - Legal Services for Individuals. Thank you for all your enthusiasm for my practice and for the Stock Option Counsel Blog. It's been another great year. 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 and have a very happy 2020!
Best,
Mary
Mary Russell | Attorney and Founder
Stock Option Counsel, P.C. | Legal Services for Individuals
(650) 326-3412 | mary@stockoptioncounsel.com
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
Negotiating Equity @ a Startup – Stock Option Counsel Tips
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
Negotiating an offer from a startup? Here's some tips.
1. Know How Much Equity You Want
For employees early in their careers, the only negotiable terms for equity are the number of shares of stock and, possibly, the vesting schedule. The company will already have defined the form in which you will earn those shares, such as stock options, restricted stock units or restricted stock.
Your task in negotiating equity is to know how many shares would make the offer appealing to you or better than your other offers. If you don’t know what you want for equity, the company will be happy to tell you that you don’t want much.
Your desired number of shares should be the result of thoughtful consideration of the equity offer. There is no simple way to evaluate equity, but understanding the concepts and playing with the numbers should give you the power to decide how many shares you want.
One way to compare offers and evaluate equity is to find the current VC valuation of the preferred shares in the company. If a VC has recently paid $10 per share for the company’s stock, and you have been offered 10,000 shares, you can use $100,000 to compare to other offers. If another company has offered you 20,000 shares, and a VC has recently paid $5 for their shares, you could use those numbers to compare the offers. For more info on finding VC valuations, see: Startup Valuation Basics or contact Stock Option Counsel.
Remember that the purpose of this exercise is not to have a precise dollar value for the offer, but to answer these questions: How does this offer compare to other offers or my current position? What salary and number of shares at this company would make this a stable, sustainable relationship for me? In other words, will this keep me happy here for some time? If not, it is in nobody’s best interest to come to a deal on that package.
For more information on negotiating equity, see our video: Negotiate the Right Stock Option Offer or our blog with Boris Epstein of BINC Search: Negotiate the Right Job Offer.
2. Look for Tricky Legal Terms That Limit Your Shares' Value
There are some key legal terms that can diminish the value of your equity grant. Pay careful attention to these, as some are harsh enough that it makes sense to walk away from an equity offer.
If you receive your specific equity grant documents before you are hired, such as the Equity Incentive Plan or Stock Option Plan, you can ask an attorney to read them.
If you don’t have the documents, you will have to wait until after you are hired to study the terms. But you can ask some general questions during the negotiation to flush out the tricky terms. For example, will the company have any repurchase rights or forfeiture rights for vested shares? Does the equity plan limit the kinds of exit events in which I can participate? What happens to my equity if I leave the company?
3. Evaluate the Equity’s Potential
Evaluate the company to know how many shares would make the equity offer worth your time. You can start by asking the company some basic questions on their expectations for future growth and the exit timeline.
The higher your rank in the company and the stronger your emphasis on these matters, the more likely you are to speak to the CEO, CFO or someone else at the company who can answer these questions. If you want more resources to help you think like a startup investor, there are great online resources on valuation, dilution and exits for startups.
But don’t place too much weight on the company’s predictions of the equity’s potential value, especially if those values are based on an early-stage company’s Discounted Cash Flows (DCF). Even the experts know that the only thing early stage startups know about financial projections is that they are wrong.
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
Negotiation Rhythms
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
Salary Negotiation Method: Identify your BATNA, or best alternative to negotiated agreement.
We’ve all heard plenty of advice about negotiating.
The business world directs us to stay rationally focused, rely on exhaustive preparation, think through alternatives, spend less time talking and more time listening and asking questions, and let the other side make the first offer.[1]
The psych world counsels us to listen first, sit down, find common ground, move in, keep cool, be brief, forget neutrality, avoid empty threats, and don’t yield.[2]
These tips don’t have much meaning without knowing the underlying principles of negotiations, and studying tips alone is about as meaningful as learning dance steps without ever hearing the music.
The following three-part series presents the rhythm of negotiations as described in the Harvard Negotiation Project’s Getting to Yes: Negotiating Agreement Without Giving In.[3] It should be useful for those first learning to hear this rhythm and for those who have been dancing since the bazaars of their youth who may need to go back to basics to learn some tricky new steps.
Read on!
#1: Zone of Possible Agreement
#2: Best Alternatives to Negotiated Agreement
#3: Sales & Threats
Attorney Mary Russell counsels individuals on startup equity, including:
You are welcome to contact her at (650) 326-3412 or at info@stockoptioncounsel.com.
[1] Take It Or Leave It: The Only Guide to Negotiating You Will Ever Need http://www.inc.com/magazine/20030801/negotiation.html via @Inc
[2] The Art of Negotiation | Psychology Today http://www.psychologytoday.com/articles/200701/the-art-negotiation
[3] Roger Fisher, William Ury and Bruce Patton, Getting to Yes: Negotiating Agreement Without Giving In.