How to evaluate a pay package of a startup

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haranoth
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How to evaluate a pay package of a startup

Post by haranoth » Mon Sep 24, 2018 9:28 am

I am getting an offer from a startup with 50-100 employee. I currently work for a private medium/large company which has a well defined Bonus/401k (with vested period) matching and salary estimate. With the startup(s) I am not sure how to evaluate my salary.
They are providing equity, but I am really not sure how to evaluate that. I googled around, but I am not really sure what to ask.

I saw the following:
https://www.quora.com/How-do-you-evalua ... -a-startup
I have seen bunch of my friends getting burned with startup and leave with no equity or worthless equity. So i would rather ask for a higher salary with a lower equity rate than go high on equity.
Do folks , who joined startup mid career have some article/lessons that they can share so that I can roughly estimate the startup offer?

Thanks

Jack FFR1846
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Re: How to evaluate a pay package of a startup

Post by Jack FFR1846 » Mon Sep 24, 2018 10:01 am

I've been offered a large percentage of my pay package in equity rather than salary even with established companies. I have always negotiated to increase my salary as much as possible for reduced equity. I value equity at barely more than zero. In about 80% of the jobs I've taken, my valuation of equity has proved to be correct. With a startup, there's even more chance that the equity offer will become zero value.
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luminous
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Re: How to evaluate a pay package of a startup

Post by luminous » Mon Sep 24, 2018 10:06 am

If the startup is in the tech business and has venture funding then you should be offered market rate salary. The stock options are obviously harder to evaluate.

Startup vs established company is almost a lifestyle choice. Lots of folks burnout at startups because they ask so much of their employees.
50/20/30 US stock/international stock/bonds. Hope to semi-retire in 2026.

riverguy
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Re: How to evaluate a pay package of a startup

Post by riverguy » Mon Sep 24, 2018 10:14 am

Jack FFR1846 wrote:
Mon Sep 24, 2018 10:01 am
I've been offered a large percentage of my pay package in equity rather than salary even with established companies. I have always negotiated to increase my salary as much as possible for reduced equity. I value equity at barely more than zero. In about 80% of the jobs I've taken, my valuation of equity has proved to be correct. With a startup, there's even more chance that the equity offer will become zero value.
Equity is pretty much the whole point of going to a startup...

Thegame14
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Re: How to evaluate a pay package of a startup

Post by Thegame14 » Mon Sep 24, 2018 12:12 pm

I would assume equity is worthless, future promises of raises and bonuses worthless so just salary, benefits, vacation and work life balance is all I would consider. I have been at two startups who promised the world, both failed and let me go to hire cheaper labor, so there is no honor and no loyalty with startups.

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Re: How to evaluate a pay package of a startup

Post by TheOscarGuy » Mon Sep 24, 2018 12:45 pm

haranoth wrote:
Mon Sep 24, 2018 9:28 am
I am getting an offer from a startup with 50-100 employee. I currently work for a private medium/large company which has a well defined Bonus/401k (with vested period) matching and salary estimate. With the startup(s) I am not sure how to evaluate my salary.
They are providing equity, but I am really not sure how to evaluate that. I googled around, but I am not really sure what to ask.

I saw the following:
https://www.quora.com/How-do-you-evalua ... -a-startup
I have seen bunch of my friends getting burned with startup and leave with no equity or worthless equity. So i would rather ask for a higher salary with a lower equity rate than go high on equity.
Do folks , who joined startup mid career have some article/lessons that they can share so that I can roughly estimate the startup offer?

Thanks
I would ask how much is the equity worth if you leave and the company isn't bought or hasn't gone public. Usually the answer is its not worth anything.
I have personally not considered equity in a company that may or may not exist as worth anything when I was in a situation as yourself. I was upfront and told them so. I ended up not taking their offer due to other reasons (commute).

freebeer
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Re: How to evaluate a pay package of a startup

Post by freebeer » Mon Sep 24, 2018 12:53 pm

haranoth wrote:
Mon Sep 24, 2018 9:28 am
I am getting an offer from a startup with 50-100 employee. I currently work for a private medium/large company which has a well defined Bonus/401k (with vested period) matching and salary estimate. With the startup(s) I am not sure how to evaluate my salary.
They are providing equity, but I am really not sure how to evaluate that. I googled around, but I am not really sure what to ask.

I saw the following:
https://www.quora.com/How-do-you-evalua ... -a-startup
I have seen bunch of my friends getting burned with startup and leave with no equity or worthless equity. So i would rather ask for a higher salary with a lower equity rate than go high on equity.
Do folks , who joined startup mid career have some article/lessons that they can share so that I can roughly estimate the startup offer?

Thanks
A lot depends on location. If Bay Area, you shoulld get competitive salary to established companies,due to competition. If Cleveland, maybe not so much (attractive) competition and exciting startups can pay less cash.

As far as evaluation of equity you could ask to see the cap table and angel/VC funding docs. Might be considered a bit weird for. a non-executive to take so much interest in it but I would have viewed sich interest as positive as a hiring manager and no problem unless there were some red flags I wanted to hide such as that X 1000 options were crazy small as fully diluted % or that founders got a different class of shares than rank and file. I never did that stuff but many startups do.

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plantingourpennies
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Re: How to evaluate a pay package of a startup

Post by plantingourpennies » Mon Sep 24, 2018 1:17 pm

haranoth wrote:
Mon Sep 24, 2018 9:28 am
I am getting an offer from a startup with 50-100 employee. Do folks , who joined startup mid career have some article/lessons that they can share so that I can roughly estimate the startup offer?
I've watched others get lured by equity at a startup. In the cases that I've seen the equity has turned out to be worthless or close to it.

1. The work is sometimes so grueling that you'll never make it through the vesting period.
2. Dilution is a huge risk-many startups issue more shares as time goes on
3. The failure rate of a startups is horrific. The oft-quote industry statistic is that only 5% ever reach a liquidity event-i.e. a time when you would be compensated.

It's kind of like stock market-the playing field is tilted towards the big guys, and away from you.
riverguy wrote:
Mon Sep 24, 2018 10:14 am
Equity is pretty much the whole point of going to a startup...
Hitting the jackpot is pretty much the whole point of playing craps...but you won't find me at a table risking my salary =)

randomguy
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Re: How to evaluate a pay package of a startup

Post by randomguy » Mon Sep 24, 2018 1:31 pm

plantingourpennies wrote:
Mon Sep 24, 2018 1:17 pm
haranoth wrote:
Mon Sep 24, 2018 9:28 am
I am getting an offer from a startup with 50-100 employee. Do folks , who joined startup mid career have some article/lessons that they can share so that I can roughly estimate the startup offer?
I've watched others get lured by equity at a startup. In the cases that I've seen the equity has turned out to be worthless or close to it.

1. The work is sometimes so grueling that you'll never make it through the vesting period.
2. Dilution is a huge risk-many startups issue more shares as time goes on
3. The failure rate of a startups is horrific. The oft-quote industry statistic is that only 5% ever reach a liquidity event-i.e. a time when you would be compensated.

It's kind of like stock market-the playing field is tilted towards the big guys, and away from you.
riverguy wrote:
Mon Sep 24, 2018 10:14 am
Equity is pretty much the whole point of going to a startup...
Hitting the jackpot is pretty much the whole point of playing craps...but you won't find me at a table risking my salary =)
Nah work environment is why you do startups. The equity is just a bonus.

It should be pointed out that starts up vary a lot. A 50-100 person software startup is a company that is pretty far along and has probably shipped a product. That is vastly different than a 50 person biotech company that probably hasn't even started drug trials yet. Vastly different risk profiles.

Diluation makes it hard to value you shares. You get 1% of the company at the time you sign but you have no way of knowing if you will be diluted 10x or 100x by the time the liquidity event happens (if it happens). And it isn't because the vc/founders are evil and out to rip you off (that does happen). It is just a result of needing to raise another 10 million to keep the doors open.

badger42
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Re: How to evaluate a pay package of a startup

Post by badger42 » Mon Sep 24, 2018 3:20 pm

Startups are a tradeoff. The first part is understanding what kind of startup it is.

Is this business a Mom and Pop "startup" that's growing slowly (if at all), or a venture funded exponential growth business

If it's the former, evaluate the offer like any other. The equity is a total crapshoot (think "lottery"), and you'd be better off looking for more salary, or something more concrete like profit sharing. There are lots of 'startups' with no real plans to scale or have a meaningful liquidity event. You may (but are not guaranteed) have additional flexibility in the lifestyle / hours department that compensates for lower salary e.g. I've worked for one of these where I was 100% remote, flex hours, and could basically travel anywhere as long as I brought the laptop and 3G card.

If it's the latter, realize you're still in high risk / high reward. The salary should pay you well enough still have a reasonable savings rate. Don't expect tons in the way of benefits pre-IPO but they should have the basics (e.g. a decent health plan). For the equity, I would start with the 409(a) valuation and go from there - you need to understand what it's actually worth, and think hard about whether you believe in the business plan and/or whether the company is a good acquisition target.

In almost all cases, RSUs are way better than options - and be very wary of SARs, 'phantom shares', and similar - those are often indicators the corporate structure isn't really setup well for scaling.

haranoth
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Re: How to evaluate a pay package of a startup

Post by haranoth » Wed Sep 26, 2018 2:21 pm

badger42 wrote:
Mon Sep 24, 2018 3:20 pm
Startups are a tradeoff. The first part is understanding what kind of startup it is.

Is this business a Mom and Pop "startup" that's growing slowly (if at all), or a venture funded exponential growth business

If it's the former, evaluate the offer like any other. The equity is a total crapshoot (think "lottery"), and you'd be better off looking for more salary, or something more concrete like profit sharing. There are lots of 'startups' with no real plans to scale or have a meaningful liquidity event. You may (but are not guaranteed) have additional flexibility in the lifestyle / hours department that compensates for lower salary e.g. I've worked for one of these where I was 100% remote, flex hours, and could basically travel anywhere as long as I brought the laptop and 3G card.

If it's the latter, realize you're still in high risk / high reward. The salary should pay you well enough still have a reasonable savings rate. Don't expect tons in the way of benefits pre-IPO but they should have the basics (e.g. a decent health plan). For the equity, I would start with the 409(a) valuation and go from there - you need to understand what it's actually worth, and think hard about whether you believe in the business plan and/or whether the company is a good acquisition target.

In almost all cases, RSUs are way better than options - and be very wary of SARs, 'phantom shares', and similar - those are often indicators the corporate structure isn't really setup well for scaling.
Thank you.. I have not heard of half the terms you mentioned here before. I found the following a beginner read to understand some of the basics. https://www.capshare.com/blog/rsus-vs-options/.
I will look out for what they are offering. Is there a way to get 409(a) info somewhere online/crunchbase etc?

For those who are interested , it's a tech software dev job at a biotech startup ;50-100 folks; with series C funding. (There are some big hitters in Venture capital area, who are backing this up, they recently got couple of VC's to back them up). However, the software dev. team is only 3-4 people at the moment. The biotech engineer/researcher team is about 20-30 and the rest is sales, and marketing and management. There is some exciting area to work possibly, in my focus area.
However, I have not worked for biotech folks before. So, I am not sure whether its worth taking the plunge.

chenzi
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Re: How to evaluate a pay package of a startup

Post by chenzi » Wed Sep 26, 2018 3:03 pm

Personal Experience:
I quit a FAANG job to join a "hyper-growth" startup. It was a Series C company and the company was closer to Series D at supposedly a 5-8X that would provide breakeven to my current salary as they were offering less than half of my total compensation :) I joined and the Series D funding came at half of their expectations and "hypergrowth" isnt really as hyper as they projected. Over the few months I realized that the early employees and executives make most of the money and I would barely break even at a 1B valuation. I couldn't convince myself to repeat the "hypergrowth" story to convince engineers from Amazon, Google, Facebook, Apple etc. We used to give them a compensation that was around half of their total compensation and then talk this hypergrowth story after drinking cool aid about multi-billion dollar opportunity and disruption. Fastforward few months, I moved back to a larger enterprise with a reasonable bump in compensation and still a better deal than what the startup would have given me at a 1B+ valuation. Overall I lost money in this experiment :)

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watchnerd
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Re: How to evaluate a pay package of a startup

Post by watchnerd » Wed Sep 26, 2018 3:59 pm

I've done 4 Silicon Valley software startups.

3 were VC-backed, 1 was boot-strapped with friends/family money.

Of those 4:

1 failure, 2 exits, last 1 still rolling (but I left)

1. Unless you're a founder, get a market rate salary, no matter how much equity you may be promised.

2. Get as much equity as you can, but assume it's probably worthless.

3. Ask to see the cap table, or at least roughly how much of the company is owned by employees vs VCs.

4. Watch out for "lifestyle" startups that can be fun to work at, but have no real growth or exit plans, unless you're in it for the lifestyle, too.

5. Give yourself a time limit for how long you're willing to potentially waste your time before you decide if it's going to pan out or not. The Valley is full of zombie startups that are chugging along, barely scraping by, keeping people employed, but basically not going anywhere.

6. The $10 million revenue mark is a big inflection point...lots of businesses never get there, and those that do often have to massively restructure what they do in order to go to the next level -- 0-$10 million is a very different company than $10-$100 million.

7. While HR often touts ping pong tables, foosball, lots of snacks, catered lunches, and other perks as being necessary to recruit talent, too much of that stuff is a bad sign, and often more likely to attract employees in it for the "gig of the moment" entitled workers

8. Assume the job won't last, so ask yourself how it prepares you for the next step in your career -- will you learn something in a new sector? will it give you exposure to a hot topic? Taking a role in, say, quantum computing may be valuable for the experience, even if the present job crashes and burns
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badger42
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Re: How to evaluate a pay package of a startup

Post by badger42 » Wed Sep 26, 2018 4:16 pm

haranoth wrote:
Wed Sep 26, 2018 2:21 pm
Thank you.. I have not heard of half the terms you mentioned here before. I found the following a beginner read to understand some of the basics. https://www.capshare.com/blog/rsus-vs-options/.
I will look out for what they are offering. Is there a way to get 409(a) info somewhere online/crunchbase etc?

For those who are interested , it's a tech software dev job at a biotech startup ;50-100 folks; with series C funding. (There are some big hitters in Venture capital area, who are backing this up, they recently got couple of VC's to back them up). However, the software dev. team is only 3-4 people at the moment. The biotech engineer/researcher team is about 20-30 and the rest is sales, and marketing and management. There is some exciting area to work possibly, in my focus area.
However, I have not worked for biotech folks before. So, I am not sure whether its worth taking the plunge.
For 409(a) valuation, that's usually not published widely. Your recruiter should be able to tell you if you ask. If they can't tell you, that's a red flag.

If it's biotech, understand what the FDA approval process looks like for what the company is working on. This may be a much longer, slower ride than a software startup.

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Re: How to evaluate a pay package of a startup

Post by cantabtim » Wed Sep 26, 2018 4:52 pm

I joined a tech startup in May 2000 at the age of 37 having got burned out with 14 years at mega-corp. It was a pay cut of 25% but seemed exciting. We weathered the 2001 dotcom crash by firing 75% of the staff (not me!) and had a lot of fun being reasonably successful and growing to 100 people through 2008 when we were acquired. I was then pleasantly surprised (shows how much I knew and how closely I was watching) to receive $300K cash in late '08 and early '09 as compensation for equity I didn't really know I had. Lucky break #1. My lucky break #2 was that I had recently read the Bogleheads book and put all $300K into the Vanguard S&P 500 index fund in, you guessed it, March 2009. Needless to say that worked out pretty well. All luck though, I can claim no judgement.

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