Tech Startup Offer Letter Language....Negotiable?
Firstly, to those thinking about joining a start up, NorthSider's post is a must read, http://www.wallstreetoasis.com/blog/why-you-should-reject-that-start-up…
I am posting this on my alternate account to protect my anonymity.
I recently got an offer from a startup in NYC that raised $7m in a series A. When the CEO called me, he sort of ran through all the offer details so wanted some clarification.
I was looking over the offer letter and had a few questions. It says:
“You will receive a monthly salary of $4,000, less applicable withholdings, which will be paid in accordance with the Company’s normal payroll procedures.”
Are they referring to taxes or the value of the stock options they are granting me?
The following paragraph says:
“In addition…the Company shall recommend to its Board of Directors that you be granted a stock option to purchase 5,000 shares of the Company’s Common Stock at a per share exercise price equal to the fair market value of the Company’s Common Stock as of the date of grant. The shares subject to such option shall vest over a four year period as follows: 25% of the total number of shares shall vest on the 1 year anniversary of employment and thereafter, 1/36th of the total number of shares each month until year 4.”
Is a 4 year vesting period normal/standard? I haven’t gotten an offer like this before so want to be sure before signing anything.
Are there any questions I should be asking before signing? Is the offer negotiable at all?
NorthSider mentioned in his post to negotiate any equity concerns before signing but the position is more entry level Bus Dev, I do not have any programming experience. I do think they really liked me given that they called me a few hours after our first meeting to offer and they know that I am making more right now so that could play to my favor.
Thanks!
Answering your stock option question, yes do they usually do vest 25% each year. This is how I know most publicly traded companies treat both their stock options and restricted stock they grant, whether it would be employees or c-suite people, though c-suite level gets a bit more tricky.
4 year vesting period is standard for start-up offers. From what I understand, it seems $4,000 is referring to your salary, not stock options (not sure if they mean this 4k is your gross or your net after taxes though)
It's a start-up so everything is negotiable, but obviously you could negotiate (especially if your making more money right now). Keep in mind most start-ups are cash constrained and would prefer to offer you equity. Generally speaking, if they have already raised a Series A, I wouldn't be expecting very much equity/stock options (prob
Is there a commission element to this Bus Dev role? If not, do you like the company/role that much more that you're willing to take a pay cut in NYC?
This is based on working for a company that IPO'd right before I started. In the end you could always just ask for clarification.
1) Seems like standard wording for tax or other withholdings (medical, retirement, etc).
2) My options vest the same.
As far as negotiating, I didn't and in hindsight I wish i did. I think I could have gotten a little bit more on options.
Depending on what they told you during the interview process, make sure you understand all the benefits. Working for a big company you take for granted the medical, 401k, whatever because they have all sorts of plans and options. I don't think our company had any 401k options until recently, and the company match is pretty low though it's all cash.
I have no idea how many shares are currently outstanding; is it proper to ask the Founder? Also, do I just come out and say, "I am earning more now, can you guys match it?"
It's irregular for them to not tell you how much equity you are getting (i.e. as a percentage). Just telling you the number of shares you get doesn't mean shit unless you have context to understand how much your shares are worth. To explain, some companies may have 10 million shares outstanding so your 5,000 shares aren't worth jack shit...other the other hand they may only have a couple hundred thousand.
And yes I believe it is fair for you to bring up you are making more at your current job. If they can't match on salary, ask them to bring up their equity offer / stock options.
They weren't moving on salary but got a small bump in equity. Total equity at signing is equal to .05%. I know its nothing but during negotiation, I just didn't feel like i had the leverage to ask for more given I only have 1 yr exp and do not code.
It's vitally important that you provide more detail on what stage this company is in. Most importantly, how many years until the company sees a viable exit, and how likely do you judge the potential exit. This will dramatically affect the valuation of the equity that you're receiving. What most people joining start-ups don't realize is that, in a good portion of cases, the value of the equity you're getting is virtually zero. If there is no liquidity event on the horizon, you're going to have an awful hard time selling your equity stake; and even if there are, most of the time early-stage VC backers have liquidation preference. This doesn't bode well for later-stage employees. A good rule of thumb: unless the company is very close to an exit, consider the value of your equity to be about 1/3rd or 1/4th of the face value.
We also need more information about your current role. You say you have 1 year of experience - 1 year of experience in what? How does your current salary compare with the $48k that this company is offering? What is the aggregate equity value of the company right now, and when was that valuation made?
Remember that you are getting stock options that are struck at the current valuation, not equity! That means that if the value of the company doesn't increase in the future, your options are worthless. And even when the next liquidity even occurs, your actual stake in the business will be less than 0.05%.
Once we have all this information, it will be much easier to judge the offer and its terms. I say all of this not to try to dissuade you from accepting the offer, but just to remind you: this is not an investment bank, there are (almost) never raises at start-ups and you employees rarely receive incremental equity as they build tenure - what you negotiate today is extremely important. And my gut reaction here is that you're under-selling yourself and not pushing hard enough on this. You say, "I don't feel like I have the leverage to ask for more." What makes you say that? It doesn't really sound like you have strayed much from their initial offer. Why don't you think you have more leverage?
As for the questions about the language in your offer:
1) That is referring to taxes. You will receive gross monthly pay of $4,000, after which taxes will be withheld according to the company's payroll procedures. Basically, you'll fill out a W-4 and the company will determine your tax rate and withhold accordingly.
2) 4-year vesting is fairly common in the start-up world. Remember, by the way, that start-ups often making hiring/down-sizing decisions based on these vesting periods. I've had friends fired (without severance, of course) from start-ups within days of their options vesting, so make sure you have your eyes open as these hurdles are passed.
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