Private company stock option grants: a founder's guide to who gets what, when
As always, this information is intended to help you understand how startups work, and should not be taken as advice of any sort. For advice related to your specific situation, consult a lawyer or tax advisor. The equity is typically sold to the investors. This often happens at an oversubscribed round, so that the investors can buy more of the equity they want and employees can take a little money off the table. WeWork may lay off thousands of employees in the next few days or weeks.
Read more ». You'll work closely with one of our co-founders, and the rest of the business team, to build and manage a sales pipeline. What is Startup Equity? How Does it Work? When is Equity Worth Something?
Part II: How to evaluate an options grant
Further Reading There are many, many more startup equity situations you may come across in your career. Looking for a great startup job? The compensation package at an early stage startup typically includes equity, as well as salary and benefits like health insurance. During the hiring process, you can ask for equity from your manager, who may even be the founder or CEO, depending on how young the startup is. The founders and their investors hope the startup eventually goes on to liquidity event when equity converted into cash for the business owners, i.
If this happens, you could make some money depending on the value of the shares you own. How does equity work?
A Guide to Startup Compensation
The first thing to understand is that equity is not cash. Rather, it usually comes in the form of stock options called common stock. You also are not given all of your stock options up front; rather, you earn an increasing amount of options over a four-year period. Harquail, Ph. Another way to think about it? The band depends on the bass player, just the way they depend on the drummer. Nevertheless, the reality is that most startups do not go on to become the next Blue Apron or Glossier.
In other words, it is entirely possible that you will negotiate for equity but the startup will never reach a liquidity event and you will end up with nothing.
1. First things first: Realize that the odds are not good that there will be a big payday.
That is just a financial risk you take in the startup world. Of course, you should still advocate for yourself at the negotiating table. A startup is not a get-rich-quick scheme; it takes some serious hard work. With the previous tip in mind, you should negotiate for equity with the knowledge that it is not worth anything yet.
It only might be worth something in the future. If the company that you joined early on becomes one of the small percentage of startups to be financially successful, it will be thanks to your hard work. We mentioned earlier that equity that is typically offered to employees is called common stock.
Equity is often the most confusing and intriguing part of a compensation package at a startup. Equity refers to ownership of the company, and this can be extremely valuable if the company ever sells or goes public learn more about startup fundraising here and in our eBook, How to Get a Job at a Startup.
Instead, employees often receive stock options, which are the option to purchase equity in the company at a heavily discounted price. You also are not given all of your stock options up front; rather, you earn an increasing amount of options over a four-year period. That four-year period is often referred to as a vesting schedule.
Once your options vest, you have the right to purchase them or not. Getting into a company early has a big impact on the amount of stock options you receive and at what price. If you join a company early, you are often rewarded with a higher number of options at a much lower price. As the company matures, the risk gets lower and its ability to pay market-rate salaries improve, so you will typically receive fewer stock options and at a higher purchase price.
The benefit of purchasing your options is that eventually — fingers crossed — the company will sell or go public and you will get a big payday.
There are special considerations to make when negotiating your compensation at a startup. Working in the startup world can be one of the most challenging, exhilarating, sometimes heartbreaking, and oftentimes fulfilling journeys of your life.