As we’ve written about before, there are tradeoffs when working for a startup. You’re trading some security and probably a lower salary for getting in at the ground floor. What exactly that means can vary greatly. Andy Payne writes about equity offers for employees of a startup. It’s complicated, as you might expect.
Things start with the premise that you’re going to be receiving stock in the company as part of your compensation. That is, you’ll be a part owner in the company, and if you do your job well the value of that stock will rise due to your hard work:
Let’s start with the basics: a share of stock represents fractional ownership in a company. To know what the fraction is, you need to know the total shares outstanding (i.e. total number of shares issued). For example, if you have 100,000 shares of stock in a company with 10 million shares outstanding, then you own 1% of the company.
He covers many other topics, from stock classes to dilution and vesting. Here’s a snippet on stock vs. options to whet your appetite:
So far, we’ve talked about the stock as “stock”, but in most cases the company is not going to give you actual stock, but will grant you an option to purchase stock for some fixed price (the “strike price”). To actually own the stock, you have to exercise your option (as you vest), and write a check to the company for the total strike price.
So, to make sense of that offer, and to make an intelligent counter-offer, you need to understand what’s in there, and the implications of what you’re being offered. As we’ve written many times, do your homework.