Job Offer from a Startup? Two Questions You Should Ask…

So you got an offer from a cool startup and it’s a combination of salary and stock options. The company has decent revenue traction; they may or may not go for another funding round. That’s all good, but how do you evaluate the worth of the options they’re offering?

Here are two questions you should be asking:

1. “Do you see an exit without additional rounds, if so, when and at what likely valuation(s)? Can you provide a breakdown of what my options will be worth for expected range of exits?”
2. “If there are additional rounds (these could be intermediate rounds, debt rounds etc) before and after the official rounds, will you commit to giving me the same information after any substantial change in the capitalization table?”

Here’s why: investors (and hopefully, you) make money on an exit. Your stock options come from common stock. Investors are issued preferred stock. Let’s lets at what happens when the company is liquidated for cash. Senior preferences, dividends, warrants etc will be paid out first, and when everything is said and done, common stock holders get paid (oh and by the way, preferred stock gets converted to common through dilution).

Common stock gets paid out only after after all preferences etc have been paid out. The cash pool that remains for payout of common stock will likely be significantly lower and usually is a piecewise continuous function of the exit price.

Which is why I would ask the above questions so that you can decide if accepting/staying on makes sense. If the company’s CFO’s any good, (s)he probably have a spreadsheet handy for exactly this purpose.