How Do We Think About Equity at Earnin?
The perks of working at a startup are endless: working with small passionate teams, opportunities for career growth, flexible work hours, a casual environment and, for many, equity.
Equity is, of course, only one component of compensation. But here’s the thing — not all equity packages are created equal. Before joining any start-up, it’s important to understand the basics of equity in private, venture-backed companies.
In a recent workshop, Earnin employee learned how equity works in VC backed companies. According to the experts, these are the questions you should ask before accepting an offer:
What percentage of the company do the options you offered me represent?
The larger the number of shares does not necessarily translate into more shares. If a company offers you 10 shares and has a total of 1000 shares, you’re getting 1%. If a company offers you 5 shares and has 100 shares in total, you are getting a larger piece of the pie at 20%.
Do you have plans to hold a fundraising round soon?
With each fundraising round, stocks are sold to investors and current stock is diluted. Though this means your percentage of the company goes down, strike price ultimately decides the value of your shares. If a company is planning to hold another fundraising round soon, you can expect that the value of your equity offer may change.
What is the last strike price and when was the last 409A valuation?
A 409A valuation is typically required yearly or whenever another round of funding takes place. If a company is due to have another valuation soon, the strike price will change.
What is the vesting schedule?
Vesting schedules are put into place to incentivize employee retention. Usually, shares won’t begin to vest until you complete your first year of employment. After that, vesting generally occurs monthly but you’ll want to check with the company. From a company’s perspective — they want employees that have invested time and values into the company to have equity, not the employees that “tried it out” and left.
Does my vesting schedule accelerate if you go public?
A company may choose not to answer this, but if they do have plans to go public soon, it shows you that your shares might be worth something sooner rather than later.
How can I earn additional equity in the future?
The company may offer retention or performance bonuses in equity — it’s good to know how you can expect your options to increase.
At Earnin, we believe it’s important to understand what it means to have a stake in the company you’re helping build. As a stakeholder, your voice can have as much of an impact as that of the founders and investors. If you’re interested in learning more about Earnin and the work we do, check out our careers page.
Glossary of Terms
Equity: the value of shares issued by your company.
Shares: The unit of ownership of a company is usually referred to as a “share.”
Options: The right to buy shares from your company, typically at a later date.
Strike price: The price of your options, defined at the time your options are given to you.
Fundraising: When a startup goes through a round collecting funding, typically from venture capitalists. This happens with the company selling shares.
Valuation: The IRS requires private companies to receive an independent appraisal on the fair market value of the company’s common stock.
Vesting: Earning shares over time, though you do not own any of them until you reach your vesting cliff — the amount of time you need to work at a company (typically a year) before you own the shares you’ve earned.
