Negotiating Options/Stock with a Startup | JobSearchTV.com
Getting an offer from a startup isn’t just about getting a good salary or bonus. It is also about your options and stock awards, too. Here are a few things to zero in on.
You finished interviewing with a startup, and now they’re ready to make an offer. The deal isn’t completely about salary, or bonuses. There’s an options part of this. And it’s probably the most important part of it that you’re gonna have to negotiate. I want to help you do a better job or understand what to look for in your negotiation as part of obtaining a great package so that when the founders exit, when the firm might be sold, or it goes public, you have a chance to profit by it.
So, the first thing is, when do you start earning options. That’s normally referred to as a cliff. And normally, you start earning the options after your first year, or the award takes place after a year of work. You just want to check the proposal to ensure that there’s a cliff that’s clearly specified, and you really don’t want to wait more than a year.
Then from there, what’s the vesting period that’s going to take place after that? Are you going to earn shares monthly, quarterly, bi-annually? Like how’s this going to work?
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You also want to look at a low strike price and by that think of it as being the value of the stock or the options that are awarded to you that in terms of options, it’s the lowest purchase price. In terms of a stock, what its value is at the time that it’s awarded so that in this way, if there’s an exit and private equity moves in, you have a chance to capitalize at the time of acquisition, as well. And that next part of this is that as options are in the future, the load is spread equally. So whatever it is, you don’t want to be looking at 10% the first year, 1%, the second year, 9% the third. You want to look at something that has some clarity to it and the load of earning is is earned over the year, over a clear period of time.
With that, you want to make sure that there’s not a big back load on this so that you’re making it in your 10th year with the firm. So, in the first year, you get 10%, in the fifth year, you get it up to 20%, at the end of 10 years, you get the full 100%. Now, don’t do that. Look at as being equal periods or equal amounts per period of time for the load.
If there is a change in ownership or an exit that occurs, you want to look and see what’s going to happen to these options or shares that are part of the proposal, and you want to get them fully earned at the time of the exit. And of course, once employees start heading for the hills, and you’ve got options, can you keep your options? Do you need to sell them back at that time at the original price? Like where’s the profit for you at the time of exit so that when the founders leave, when a number of the employees, the major employees leave, the board members, for example, sell out the firm, what’s gonna be in it for you at that point? Are you stuck with the acquirer and trapped in there.
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ABOUT JEFF ALTMAN, THE BIG GAME HUNTER
Jeff Altman, The Big Game Hunter is a coach who worked as a recruiter for what seems like one hundred years. His work involves career coaching, as well as executive job search coaching, job coaching, and interview coaching. He is the host of “No BS Job Search Advice Radio,” the #1 podcast in iTunes for job search with over 2300 episodes.
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