Questions candidates can ask

4 minutes, 2 links

From the Holloway guide toEquity Compensation

Common questions covered here
What are the most important things to ask after receiving an offer from a startup that includes equity compensation?
What should I know about percentage ownership, valuation, exercising stock options, and vesting when considering an offer from a startup?
What kinds of questions can I ask to understand the benefits and drawbacks of various exercise scenarios?

Questions candidates can ask

important It’s important to ask questions when you get an offer that includes any kind of equity. In addition to helping you learn the facts about the equity offer, the process of discussing these details can help you get a sense of the company’s transparency and responsiveness. Here are a few questions you should consider asking, especially if you’re evaluating an offer from a startup or another private company:

  • Percentage ownership:

    • What percentage of the company do the shares represent?
    • What set of shares was used to compute that percentage? Is it outstanding shares or fully diluted?
    • What convertible securities are outstanding (convertible notes, SAFEs, or warrants), and how much dilution can I expect from their conversion?
  • Valuation:

    • What did the last round value the company at? (That is, what is the preferred share price times the total outstanding shares?)
    • What is the most recent 409A valuation? When was it done, and will it be done again soon?
    • What exit valuation will need to be achieved before common stock has positive value (that is, what are the liquidation overhangs)?
  • Stock options:

    • Do you allow early exercise of my options?
    • Am I required to exercise my options within 90 days after I leave or am terminated? Does the company extend the exercise window of the options of employees that depart?
  • Vesting:

    • Are all employees on the same vesting schedule?
    • Is there any acceleration of my vesting if the company is acquired?
    • Do you have a policy regarding follow-on stock grants?
    • Does the company have any repurchase right to vested shares?

This information will help you consider the benefits and drawbacks of possible exercise scenarios.

important If you’re considering working for a startup, there are further questions to ask in order to assess the state of the company’s business and its plans. Before or when you’re getting an offer is the right time to do this. Startups are understandably careful about sharing financial information, so you may not get full answers to all of these, but you should at least ask:

  • How much money has the company raised (including in how many rounds, and when)?
  • What did the last round value the company at?
  • What is the aggregate liquidation preference on top of the preferred stock? (This will tell you how much the company needs to sell for before the common stock—your equity—is worth something in an exit.)
  • Will the company likely raise more capital soon?
  • How long will the company’s current funding last? (This will likely be given at the current burn rate, or how quickly a company is spending its funding, so will likely not include calculations for things like future employee salaries.)
  • What is the hiring plan? (How many people over what time frame?)
  • What is the revenue now, if any? What are the revenue goals/projections?
  • Where do you see this company in 1 year and 5 years, in terms of revenue, number of employees, and market position?

There are several other resources with more questions like this to consider.

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