As a career co-pilot, Lloyd has created a new advice series titled “Dear Lloyd” to answer your burning career questions, anonymously. Inspired by the greats of advice column writing, we anonymize or generalize questions, so ask away!
Dear Lloyd, I received an offer from a startup that includes salary and equity, and I’m trying to figure out if it is a good offer. How should I evaluate this offer? -Equity and Exit
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Dear Equity and Exit,
First of all, congratulations! Getting an offer from a startup is often the product of many months of networking, interviewing, first child naming rights reserved (we kid, we kid, etc.) so congrats! You’re right, there are many variables to consider. I’d divide them into two categories:
1) Financial value to you. Whereas with a corporate job you may assess your salary (and potential bonus), for a startup job the two main components of compensation are typically salary and equity. These two components should be evaluated both separately and independently. To use round numbers as an example, perhaps you get an offer from a startup for $100,000 in annual salary and 1% of equity (in the form of either shares, units, options, etc.). Here is our recommendation for a simple way to assess this offer:
- Analyze salary alone. With startups, it is always wise to be conservative and assume your equity will be worth nothing. Obviously, you don’t hope that is the case, but we advise you to be conservative. Assess the salary against your perceived market salary and also your living costs. Are you comfortable with the salary if it didn’t change meaningfully for the next 1-2 years?
- Analyze salary and equity. When considering your offer over the next 4 year period (since most equity vesting periods are 4 years), a simple model can be created to compare your perceived market salary vs. the combination of your startup salary and equity grant. Are they equivalent based on future estimates for the startup value? (Please email the Lloyd team if you would like to use Lloyd’s version of this model: email@example.com).
Other questions to consider are the class of shares you’ll receive, how long until you can sell the shares, etc. It’s often wise to inquire with the company about these questions if they aren’t outlined in the offer, even if it’s a little bit awkward to ask such direct questions.
2) Non-finance value to you. These are less the dollars and cents pieces of the opportunity (though long term could add to that if you develop marketable skills) and include factors like: opportunity for your personal/professional/skill growth and development, alignment of your personal values and those of the company, and ability/interest in tolerating risk (i.e., you may love or hate the vulnerability of a young company).
For example, you might be willing to take a pay cut (i.e., less of #1) to go to a company because the personal growth may be much higher (i.e., more of #2). Perhaps you are earlier in your career with minimal responsibilities and looking to “accelerate” your career trajectory, this all could make sense. You can fill an afternoon clicking thought pieces (often written by people who work in startups, of course) about how working at a startup allows you to grow/develop your skills faster. Our take: joining a well-led, culture-focused, nimble team that encourages growth is probably most important, and those can be found in many places, not just startups.
As you evaluate the company, recognize that startups can take many different shapes and sizes. For instance, despite the mythology around college dropouts starting the next unicorn (thank you, The Social Network), the average age of a successful startup founder is >40 years old, and female founded startups are more likely to be successful. Lloyd thinks it is important to know your non-negotiables, but be flexible from there, taking your time getting to know the company and the team.
This is a big decision. You may be interested in a session the Lloyd team is offering about startups called, “Get Hired at a Startup” with four startup CEOs on Wednesday, May 6th. As always, feel free to speak with the team about this topic during free office hours.