Search Jobs
Employer Directory
Career Articles
For NJTC Employers

Article: Evaluating Your Options - Looking at Stock Options in a New Startup

Article Group List / College and Internships / Evaluating Your Options - Looking at Stock Options in a New Startup

Evaluating Your Options - Looking at Stock Options in a New Startup

Despite all the articles warning us that only a choice few startup employees ever strike it rich through stock options, many of us are still willing to take the pay cut to get in on the action.  Silicon Valley and Silicon Alley are both built largely on options, and there's no convincing the workaholics there that the whole thing is really a crapshoot.  So with that in mind, we asked Vault.com's Internet channel moderator David Troll what employees should expect when it comes to negotiating salary and options.

Says our expert: "Tell young people to get it out of their head that they deserve 5 percent.  There's only 100 percent to go around and the big investors usually command 50 percent, leaving 50 percent for the founders, principals, employees, etc.  If you want a huge stake, start your own company and grow it, or take a pay cut early in the game." Troll adds that sales people usually have trouble matching their compensation when they make the move to a startup.  "They usually won't match their comp and get sizable equity, but that won't stop them for asking.  God bless them and their tenacity."

The most important questions to ask yourself are the following:

• What is the number of shares or options?
• Are they restricted?
• What's the strike price?
• What is the vesting period (typically semi-annually or annually over 3-5 years)?
• What happens if the company is acquired?

Here are three examples:

1. For non-executive positions at one company, a junior-level sales hire (with 3-4 years of experience) is being offered up to $45,000 in salary and about 5,000 options.  A 40-year-old senior sales representative may get between $100 and $150k and 20,000 options.  Basically, the more cash the company can offer, the fewer options they will give you - you have to determine what's more attractive.

   ~

2. A CEO recently placed in an enterprise software application company got 3 percent of the U.S. subsidiary of a European company.

3. A young (26-28ish) guy w/a JD and good startup experience had the choice between $120,000 salary + bonus + a promise of future stock (for a new online division of a traditional media company), and close to $100,000 + undetermined bonus + .5 percent over 4 years (as VP Business Development & General Counsel of a Silicon Alley Internet company).  He took the latter.