Advice about an offer at a startup company


4

So here's the situation:

I was discovered by a startup company through some of my work. I was interviewed by one of the cofounders, and they were interested in putting me on their team full-time.

My questions are:

  • Is it normal for someone to "assess" your abilities for two months without pay?
  • The offer was for around $2k a month to cover basic living expenses, and $30k in shares (vested, of course). It seems decent to me, but is this what most startups offer? It's hard to assess my value, largely because I haven't finished my degree at Univ, but I have decent experience. Also, I realize that they are a startup - they can't afford to pay competitively.
  • Should I take the risk of relocation and taking time off school for the experience and connections I'll get from working for a startup company?

I realize these aren't great questions (the answers are completely dependent on who I am / what I feel), but any advice and experience is greatly appreciated.

More data to answer your questions:

The reason why I did work for 2 months (more like part-time work, but it ended up impacting my semester grades), was because they were waiting on VC's to transfer funds and finalize paperwork (but that's what they SAY). They are also receiving 500k-750k from investors.

I am receiving preferred shares (a step above common). 50k shares (priced at .50 to .75) out of who knows how many. I will ask soon.

Also, I will be the 1st programmer (besides the CTO) if I decide to take the position.

The company is located near Silicon Valley. 3-6 full-time at time of first round financing.

Oh yeah, I'm just a web developer. No real experience (except 2 years of contract work, and 5-8 years of general web programming experience).

If it helps, I have a 50/50 feeling about this, meaning that I feel like something is not right, but the experience to gain might be completely worth it.

Final thoughts:

It's a tough decision, but I guess I'll break it to them that I will not be working for them. Constantly delaying a contract week after week is already bad enough, but they've done other "shady" stuff also.

It's tough, cuz I invested a lot of time and effort into this opportunity, but it seems they took advantage of my position. I really did want to prove myself in a startup, and be apart of a great cause, but these guys aren't about real business if they are jerking me around, dangling a contract in front of my face lol.

Dang, I really did want to move out to the valley and do some awesome stuff for a startup, but I guess it's not the right time.

Thank you all of your advice/input!

Employees

asked Dec 4 '09 at 20:39
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Ching B
23 points
  • Are you on social work or something? Unless you are doing social work, 2 months without pay is not humane. – Jpartogi 9 years ago
  • That doesn't sound to terrible depending on the expectations, but 2 months of no pay is ridiculous unless your being brought in as a founder in which case the stock/equity probably needs a lot of adjusting. – Centurion Games 9 years ago
  • Being able to cut your losses is important. There will be other opportunities. I have learned that many of my biggest disappointments and road blocks have turned out to be my greatest opportunities and turning points. – Starr Ed 9 years ago

12 Answers


8

Wait wait, it's much worse than that. Working for free for 2 months is illegal. I know it happens with interns and the like, but in fact it's illegal. I know companies typically aren't busted for it, but it's illegal.

So:

  1. It's more than unreasonable.
  2. "Waiting for funding" sounds fishy. When you close a deal you have the money. Where are the VCs getting the money from, the sofa cushions?
  3. It makes no sense for you to get preferred stock. In fact, if there's VCs involved it's almost impossible for them to issue anything but common. Another red flag.
  4. DO NOT give up school for them. That's like giving up your career for someone you're not marrying. Don't worry, there are millions of startups out there. If you want to work for free anyway (illegally but maybe you don't care), just do that somewhere locally.
  5. It makes no sense for them to relocate someone like you. NO OFFENSE! But think about it -- you don't think there's enough not-yet-grads in silicon alley to do web work?
answered Dec 6 '09 at 06:51
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Jason
16,231 points

5

No, working for free is not a reasonable offer. Working as a contractor for 2 months prior to a full time offer may be Ok. I wouldn't relocate without a written offer.

You do not say what you do, so it is hard to gauge if the offer is reasonable.

Not enough data to comment on the equity as well.

For better input please answer the following;

Position
years of experience
how many employees at startup
funding status of startup, how much, valuation
where is startup located

In general the compensation is extremely low. Working for a good startup is very valuable in terms of career marketability and experience. With the data you provided, it would appear that the company is trying to take advantage of you, which is not a good sign.

answered Dec 5 '09 at 00:49
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Tsummit
116 points
  • It seems as if they are, after what's been happening. – Ching B 9 years ago
  • I've updated the info regarding my post. If you have time to add additional input, I'd really appreciate it, since I have no idea what to do at this point :( – Ching B 9 years ago

3

Ching - The number of shares means nothing without knowing how many total shares are outstanding in the company. You should always approach equity by understanding the percentage ownership of the company you will receive - not the number of shares.

Check out my blog post, The Most Important Number? - Which addresses the issue of stock options

answered Dec 5 '09 at 00:23
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Rs Holman
596 points
  • I would add you also need to find out about what class of stock you are getting and whether it's the same class as the founders or whether it's a lower class of stock. This can make a big difference down the road. – Dane 9 years ago

2

My 2 cents....
I would approach equity using both % and number of shares at that point in time and gauge the future...factor in your estimates on future dilutions....and impact on your %.
A startup is a great learning experience.......Coming out of college I would expect new grads to thrive because they do not have to unlearn what they picked up working for an established company...
Even if the company fails, you will learn and one day use the learning to start your own.
good luck.

answered Dec 5 '09 at 00:29
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Noname
111 points

1

I have never been asked to work without pay and I believe you should not have to unless you are a founder. If you can't bring value soon after starting, you should find a job more suited to your current skills.

The salary seems low to me. In my experience as an employee at
venture-funded startups, salaries have been something like 75% of what
I could make in a big company. Not sure what your skills are, but
I assume you could get more than $32k working for a large company.

And what exactly does "$30k in shares" mean? Options to purchase
shares that are currently worth $30k? If so, who valued them, and on
what data was the valuation based? What's the probability
distribution for the shares' value at the time you vest? The
conventional wisdom is to flip options as soon as you vest (assuming they're not underwater).

answered Dec 5 '09 at 05:07
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Joe
831 points

1

There are lots of finance people here :-)

My advice:

If the job is interesting, I think you should totally go ahead. It seems to me that you are still very young since you haven´t finished your degree yet.

I would take the risk. What´s the worst that could happen? That you don´t like the job and after a few months you quit? Well, in that case, you pocket some cash and you will have won some INVALUABLE experience that none of your classmates has. Don´t focus too much on the financial rewards. That´s small thinking. You have 40-50 years ahead of you to make money.

But what if it works out and the start up suddenly takes off?? You may be in for lots of money and recognition. You may even make a name for yourself. The only thing I would suggest, is that you reserve somehow the option of receiving more shares if the company goes well. You need to get a piece of the cake.

Good luck!

answered Dec 5 '09 at 05:55
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A. Garcia
1,601 points

1

My summary of great answers above and my thoughts:

  • Two months without pay is called an internship, not a job. It raises a flag to me that the person is taking advantage of you.
  • That said, if you look at it like an internship, then this is a great opportunity to get more work experience in addition to what you already have, in a horrible, horrible job market. Plus a possibility the company succeeds and all that goes with that.
  • You're getting options, not shares. You buy them at the per share price they quote if there is ever liquidity for them. That's always a long shot. As said, you need to know total outstanding to know your percentage then do a little simple math. If you get 1/2 of a percent and you think the company could be worth $10 million in a few years then you've got $50k. But highly discount the value of these in terms of making your decision. Assume they'll be worth little and decide with your other facts.
  • Negotiate. Ask for what you want and see what they say. E.G. are you guaranteed the $2k/month for the two months? (Sounds like a dumb question but be sure. Have it in writing?) What about if it doesn't work out. You're taking a big risk and giving a lot to them. Again, negotiate, try and get more in return. What's your salary when the two months are done? Are they expecting additional funding...if so, negotiate a raise based on that. I wouldn't quit school and relocate without some guarantees on paper. If they're not willing to give a little then it would appear they're just taking advantage of you and I'd be wary of trusting them.
  • What is the background of the founders? Success? Credible? Do they have a successful track record? Do you believe the company will successful?
  • Do a Ben Franklin - list pro's and con's in two columns and see if that tells you anything.

I don't think anyone can or should tell you what to do. I think it's making sure you ask the questions, do the research and have the best information in front of you to make a decision.

Best of luck,

answered Dec 5 '09 at 12:31
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Chris
4,214 points

1

From what I read, you are feeling something is not right. I believe in trusting and listening to that "gut" feeling.

answered Dec 5 '09 at 20:45
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Starr Ed
948 points

1

  1. Two months without pay is not normal (Probationary Period, or Contract is more like it) You should never work for free unless its for a legit volunteer opportunity.
  2. Stock/Stock Options are worthless in a startup. Any valuation given to you is vapor at this point, since the company isn't even close to being public and you can't sell it. Once you can sell, its only worth as much as someone will pay. At this point the stock is a long term benefit, not compensation.
  3. Make sure you believe in the company and the founders before you take a job. You need to understand its business, its business plan and make sure its sound. If your are an early stage employee it's reasonable to ask for this type of info. If you relocate you are taking a big risk for this company. (I'd ask for more money since California has a high cost of living and you cant live that well on 24k/yr)
answered Dec 6 '09 at 04:42
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Jeff
649 points

0

For the love of humanity, please don't work for free. Not only does it devalue you and your contributions, but it lessens the value and offers that every other potential worker will get out there.

answered Mar 7 '13 at 06:00
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Dmmm
1 point

0

Their business model is predicated on having their software created for free? Sounds like you are taking all the risk. But...
Do you think the company's chances of success equal the reward? Do the math on the valuation of the company and what your percentage will be.

If the company does not make it, will the software be worth working on? If so, it would look good on a CV.

Are there any mentors on their staff? You will learn more in a few months than in 4 years of college if they have at least one good programmer who is willing to help you.

answered Dec 5 '09 at 23:02
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Jeff O
6,169 points

0

Finish your degree and then find a job at a just-funded Series A company. There's lots of start-ups today and there will be lots more tomorrow. But if you don't finish your degree, you will be limited down the road. At this point in your career, you should consider summer internships. Don't throw away your future for a start-up that is not sufficiently funded to pay a real wage. There's plenty of funded start-ups and those will have the funds to hire out top folks--and those are the ones you want in your professional network.

P.S. I'd consider $60k to be "minimum wage" in the Bay Area/Silicon Valley right now. $24k won't cover the rent.

P.P.S. Just saw the business about waiting to transfer funds -- this is BS. A reputable VC can move money in 24 hours if no capital call is needed, and closing docs will have a target date with any capital call requirements in mind. These guys are jokers, don't waste any more time on them until there is money in the bank.

answered Dec 6 '09 at 06:46
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Mitch
659 points
  • 750k is not VC - it is some other kind of funding. – Tim J 9 years ago
  • $750k is not VC funding? What do you mean? – Ching B 9 years ago
  • My read was the 500-750 was participating investors in the round, not the VCs. Original post mentions, "they were waiting on VC's to transfer funds" -- this is nonsense. – Mitch 9 years ago
  • Ching, just saw your final thoughts. Email me your resume, we are hiring in the Bay Area. I will keep your resume on file and remember you if there is a fit for a summer (paid) internship. mitch.haile@gmail.comMitch 9 years ago

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