Negotiation Tips for Navigating Startup Equity in a Downturn
Joining a startup in a downturn can be both exciting and challenging. One of the key aspects to consider before signing any offer letter is equity compensation. Equity is a powerful way for startups to make employees feel like valued team members. However, understanding the intricacies of equity compensation and its implications is crucial. In this post, I'm giving a shot at questions to ask when negotiating your equity package. By asking these questions, people can ensure transparency and make informed decisions about their financial future in the company.

It's important to delve into the details of the equity compensation before accepting an offer. Here are some essential questions to ask when negotiating your equity package:

1) What kind of stock options will I receive?

Understand whether you will receive Non-Qualified Stock Options (NSOs) or Incentive Stock Options (ISOs), which are specific to US tax residents.
Check if there are any tax-favored instruments or advantages in your country of residence if you're not a US tax resident.

2) What is the strike price, and what is the price per share (PPS)?

The strike price is the cost per share when exercising options, typically determined by a 409A valuation.
Ensure that the strike price is not higher than the fair market value (FMV) at the grant date.
Learn about the PPS, which is the price paid by investors during funding rounds. In a downturn, you can definitely use this as a leverage as company valuation probably got a hit recently and that the FMV could be lowered.

3) What's the vesting schedule, and what's my cliff?

Understand the vesting schedule, which determines the time period you need to work to exercise your options.
Familiarize yourself with the cliff, the initial milestone that must be reached before any options vest.

4) How and when will I be taxed?

Determine the tax implications of your equity package.
Clarify whether options will be taxed at grant or exercise, and understand the tax treatment for different scenarios.

5) Is my equity package different from other US-based or international employees?

Inquire about equity package customization based on your location, cost of living, and local tax considerations.
Highlight any factors that may justify an adjustment to your equity grant.

6) How can I eventually sell my shares?

Understand the exit prospects, potential buyers, and exit timeline.
Inquire about liquidity programs or buy-back programs that facilitate selling shares.

7) What happens to my unvested options if the company is acquired?

Check for an acceleration clause that allows immediate option exercise upon acquisition.
Learn about single-trigger and double-trigger accelerations and their implications for employees.

8) How long do I have to exercise my options when I leave?

Determine the post termination exercise period (PTEP) during which you can exercise your vested options after leaving the company.
Consider requesting an extended PTEP if you are based abroad and don't receive the same tax advantages as US employees.

9) Does the company plan to issue stock or raise a new round in the future?

Understand the company's plans for future stock issuance or fundraising, as they can impact the value of your options.

Remember, equity compensation can be complex, but by asking these questions and seeking transparency, you can make informed decisions about your equity package.

Anything else you would add to this list?