Handbook
Why you should join a startup and a 35-item checklist on the questions to ask to evaluate a startup.
Why join a startup?
The type of company that you work at is an important decision in your career. With longer hours, lower pay and higher stress, you might wonder why anyone would work at a startup. However, joining a startup has many benefits. Here are a few.
Make an impact or contribute to a mission. Startups create something that didn’t exist before, changing the way things work in the world. It’s obvious when you read it, but it’s easy to forget that every influential company today began as a startup. Startups are a great way to exert your personal agency and make a difference for a cause that you care about.
Build relationships. Working with a small number of people for a long time on something makes it more likely that you’ll develop close relationships with your co-workers compared to working at a big company. Additionally, startups are (statistically) unlikely to succeed. The feeling of camaraderie helps build bonds.
Accelerate your career. Working at a startup can accelerate your learning curve more than most other careers. Because you are building something from scratch, you’ll find yourself in positions that are typically reserved for much more senior employees. Not to mention that if the startup succeeds, you can often start at a new company as an executive leveraging your experience.
Learn quicker. There aren’t many people at a startup. Yet, there are lots of things to do. Chances are you’ll face many opportunities to learn things on the job because they need to get done in order for the startup to succeed.
Chance at a large financial outcome. While you are likely to take a lower cash salary by joining a startup, you’re also usually compensated with ownership in the business through equity. Let’s be clear: most startups fail. And in those cases the equity isn’t worth anything. But if your startup succeeds, the financial outcome can be life-changing.
Of course, joining a startup isn’t for everyone. If you value more stability, a higher salary and a better work-life balance, then joining a big company might be the right choice. But for the right person, working at a startup is exhilarating.
How to evaluate a startup
One of the most important parts of getting a job at a startup is choosing the startup that you want to work on. Remember: startup outcomes distribute along a power law. Most of them fail; they are hard. But the startups that succeed often become very large. From a financial perspective, this means that choosing the right startup can have a massive impact on your financial return as an equity-owning employee.
This section was written alongside Cristina Cordova. Cristina is currently a Partner at First Round Capital, supporting founders who are just getting started. Before First Round, Cristina worked at Notion as the Head of Platform and Partnerships. Prior to that, she had joined Stripe in 2012 as the first business development / partnerships hire. She went on to lead Payments & Platform Partnerships and was the business lead of Corporate Card and Treasury at Stripe.
Here are a few questions that we recommend you ask to evaluate the business prospects of a startup. They are broken down into stages of the process.
Questions for Intro Calls
Getting a sense for the people and culture of the startup
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Why did you decide to join / start this startup? Or, why have you chosen to stay?
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What are the backgrounds of the founders and other team members?
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If you had to describe the culture in 2-3 words, what would you choose? How does this show up in your day-to-day work?
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What does workplace diversity mean to the company?
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What kind of people—who might otherwise be successful—don't work out here?
Questions for Interviews
Next, figure out details about the organization and team
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How are the teams at the company structured?
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Who would be my manager?
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How big is the team I would work on?
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What kind of collaboration is there with other teams?
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For companies with <50 employees: has anyone left the company? If so, why? For larger companies: when people have left, what are the reasons why?
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What are employees most excited about?
You should also learn more details about the business prospects
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Does your company have product-market fit? How would you measure it?
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What do customers like most about your product that your competitors don’t have?
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What are the 2-3 most important KPIs for the business?
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If you look back in a few years and say “this didn’t work”, what do you think the reason would be?
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How big is the market?
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What percent of the market would you need to capture in order to become a unicorn?
If it’s important to you, also ask some questions about career progression
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What decisions will the business be making in the next year that I'd be contributing to?
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Is there a path that you see for someone who is high-performing in this role?
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Will I be able to learn new skills and technologies in this role?
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How will success be measured in my role?
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What is the hiring plan for the next 3-6 months?
Questions before accepting an offer
Once you’ve built rapport with the team, you can ask more details about the long-term viability of the company
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What is the monthly recurring revenue (MRR) / annual recurring revenue (ARR)?
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What is the revenue growth rate? (If there’s not revenue yet, use a proxy such as, “how many users do you have and what is the user growth rate?”)
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What’s the hiring plan?
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How is the company acquiring customers?
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What do you charge your customers? What’s the margin on your products? If later stage: what is the CAC (customer acquisition cost) and LTV (lifetime value of a customer)?
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What is the churn rate? What are the 2-3 most common reasons customers are churning?
You can learn a lot by asking questions about the current product and roadmap
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Which products are contributing the most to the business right now?
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What are the key milestones in the 6-12 month product roadmap?
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What are short term and long term threats in the market?
Finally, you can ask about the fundraising and exit plans
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When was the last fundraise and what valuation did you raise at?
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What metrics/goals are agreed upon to hit our next milestone?
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What does success look like for the company?
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What’s the minimum price you would sell the company for?
Also consider reaching out to other parties to get their perspective on the startup. For example, prospective customers will have valuable feedback on the product that can tell you if the startup really has product-market fit. You can also ask venture capitalists about the startup. While you should take their opinion with a grain of salt if they are an investor in the company you are evaluating, they often have a lot of information and can be useful to your evaluation process.
Besides evaluating the prospects of the business, there are other ways to evaluate a startup. For example, think about your potential future colleagues. Are the team members smart, hard-working, talented and have high integrity? Do you believe in the founder? Are you interested in the problem or mission that the startup is tackling? Are you excited to work for your manager? All of these factors should be taken into consideration.
What to know about salary
The mechanics of the salary in a job offer are pretty straightforward: you receive an offer for an annual salary, and if you accept it, once you start the job, you’ll get a direct deposit in your bank account every two weeks. Not a ton of complexity here.
That said, from the candidate perspective it’s helpful to know how companies come up with the salary number.
Your salary was determined by a bunch of other salaries. Chances are the startup that gave you an offer arrived at that price by determining their needs then looking at a whole bunch of data points that show how much other companies pay for similar workers (called “benchmarking”), then made an offer based on that data. The benchmarking data isn’t perfect, but it’s very good. Startups won’t just say, “we need an engineer”. Rather, they’ll say, “we need an L2-level front-end engineer”.
Some companies choose to pay higher salaries. Some companies purposefully choose to pay higher salaries (by paying at, say 90% of the benchmarking distribution). They do this to attract higher-quality employees. That said, there are also good reasons why a company might not pay top dollar: perhaps the work doesn’t demand 90th percentile workers, or perhaps they have other priorities within their startup. There’s also a case to be made that paying the most doesn’t necessarily mean getting the top employees — other things like impact, culture, management, flexibility, and many other factors come into the decision-making process for employees.
Your past salary won’t impact your next salary. While both employers and employees might not be aware, by law companies can’t ask about your past salary or change their offer in reference to it. Depending on the role this could be a benefit or a downside to you. But either way, the company needs to define a position and create a range for that salary, then not change it based on the previous salaries of their candidates.
You might negotiate, but not necessarily. Advice on negotiation varies from, “always negotiate a job offer,” to, “it’s a bad sign if you negotiate,” and everything in between. From our perspective, there are two things to note. First of all, if a startup clearly communicates the role and experience they are hiring for to you, then often they’ve already done the work of figuring out the salary they are going to pay. This likely aligns with their compensation philosophy, and they are unlikely to deviate too much from it.
The other point is that cash salary might not be the variable you want to focus on as a startup employee. While you do want to make sure you have enough for yourself, often a startup wants to see that you’re interested in helping everyone win by making the equity position of your compensation larger. If you are looking for a salary that enables an expensive lifestyle, allows you to save, etc. a startup might not be the best fit.
What to know about equity
Another part of startup compensation is equity. Equity is when you own shares of a company. Companies—especially startups—issue equity (or the option to buy equity) to incentivize them to increase the value of the company. It’s a win-win.
The basics
However, “equity” can mean a lot of different things. And unfortunately, equity compensation is rife with complicated terms and high-stakes decisions. Here’s a list of terms that you should know.
Type of equity (ISOs, NSOs, RSUs)
The first thing you should understand is the type of equity that you’re receiving. If you’re working for a startup, chances are you’ll be granted equity options. This means that you are given the right to purchase shares, rather than the shares themselves.
There are a few different kinds of options that startups give to their employees. If you’re at an earlier-stage startup, chances are that you’ll be given incentive stock options (ISOs) or non-qualified stock options (NSOs). ISOs and NSOs have a lot in common. They are both options. They both have a strike price and vesting schedule (see below for more on these terms). The difference between ISOs and NSOs mostly comes in the personal tax treatment related to when you exercise (purchase) your options. We recommend consulting with a licensed tax to help advise on your personal situation.
If you are at a later-stage startup (generally >$1bn in valuation but it can vary) you might be offered restricted stock units (RSUs). Restricted stock units are units, not options, so you own the shares without having to purchase them.
Vesting Schedule
Vesting is the process by which you earn shares or options over time. As a result of vesting, you don’t actually own the shares of the company until you have “vested” the shares or options that you were granted.
Typically, companies follow a 4-year vesting schedule with a 1-year 25% “cliff”. This means that after 1 year you would be able to exercise ¼ of your options and each month after that a proportional amount (1/48) until all of the shares could be exercised after 4 years.
Strike Price
Another important data point is the strike price. The strike price is the price that the underlying share can be purchased for. Your strike price typically doesn’t change even as the value of the company increases.
The strike price is important because you can multiply it by the number of options that you were granted to calculate how much it would cost to exercise your options. With options, you don’t own shares unless you buy them yourself and knowing how much it costs can make a difference both in evaluating a job offer and deciding when to exercise your options.
409a Price, Preferred Price
There are two share prices (in addition to strike price) that you need to know. This is part of what makes equity so tricky to deal with. The two prices are the 409a price (also called the “fair market value” or FMV) and the preferred price.
The preferred price is what investors paid for the business as preferred shareholders. Most of the time, this price doesn’t actually have a lot of impact on you as an employee; it’s mostly a signal. If it keeps rising, it means that investors continue to believe in the prospects of the business. There are some times it matters though. For example, in a secondary sale (see more in “Liquidity events” below), the preferred shares might be used as a baseline for the price.
The 409a price, in contrast, is determined by a third-party valuation firm and it takes into account factors such as the company’s performance, industry dynamics, and expected future performance. The valuation method is called a “409a valuation” which is where the name comes from. It’s updated whenever there is a new round of fundraising (or annually if it comes sooner. The 409a price is the price that the company will use for issuing options — when you are granted your options the strike price will equal the 409a price.
Fully Diluted Shares Outstanding
Fully diluted shares outstanding refers to the total number of shares that are issued and outstanding to all investors, founders and employees. When calculating the total number of fully diluted shares outstanding, you should use the fully diluted number, which includes all the potential shares that can be issued, such as options and warrants.
Generally, when a company has more shares outstanding, it is less attractive to would-be investors (which includes you as an employee considering exercising their options). While it might seem like you are getting a lot of options (say 50,000) what really matters is how many options you receive relative to the fully diluted shares outstanding. If there are more shares outstanding your portion will be worth less (all other things being equal).
Additional equity terms
In addition to the basics, there are a couple other terms you should know. These are less common and may not be explicitly spelled out in a job offer, but they are important to understand and ask about.
Early exercise
Early exercising is when you exercise your options before they vest. Typically you aren’t allowed to early exercise — you’re only allowed to exercise after your options vest. However, some startups add a clause that allows their employees to do so.
Early exercising can have benefits for employees. The main benefit is that it can help lower your taxes. Depending on the type of option you receive, you might have to pay taxes when you exercise them. However, if you exercise your options when the strike price is equal to the 409a price, you generally won’t have to pay taxes when you exercise. The strike price is equal to the 409a price when you first receive your options, and so if you exercise before the 409a price increases, you’ll likely not pay any taxes when you exercise.
Unfortunately, the standard across Silicon Valley began with not offering early exercise for employees and the majority of startups still don’t offer it. That said, if you find a company that does offer early exercising, it can be a good sign that they are employee-friendly. It’s worth bringing up before signing an offer.
Options exercise window
Did you know that your options have an expiration date on them? There are two different kinds of exercise windows.
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Post-termination exercise window. When you leave a company (by your choosing or theirs) you have a certain amount of time to exercise your vested, unexercised options otherwise they expire. Typically, this window is 90-days. So, if you leave a company, you’ll have just a few months to decide if you want to exercise your options (which could be a 5- or 6-figure decision with taxes). Some startups have started to offer longer post-termination exercise
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Options exercise window. Even if you don’t leave the company, there’s still a time limit on when you can exercise your options. Typically, it’s 10 years. Most of the time this won’t affect you, but if it does, it can be a huge deal. For example, let’s say you were an early employee at Stripe. You were granted options in your offer and are still working at Stripe today. The 10-year window is likely approaching very quickly, leaving you in a tough position. The underlying shares are worth a lot of money, but it could cost you hundreds of thousands of dollars in cash to exercise those options and pay the required cash taxes.
Liquidity events
Liquidity events are various ways that you as a shareholder (or option holder) have a way to sell your shares. You might already be familiar with initial public offerings (IPOs) and acquisitions. Both of these are common ways for employees to access liquidity on their shares.
In addition to those, you should also ask your startup about planned liquidity events before an exit. For example, some companies offer secondary sales where employees have the option to sell some of their shares to investors who want to buy them. These liquidity events can be crucial for unlocking value for you as an example. Most startups exit within 7-10 years. That’s a long time to wait for a financial payoff; if a company offers secondary sales a few years before the exit, it can mean de-risking your equity by selling some of it.
What to know about benefits
Benefits are a standard component of compensation at startups. Here are a few of the most common benefits.
Health Insurance: As a way to help their employees cover medical expenses, some employers offer health insurance as a benefit. Additionally, Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs), which allow employees to set aside pre-tax dollars for healthcare expenses, may be offered. Health insurance is paid for by a fee that’s usually deducted directly from your paycheck and may change if dependents (ie. kids) are also relying on the same insurance plans.
Dental Insurance: Dental insurance is a benefit that helps cover the cost of dental care, such as cleanings, fillings, and other procedures. It’s often included as a benefit at startups.
Life Insurance: To provide financial support to the employee's beneficiaries in the event of the employee's death, some employers offer life insurance as a benefit.
401k Matching: Employers may offer 401k matching as a benefit to incentivize their employees to save for their retirement, the employer will match a portion of the employee's contributions to their 401k savings plan. The standard is between 3-4%. Sometimes it’s structured as a 100% match (“we’ll match 100% of funds up to 3%”), other times it’s structured as a 50% match (“we’ll match 50% of funds up to 6%”).
Paid Time Off (PTO): This includes time away from work for vacation as well as for other reasons. Typically startups offer a set number of days / weeks (e.g., “12 vacation days per year”) or offer unlimited time off where employees don’t have a set number of days to use but instead just work with their teams to plan vacation.
Remote / Hybrid / Office: Some employers may offer remote, hybrid, or office-based working as a benefit, which gives employees flexibility and choice in where they work. Since Covid-19, hybrid and remote options have become much more popular.
Other benefits: To support employee well-being and work-life balance, employers may also offer other benefits such as transportation, fitness, meal reimbursement or other benefits.
Should you negotiate?
Anytime someone talks about job offers, negotiation inevitably comes up. And for good reason: your compensation could be worth hundreds of thousands of dollars (or more). There are big consequences!
While we aren’t going to tell you not to negotiate, we also think there are some other things you can do and should know that will help you in the process. It’s often beneficial to give
1. Pre-work: what’s your required liquid compensation?
Startups pay lower cash salaries than larger companies, but that doesn’t mean you have to spend your savings in order to work at one. It helps if you do the work in advance to figure out what you would need on an annual basis to cover your day-to-day expenses. Be especially sure to consider fixed expenses that are hard to change—such as a mortgage, student loans, or family commitments—in addition to other essentials.
Calculating this number in advance gives you a salary floor. Have the hard conversation sooner in the process rather than later: is this even a job that can cover your financial obligations? Even if you don’t arrive at a final number on the first call, getting a range allows you both to see if it’s even an option.
2. Learn about their compensation philosophy.
You can get a sense of how much the startup has thought about compensation by asking a few questions. If they don’t have good answers it’s not necessarily a bad thing, but it could mean that they don’t have firm compensation guidelines yet.
Companies often develop their philosophy through “pay bands”: salary ranges that map to the position they are filling (based on skills and experiences). You can ask a few questions to learn more about how the company is thinking about this particular role:
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Where should I expect to fall on the pay range given the skills and experience I bring to the role?
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How is placement in the range decided?
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Is there a clear path for my salary to increase as I progress at the company?
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How often is individual pay reviewed?
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How is performance at work rewarded? Does that play a role in the compensation process?
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How does the company think about career progression? For example, do you have published career ladders?
Here at Complete, we’ve noticed that companies that have thorough compensation guidelines receive fewer asks to negotiate. Oftentimes feeling like the process is fair is half the battle for both sides.
3. How you say it is as important as what you say.
If you do choose to negotiate your salary, how you go about doing it can make a big difference. Consider the following:
“I need $160,000 annual salary or I’ll go with another company”
Vs.
“I’ve loved getting to know the team and would love to work on this problem alongside you guys. The salary number came in a bit lower than I’m comfortable with, do you think you could go a bit higher?”
There’s a big difference between these statements even though they are both “negotiating” for a higher salary number. Framing the discussion as, “I’m trying to work with you,” compared to, “I’m trying to get more from you,” can go a long way.
4. Consider the sliding scale between salary and equity.
For startups, equity is a big part of compensation. It also aligns incentives: it saves the company cash, and it focuses both parties on creating mutual long-term value.
Many companies will give you the option between a high cash / low equity offer and a low cash / high equity offer. Taking higher equity is riskier but if you believe in the long-term vision of the business might be worth the risk. Evaluate the offer based on your own personal criteria.
FAQ
How do I know if my offer is fair?
If the company has established a compensation philosophy, chances are they likely have guidelines and data behind their offer. These guidelines—like pay bands based on the position—give you a sense of what the company is looking for and what they are comfortable paying. If the offer isn’t in your range or you think you’re undercompensated, it’s okay to ask for more or not accept the offer.
That said, before searching online for benchmarking data, be sure to understand the compensation philosophy. Benchmarking data is only as good as the source. Additionally, a “Series A” company might mean something different to your employer vs the data. Finally, startups choose the percentile that they offer to candidates which can greatly impact your offer.
If I’m given the option between more equity and more salary, what should I take?
This is a question that you’ll have to answer on your own. One consideration should be the amount of liquid cash salary you need to cover your financial obligations. We don’t necessarily recommend taking a job where those aren’t covered. Beyond that, things like your risk appetite, existing savings, belief in the company and other factors will impact your decision to take more salary or equity.
In this choice, keep in mind that salary is much more likely to be adjusted up in the future compared to equity. To issue new equity, the CEO has to get board approval. Board meetings often happen quarterly, delaying the issuance process. It’s also something the CEO has to spend time on to convince the board that an employee deserves more equity. To be clear: equity refreshers happen. They are just less common than salary increases (which don’t require board approval).
What do I do if my company isn’t telling me about their compensation philosophy or details about equity?
You should first figure out if the reason they aren’t providing their compensation philosophy is because they don’t have one, or they don’t want to tell you about it. Both reasons tell you something about the company, but the latter (not telling you about it) is more of a red flag. This is the first major interaction you are having with the company—if they are hiding something, it’s not off to a great start.
If you find yourself in that position, you can try to maneuver to get more information. For example, perhaps a hiring manager can’t share information but an HR leader or CFO could. Ask to connect with them. You can also mention how other companies that you’re interviewing with have provided certain details and that you only feel comfortable joining a company who does the same.
How do the taxes on equity really work? How should I approach it? When should I get a tax advisor?
We’re willing to go into more detail here with a big caveat: this is not financial or legal advice specific to you or any individual and you should speak with a licensed professional regarding these matters.
That said, you can think of the taxes on your equity in two different ways: taxes due at exercise and taxes due at sale.
On exercise (when you buy the options), the amount of taxes you pay depends on a number of factors including the type of options you have, your ordinary income level, and other tax profile attributes. To simplify, if you have NSOs, you will pay taxes on the difference between the 409a price at the time you exercise and your strike price. So if you exercise when the 409a price and the strike price are the same, you likely won’t pay any taxes on your NSOs at exercise.
For ISO taxes at exercise, it’s a bit more complicated. In a similar manner, if you exercise when the 409a price is equal to the strike price, you likely won’t immediately pay any taxes on those options. If the 409a price is higher than the strike price when you exercise, you’ll have to perform a separate tax calculation called “alternative minimum tax” (AMT) and compare that to your ordinary income tax bill (then pay the higher). However, paying AMT also creates AMT credits which you can sometimes use in later years to lower your income taxes.
For both NSOs and ISOs, the decision to exercise is multifaceted. It’s an investment decision. And like any investment decision, there’s a lot of analyses you can run and inputs to consider. But it’s also different from any investment decision: the investment is correlated to your main income source, it’s highly concentrated with a low likelihood of success, and it’s illiquid (you can’t just sell it at any time). Then, you also have the tax implications to consider. It’s a tough choice.
Besides taxes at exercise, there are also taxes when you sell shares. If the value of the shares has increased from when you exercised to when you sold, you’ll have to pay taxes on the difference in value. If you hold for a longer period of time (generally over 1 year since exercise and 2 years since grant) you’ll pay the capital gains tax rate (which is often lower than the income tax rate).
There are also other factors that come into play (such as qualified small business stock (QSBS) and Form 83(b)) that are outside of the scope of this article.
For practical next steps, if you have a very simple tax situation—single filer, only W-2 income and your stock options— then you may have the tools to navigate the system on your own. The IRS website has good explanations. If your situation is on the complicated side, you might want to consider hiring a professional to assist you with your taxes to ensure you have everything in order.
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