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It sure isn't a positive sign. Also, I think you are confused about startup options. I've never seen a founder get RSUs, there are strong tax reasons to prefer options -- primarily that you can lower your tax payments from regular income to long term capital gains. You can also convert some portion of them to non-qualified options which can be positive for the founder if they leave. Regarding preferred vs common, again it is in the employee's interest from a tax perspective to receive common shares. The value of preferred to an investor is that it typically has some incentive structure for the founders to grow the value of the company. It also tends to set a minimum bar for an exit. If these hold true, the value of their shares is the same as common, but common was much cheaper. This is important for things like early exercise and whether or not your shares remain above water. The math in your example which implies preferred shares are somehow cheaper than common must have some unstated elements, perhaps the passage of time? Preferred shares are always more expensive, typically 3X or so, at any given time. Finally the last point I'd like you to consider wraps up the remaining themes in your response. Founder "games" that dilute employees are typically unpleasant for the founder as well and are the result of having to take investment under less than favorable conditions. When this happens investors and company leadership want to incent people who are still present, not people who put a year in and left. Also your desire to start earning shares right away vs cliffing seems internally consistent with what seems like your desire to use your time the way an investor uses their money -- i.e. spread it around liberally to hedge your bets. That's fine for you to want, but if I'm a founder, I am all-in on this one thing, and I am looking for employees who are also all-in, or as close as I can get to that in the marketplace. Of course the market usually resolves somewhere in between -- I get employees who stay at least a year, preferably more like two or three and (if we are doing really well) sometimes longer. Meanwhile it takes more like 10 years on average to achieve a reasonable exit, so in the time I am slogging away, they can get meaningful exposure to 2-4 other companies. This is worse than what a VC gets in the same amount of time but the VC brings liquid capital to the picture, among other things. The current climate devalues money, but it's still necessary to remain in business in any meaningful way and the value of six months of a new engineer's time is usually far lower than what you are imagining. There are of course exceptions -- you can be a true mercenary and consult to startups in exchange for stock and an hourly rate, but you need very strong experience to make this appealing to the startup and of course your base will generally not be the same as an employee taking the equivalent role. My wife has done this, and it's workable but not awesome long term in my opinion. And then there is the extremely light weight version of this, which is to advise startups in exchange for equity. You have to bring commensurately more to the table for this to be appealing to the startup, and you likely won't see any cash out of it for a long time (in fact the times I have done this I will end up spending money on the company in the form of investing and at least early exercising my shares). Long story short, feel free to bargain for whatever you want, just realize that achieving alignment on terms will require some give on both sides, and be sure not to over play your hand -- it is hard to hire engineers, but not impossible! And honestly one year cliffs are not the place to negotiate, because the company is unlikely to give on that. Go the consultant route if you really want to be a mercenary -- and if you find a rocket ship you can always sign on as an employee. One last thing -- being an employee has paid for my house and my kid's education. The stock you get isn't always meaningful, but it can be! |
IF you're a founder and you're working for options rather than RSUs, you got screwed.