For Stock Options, Employees Are Investors

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(Article by Sergio Romo)

Early startup employees often find it difficult to determine a fair stock compensation for them.

Truth is, they are risk-takers just as founders and investors are. They invest their time and resources to contribute to the growth of a startup.

In his post Employee Equity, Sam Altman mentions a crucial fact. One of the biggest problems is that early employees do not have much information about their stock or options.

A good way could be if early employees asked founders some of the same questions investors ask before investing. In other words, they should see themselves a bit more as investors.

Questions early employees should ask:

When did you last raise money and what was the last valuation of the company / cap of the convertible instrument?

The answer to this question is a good parameter for early employees about the current value of their stock or options. It helps to find out how much it was worth months before when the startup raised money and how much is worth today. With this tentative value early employees can analyze numbers in specific scenarios.

What is your burn rate and how much money do you have left?

This is definitely sensitive information. But it’s not right to underpay someone knowing the runway is low to reach a milestone that could change the life of a startup. Especially because the risk of being unemployed soon at least doubles. Many startup founders are not transparent here hoping good technical hires will save the company.

What previous experience do you, as founders or former employees, have in this industry?

More experience means founders are likely to understand their customers and the pain they try to solve. This helps to have an aligned vision and strategy that early employees may feel more confident with.

Have you started companies before?

Some founders have never been exposed to how difficult startups are. This has an impact in the early management of the business and the quality of the leadership. The track record of the founders is therefore important.

There is a big chance that some founders will not be comfortable sharing sensitive information. But eventually founders and early employees are going to become partners. Truth is, early employees are risk-takers just as founders and investors are. They invest their time and resources to contribute to the growth of a startup.

In his post Employee Equity, Sam Altman mentions a crucial fact. One of the biggest problems is that early employees do not have much information about their stock or options.

This is why I think transparency and interest alignment are the safest way to go from the beginning, as in any partnership. As it is with any investor — founder relationships.

Visit Sergio Romo’s site: HERE

Original Article: HERE

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