Negotiate Equity In A Startup

Joining a startup is a risk for any employee. The startup failure rates across all industries in the U.S speak for themselves. This risk of failure also makes it a tad difficult for startup employers to lure workers over to their side. 

To make job offers attractive, startups have bypassed conventional salaries and allowances. Offering equity in the company is one sure-fire way to get an edge over established firms. In this case, employees can buy shares at a discounted price. 

You may wonder how to negotiate equity in a startup. How do you know you’re getting the best deal? Well, you could find startup advisors to help negotiate the offer. You could get some tips from a startup compensation guide. 

You could also follow this easy, step-by-step process—research the company, check offer terms, and negotiate where necessary. Above all else, it is crucial to know your worth as an employee.

Research, Research, Research

The first and most crucial step is to do your research. As you know, knowledge is power — that's not a myth. The idea is to have a lot of information on the company beforehand. Also, it helps you determine if the company has a shot at succeeding in the future before you commit. 

Research the founders and management of the company. What's their track record with startups? Have they had successful startups in the past? Does the company have business advisors that can steer the company towards success? 

Next, you want to determine how much employees make in an IPO. That way, you can gauge the benchmark price when negotiating. While you're at it, don't be afraid to look into the company's business plan. Check the number and type of investors to review the company's financial potential. 

Lastly, take the time to research the compensation packages from similar companies. This preparation can help you avoid short-changing yourself by identifying low-ball offers. 

Check The Terms And Conditions Of The Offer

The next step is to go through the offer with a fine-toothed comb. Read and understand the terms and conditions attached to avoid surprises or disappointment. To do this, it means you have to request the offer in writing. That way, you can review the terms at your pace. 

Seek advice from an accountant or lawyer if you have to. Why? An accountant will help shed light on the company's financial potential. A lawyer will explain any limitations or restrictions with the share options. 

As you check the terms and conditions of the offer, pay attention to the value of equity. You can use a mathematical equity model to calculate this. Also, you should check the vesting schedule to determine when you can receive your stock options.

Remember that you're not likely to receive your shares in one shot. Startups usually freeze the part of stock it gives employees for four years. That's known as the vesting period. Make sure that the vesting period doesn't interfere with your career plans.  

Know Your Worth

Throughout it, be sure to know your worth. Know what value you’ll bring to the company. That calls for boldness throughout the negotiation process. Don’t short-change yourself — a tip to ensure this is never offering your percentage first to the employers. 

Instead, find out what the company offers to employees in that position and negotiate from there. Be confident that you'll be valuable to the company and deserve the best possible offer. 

Look at it this way; if the employer didn't believe you could contribute to the business's success, you wouldn't be there. So don't be afraid to negotiate your desired terms. 

Also, give yourself time to accept or deny the offer. You shouldn't feel pressured to make a rash decision. And make a counteroffer if you have to. The goal is to be happy with the final result. 

Final Thoughts

Negotiating your equity in a startup is an art that any employee can master. But the best thing you can do for yourself is going to the negotiation table prepared. And doing thorough research before you go will give you an upper hand and help you know what to expect. 

Remember that you can make a counteroffer if you want. Go over the offer carefully and consult a lawyer if necessary. Ultimately, you want to ensure you're compensated sufficiently for your expertise and hard work.