What to know before joining a startup

Your stock options are unlikely to make you rich, so make sure you enjoy the work enough to make it through the tough times.

If you are considering an offer from a startup, I strongly recommend two articles: Negotiating Your Startup Job Offer by Robby Grossman and The worst time to join a startup is right after it gets initial VC financing by Chris Dixon.

Robby’s post is a thorough look at the mistakes and gotchas found in many startup job offers. I want to highlight two points:

  • Your stock options will not make you rich. It would take a Facebook-sized success for stock options to make you wealthy. If your startup does have a successful exit, a more likely scenario is that you can put a down payment on a house or buy a new car.

  • For many startup employees, stock options will amount to nothing. This is an area where I’d love to see more numbers and analysis, but all the evidence points to the reality that many (most?) startup employees receive no financial gain from options. The startup may fail, have a minor success (which means the options don’t exceed the cost of purchasing them or the salary given up to obtain them), or the employee chooses not to exercise the options.

If Robby’s post is about evaluating the specifics of an offer, Chris’ post provides a general framework for evaluating offers and opportunities.

The most important point can be found in the title: The worst time to join a startup is right after it gets initial VC financing.

Depending on your willingness to accept risk, there are two (much different) periods when joining a startup is best:

  • Before initial VC financing, as close to founding as possible. This involves more risk than most opportunities, but puts you in a position to shape the DNA of the company, receive a more significant share of it, and experience the building of a company from the very beginning.

  • After sustained growth. A low risk, but potentially high-reward opportunity. The company you are joining is either profitable or heading toward a successful exit. Even if your options are small, the chance of them returning value is much higher. You’ll be able to learn how successful companies are run and get access to a network of coworkers who could become co-founders for your next venture.

Implicit in these two articles is another piece of useful advice: Beware of joining a startup in the “trough of sorrow”.

Being a member of a stagnant or floundering startup can be extremely difficult, professionally and personally. During hiring, it’s natural that a company may paint a positive picture of their situation despite the stagnation. Beware. Ask to see revenue numbers and other key metrics. Talk to investors, current employees, previous employees, and third-party observers. For a company in this position, the most important question to answer is whether they have a strong enough culture to make it through.

Just as there are differences between startups and other kinds of companies, not all startups are equal. After you’ve looked at the financial and professional variables, the final question to ask yourself is whether you are passionate enough about the opportunity to make it through the days when you simply have to show up and keep trying.