How much would you pay to own an undisclosed percentage of my house?
I just got an email from a friend describing the interview offer process of a mutual friend joining a technology startup. The newly minted employee has an offer but they won’t tell him how many shares are outstanding. He was told what percentage of the “employee pool” he was getting, but not the overall percentage. What exactly is included in the “employee pool” is a question – is it just unissued options, is it akk issued and unissued options, is it all common shares including founders???
As I’ve said before when talking about stock options (see this post), it is impossible to evaluate your grant without knowing how many total shares are outstanding. Proof by analogy: how much would you pay for partial ownership of my house? I can create an “investor pool” which represents some ownership of my house. For $50,000, you can own 10% of the investor pool. Sorry, but I am unable to disclose how much of the ownership of my house will be assigned to the investor pool. Please contact me if you are interested! I don’t expect to sell much of my house this way; why should I expect employees to be excited about options offered in the same manner?
Not only does the lack of data make it hard to evaluate the stock grant, but the lack of transparency is concerning as well. One of the things that makes startups great is a team working together towards a common goal. For me, a big part of creating that is giving the team a lot of transparency about the company they are building. I view the employees in an early stage company as stakeholders, and as investors in a sense: they are investing their time, their passion, and their reputation in the company. To not share basic information, especially at an early stage, demeans that investment and undermines the sense of team.
Will my friend still join? Maybe. There’s a lot to like about the opportunity. But the lack of data and the lack of transparency is a red flag. At a minimum, it’s caused an extra round of digging/assessment. As an employer, why would you want to give a potential recruit a reason to question your offer?