How to Assess a Job Offer with Equity
An interview with Mark Cecchini, Financial Advisor at Compound
👋everyone,
This edition of Concepts of Finance is a little different to the usual format (I thought I’d mix things up a little!).
One of the most common queries I get asked about in my professional life relates to stock options and equity. When a job offer goes out that includes equity I find that folks tend to fall into one of two camps: first, the people who ask questions to fully understand what their equity means and second, the people who feel embarrassed to ask any questions and instead wait until they’re in the job to clarify specifics after the fact.
In my view, the best approach is to ask all the questions you have up front - even if it means you feel vulnerable in doing so. Nine times out of ten, the hiring manager won’t think of you any differently for asking straightforward questions, and in most cases - they’ll respect the fact you’ve taken time to understand your job offer carefully.
I’d even argue that if a hiring manager thinks less of you for not knowing how stock options and equity work then it’s probably not a company you want to work for anyway!
A conversation with Mark Cecchini, Financial Advisor at Compound
To get an expert perspective on everything you need to know about a job offer that includes equity, I spoke to Mark Cecchini, a financial advisor who works at fintech startup Compound.
And that’s where this week’s newsletter is a little different; it’s a conversation with Mark about everything you need to know about stock options, job offers and equity so that the next time you’re offered a job with stock options, you’ll have a better idea of what your offer might mean - and some red flags to look out for.
In our conversation, Mark covers:
How to assess a company’s prospects
How to understand your stock options
Why there’s still room for negotiation in equity offers
Red flags to look out for
I hope you find this conversation useful - and if it’s not something that is super relevant right now in your career, you can come back to this video whenever you find yourself in a position where you’ve got a job offer on the table but aren’t quite sure about what the equity part of your job offer means.
Thanks!
Jason
PS as always, none of the this is financial advice and is for educational purposes only.
Top takeaways from our conversation
We covered a lot during our conversation, but here’s some of the top takeaways from my chat with Mark:
Always try to understand the company’s current stage: Evaluate where the company currently stands. Determine the stage of the company, who the investors are, and the hiring trends. Is it pre-seed, seed, Series A, Series B or later? This context helps in understanding the value and potential of the equity being offered.
Understand the type of equity offered: Identify the type of equity you are receiving. These could include:
NSOs
ISOs
RSUs
or common stock
Each has different tax implications and rules around vesting and exercising. It's crucial to understand the specifics of what you're being offered.
Work out some upside and downside scenarios: Assess both the potential gains and losses. This includes exercise cost, vesting schedules, and percentage ownership of the company. The actual number of options needs to be weighed against the total outstanding shares to understand the proportion of ownership and its potential worth.
Consider the future prospects of the company. Is there is a clear path to going public? The vast majority of companies don’t. It’s ultimately down to a little bit of luck but try your best to understand the potential for mergers and acquisitions, or opportunities for career advancement and additional equity grants based on performance.
Don’t be shy to engage in a negotiation. People often accept the first offer due to excitement or fear of losing the opportunity. However, negotiating respectfully is essential, as the initial offer is often not the highest a company is willing to go. It's crucial to negotiate not just for salary but for the equity component as well, aligning it with your experience and the market standards.
Evaluate realistically. Be realistic about the company’s valuation and your equity's potential worth. Consider factors like the total addressable market, the company’s position within the industry, and the founder's vision for future liquidity events, whether through acquisition or IPO.
Assess rimelines. Understand the typical timelines for equity vesting and liquidity events. Most startups take several years to reach a liquidity event (if they ever do!), and the path to IPO or acquisition can be uncertain and lengthy.
🚩Identify Red Flags. Be aware of potential red flags in an equity offer. Lack of transparency, unwillingness to negotiate, or unrealistic vesting schedules can be warning signs. Also, understand what happens to your equity if you leave the company, as different companies have different policies regarding equity post-departure.
Tools you can use
Compound - money management for professionals who need to understand equity, stocks and more. Compound has a super useful startup offer calculator you can use to estimate your stock options.
Carta - Carta is widely used for managing cap tables, valuations, investments, and equity plans.
🧠 Other relevant guides from the Concepts of Finance newsletter you might find useful:
Your experience with job offers and equity
Early on in my career I left a job at a tech startup that would have paid off substantially because I didn’t know a thing about stock options at the time.
Do you have any of your own personal stories to tell? Let me know your thoughts about stock options, equity and your experiences if you’d like to share them by leaving a comment below.
Thanks as always for reading - if you found this helpful, I’d love if you could leave a ❤️.
DISCLAIMER: As always, none of this is financial advice. Concepts of Finance newsletter is strictly for educational purposes.
Thanks for having me Jason! I can be found on X @markcecchini or mark.cecchini@compoundplanning.com