The Story Of How One Startup Employee Doubled His Stock Options By Asking One Tough Question | Business Insider India

The Story Of How One Startup Employee Doubled His Stock Options By Asking One Tough Question

This Friday, a startup CEO and a lawyer are putting on an event in Palo Alto to educate startup employees on the ways their employers, and their employers’ VC investors, may be screwing them over when it comes to equity and compensation.

Last week, we published an extremely popular story about three ways that can happen.

To recap:

  • Employees don’t understand the difference between common stock, which they own, and preferred stock, which their company’s investors own. This can leave employees earning less from their company getting bought than they might have imagined.
  • Employees don’t bother to ask how many shares outstanding a company has. As a result, they don’t have any idea how much their shares are worth.
  • Employees don’t understand vesting triggers. As a result, they might get canned after an acquisition, and not make as much money as they thought they would.

But a little knowledge about the intricacies of startup financing isn’t just about not getting screwed over.

Sometimes you can use it to your advantage during the time when a startup is trying to hire you.

Chris Zaharias is the startup CEO putting on the event with lawyer Mary Russell. Zaharias is a 22-year veteran of startups incluing Netscape, Efficient Frontier, Omniture, Yahoo, and Triggit. Now he’s the CEO of his own company, SearchQuant.

In an email, he told this story about a friend of his who didn’t have a clue about something called “double triggers,” got a clue, and then doubled his equity stake in the startup that wanted to hire him.

Recently, a longtime sales manager at a top 5 global software company was given a VP Sales job offer at a 100-person startup.

He reviewed his offer with me, and when I asked him if he’d been offered a Single or Double Trigger, he said “What’s a trigger?”

I explained that a trigger clause forward-vests (or accelerates) some/all of your as-then-unvested options should (1) the company be acquired (Single Trigger); and (2) your employment be terminated (straight fired or Involuntary Termination – look it up here, Double Trigger).

If you have a Double Trigger, then neither your company nor the acquiring company can screw you out of your remaining, unvested options EVEN IF they no longer have a role/need for you after the acquisition. Back to the VP Sales candidate: when he asked for a Double Trigger, they said that as a matter of corporate policy they don’t offer anyone Double Triggers.

But guess what? They doubled the % of equity in the offer letter. True story from Q1 2014, right here in the Valley.

The point is, startup employees should be just as sophisticated about how startup compensation works as startup CEOs and investors are. Sometimes, like in the story above, that sophistication will mean a much bigger payout if or when that startup gets bought.

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About Ganesh Srinivasan Consulting

Management Consultant from India with International Solutions Selling, Projects Implementation, Joint Venture, Collaboration and Procurement experience Building a Global Team of Consultants and Niche Products and Services

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