Unfortunately, 2023 has gotten off to a rocky start in tech, with layoffs continuing, or, it could be argued, increasing. While the overall job market continues to remain strong — unemployment is still at historic lows — tech is feeling the brunt of the pain. We can save the why for another issue, though a return to pre-pandemic growth trends and a more difficult funding environment are likely major contributors.
But, no matter the reason, getting laid off and having to find a new job is a significant life event that can absolutely feel like a full time job in itself. Not to mention the mental and emotional weight of knowing you have a limited runway before you’ll need income again. If you are going through this, please know that you are not alone and we are here to help.
And, if you do need help, put some time on my calendar for a complimentary intro call or reply to this email.
While doors closing are always hard, another (or multiple) will open. Like most of you, I’ve been through uncertainty in my career before. A few issues back, our good friend CJ Gustafson from Mostly Metrics shared the questions to ask when interviewing with startups.
Today, however, I’d like to talk about the fun part: negotiating offers. More specifically — how to look at your total compensation package and why you may want to pay more attention to the equity compensation portion of your offer letter.
I know many of you may not be there quite yet in your search, and I know how painful the process can be. But, it’s still valuable to set aside some time to prepare for when you do get there so that you can be confident in the decisions you make.
Most folks immediately draw their attention to the salary and bonus component of their compensation. Understandably so! This is the most immediate form of compensation that you can reasonably rely on to make everyday cashflow decisions and save for future goals. There’s nothing wrong with giving this part of your compensation the most weight, especially if you need to prioritize building your cash reserve.
But working in tech, or a startup, comes with an extra flavor: equity. It’s likely why you’re reading this newsletter in the first place. The salary and bonus in your offer letter will be straightforward, and deciding to negotiate will likely be too (i.e. you’ll know if you want more or if it’s adequate).
The equity part? Maybe not so much. If you’ve ever perused Secfi Learn or used our tools, you know that valuing your equity today, and especially in the future, isn’t always simple.
We know that the biggest advantage that anyone can have with investing is time, right? Well if you have a long time frame and can afford the risk without jeopardizing important life milestones like retirement, then you could consider valuing your equity compensation higher than someone who does not have as much flexibility.
For example, if you’re in your 20's and 30's, you can probably afford to take on more risks compared to someone who is gearing up for retirement. Unless you’re trying to retire early! If you exercise your stock and things go south, then you have the advantage of time to get back on track.
Now, let’s take a look at the equity compensation section of your offer letter. It’s probably the paragraph that is packed with finance jargon: “4 year vesting schedule with a 1-year cliff,” “strike price,” “fair market value,” etc. Did you find it? Great, let’s dive in!
To quickly level-set, equity compensation, unlike your salary, is a delayed form of compensation tied to the success of the company that requires you to take action. And, unlike your salary which is deposited directly into your bank account, you’ll need to take money out of your bank account to pay for your stock options.
Why is it important to understand this section of your job offer? Because stock options could significantly affect your present and future personal finances. It could be a very valuable form of compensation if everything pans out in your favor so don’t let intimidation or lack of knowledge get in the way of your success!
The first thing you’ll want to do is to make sure you have all the information you need regarding your stock options. We have an excellent article that provides great questions to ask to help you gather all the details.
Hopefully you’ll be able to get all of these details, but even getting most will put you in a better position.,
Now, you’ll want to consider a few more things as you weigh your options, including:
1. What are your current cash needs 💸?
Do you have a fully funded emergency fund (3-6 months of living expenses)? Do you have a large expense coming up soon?
If you need to focus on building a strong financial foundation or you have another financial demand in the short to mid-term, then maybe you should give less weight to the stock portion of your total compensation.
If you are all set with your cash reserve and could comfortably set aside some cash, then maybe you put more weight on the stock compensation offered to you.
2. What’s your risk tolerance 📉?
Even if you could exercise your stock options and pay a potentially large tax bill, can you afford to lose all the capital you invested to exercise? Would it jeopardize retirement or other important life goals if your startup doesn't have a successful exit?
3. What stage is your company in 🪜?
Are they an early-, mid-, or late-stage startup? This might give you some idea as to how risky an exercise might be or at least how long your money may be tied up. This data is a bit dated, but obviously the younger your startup is, the more likely it is to fail.
The unfortunate truth is that most startups will fail. That said, later-stage startups are more likely to have a successful exit than earlier-stage companies. You’ll likely get less equity with a later stage company due to this tradeoff. To go even deeper here, startups in different industries have varying degrees of success.
You may also be wondering about dilution. The earlier you join, the more likely your equity will be diluted (as in most definitely). Your slice may get smaller but, if all goes well, the pie will also be increasing exponentially. Meaning, your smaller slice will be worth more than the larger slice you originally had. CJ had a good take on this recently.
4. Do you believe in the company ✨?
We’ve said it before, but we’ll say it again: Stock options are an investment opportunity. So, you need to ask yourself if you’re not only willing to work at the company, but are you willing to invest in it?
Say you have the cash to potentially exercise and you have a decent appetite for risk. Are you excited about this company? Do you think your company could have a successful exit? If your heart’s not in it then maybe stock options aren’t a motivating factor in your total compensation.
And that’s OK! Working at a company you may not think has the greatest exit potential doesn’t mean it’s a bad career move. It just may indicate that you may not weigh the equity as heavily in a potential offer.
Hopefully this helps you give you more context around how to think about your compensation and what you want to negotiate.
You may know what you want, but the hardest part is knowing what you’re worth. While the recent pay transparency laws in many states are certainly helpful..they may not always be, well, transparent. And, these laws only cover salary and bonus, so you’re unlikely to see an equity range on a JD.
That’s why it’s incredibly important to do your research and understand your true market value. You can check out websites like Salary.com or Payscale to get started. There are also sites like Blind where you can get even more feedback on offers.
Your most valuable asset is certainly your network. And considering an offer is the time to leverage it. Reach out to your peers and mentors and have them weigh in on the decision. The best way to understand your true value is to understand those of your peers, which is why many of these pay transparency laws have been passed in the first place.
At this point, you’ve done all this hard work to get a job offer, you did all the internal and external research to fully understand your options, and you’ve prioritized what is important to you in a compensation package. You should have a pretty solid framework going into this decision!
Last little nugget I’ll leave you with: Always 👏 ask 👏for 👏 more. Your future self will thank you for it!
Things we’re digging: