✨FiCombinator✨ is the fun, weekly newsletter that helps employees, founders, and investors navigate the financial side of tech. Simply put, it’s the information I wish I had when I started in tech over a decade ago.

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“Yelp will recommend that the Board of Directors grant you an option to purchase a specified number of shares of Yelp's common stock with an exercise price equal to the fair market value on the date of the grant.”

In 2008, this was my introduction to Silicon Valley stock options, and to be honest, I had no clue what those words meant. At the time, I was 22, a fresh college graduate, and Yelp was valued at less than $200m. Today, Yelp is worth several billion.

With the turnover in tech right now, whether you are joining your first company or changing jobs, many of you will find yourself in a similar position. To help you evaluate your opportunities, the next several weeks will be a deep dive into equity compensation. That way, you will understand what you are being offered, what levers you can pull, and how to set yourself up for the best financial outcome. If you don’t pay attention, you could end up with little, while your coworker ends up with millions. It has happened many times before and will happen in the future.

To kick things off, let’s start with the questions you should be asking or at least know the answers to. Each question will become a whole post in itself. So this is meant as a guide. Each week we’ll dig into each point and why it’s there.

The 10 Essential Questions to Ask Before Accepting an Offer from a Private Tech Company

🏢 The Company

• What is the total number of outstanding shares?

• How much has the company raised, and when was the last financing round?

📄 Your Offer

• What is the structure of your equity? Restricted Stock, ISO, NQSO, or RSUs

• How many shares are you getting, and what is the strike price?

• What is the vesting schedule and cliff?

• How long is the Post Termination Exercise (PTE) window?

💸 Early Exercise

• Can you exercise early?

• Can you get a bonus to help offset the cost of exercising early?

🦺 Accelerated Vesting

• Is there accelerated vesting?

• What are the triggers?

📚 Further reading:

• An Introduction to Stock and Options for the Tech Entrepreneur or Startup Employee - by David Weekly

• The Holloway Guide to Equity Compensation - here is the original Github post that spurred the e-book

• Compound Early Employee Ebook

• What I Wish I'd Known About Equity Before Joining A Unicorn - by Anonymous

• Things you should know about stock options before negotiating an offer - by Julia Evans

If you find this helpful, please ❤️ like this post. It helps others find it and would make my day.

Sincerely,

👋 Emile

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Last week, the 3 Pipe founders - Harry Hurst, Josh Mangel, and Zain Allarakhia - resigned in unison. After raising $323.1 million dollars at a reported $2b+ valuation, they decided they needed a “veteran CEO” to run the ship. Since that announcement, the underlying question the founders have avoided is, “How much founder equity did they sell?”

Secondaries & Founder Secondaries

Before we dive into Pipe, let's break down Secondaries and Founder Secondaries.

Typically, a startup has a 12-month cliff an employee must reach before an employee unlocks a portion of their options (usually 1/4). Only those employees that have passed their cliff may participate in Secondary Sales.

Secondaries

In the last decade, marketplaces like Angellist and Carta have emerged to facilitate these transactions. This month, Carta published their 2022 Q3 Liquidity Report, on the secondary transactions they saw -

• 67% of Companies were Series C or later

• 85% with a valuation greater than $250m

This being norm for much of the last decade. Like Sriram Krishan, an a16z partner, wrote in 2020 -

According to Carta, this is starting to shift. "Looking at just Q3 2022, however, we find additional evidence of a shift toward earlier-stage companies transacting at lower valuations. More than a quarter of all secondary transactions in the past three months came from companies valued at $250M or less.”

Founder Secondaries

Founder Secondaries are when the founders sell their common shares in their private company. Typically as a part of a larger, later-stage round. In the last few years, valuations soared, and investors had money to put to work. As a sweetener, investors allowed founders to sell earlier and earlier.

Mirroring Carta’s data, TheInformation reported last year -

“It used to be that founders would ask for [secondary sales]. Now, venture capitalists are coming out of the gate with it,” said Louis Lehot, a San Francisco–based partner at law firm Foley & Lardner. “Half of Series A and B deals now have some secondary component for founders.”

If investors will allow you to sell a portion of your equity and set you and your family up for life, why not? “One in the hand is worth two in the bush.”

Pipe

This brings us to Pipe. Pipe allows employees to participate in secondary sales. In Dec 2020, Harry was featured in a story on Axios.

“Pipe … has started to let its employees sell some of their equity each year through company-managed secondary sales on the AngelList platform.”

In 2021, Pipe raised $250m at a $2B valuation. During that round, the founders sold some of their equity. As TechCrunch reported last week -

When asked what percentage of their shares the founders have sold … he responded, “As a private company, we do not share information about anyone’s personal compensation or holdings.”

However, in 2020, Harry said -

“I actually think that at a growth stage, companies need to start thinking like public companies,” Pipe co-founder and CEO Harry Hurst tells Axios of the need to provide more employee liquidity opportunities.

There is a glaring contradiction between these two statements.

Founder Disclosure

As an employee, if the founders are selling, that will have an impact on my decision to sell my equity. To put it another way, if the people with the most information are selling, I want to know.

Pipe - and any other private company - does not have to disclose this information. One of the benefits of being a private business. However, I think this must change.

Pipe is only the latest startup to hit turbulence after founders sold shares very early.

• Hopin - Founder sold $10m of shares and has recently had 3 rounds of layoffs

• Bird - Founder sold $50m of shares after Series C. Bird is currently worth $65m.

• WeWork - Founder sold $500m+ of stock early. WeWork is currently worth $2B from a peak of $47B.

It is time for founders to be transparent and openly disclose “How much founder equity have the founders sold?”

Founders cannot “think like a public company” and act like a private one by hiding when and how much equity they sell. Employees compensated with equity deserve to know. If this is a team, then act like it.

As Harry said,

“If you expect someone to give six, seven years, even a decade of their life to creating massive value for investors and customers, those people are going to have life events, [like] starting a family, buying a house, happen along the way, so giving them some liquidity is fair,” Pipe co-CEO Hurst said.

Employees must have all the information to make the most accurate decision with that liquidity.

What do you think? Do you agree or disagree? I’m interested to hear your thoughts. Thank you to Rod, Rachel, Angelo, and Matt for your thoughts that lead to this post.

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