When VC investors (and sometimes angels) invest in a startup company, they almost always buy preferred stock. In most startups, there are two classes of stock, common and preferred. The founders, employees, advisors, and sometimes the angels will typically own common stock. The investors will typically own preferred stock. The easiest way to think about this is the "sweat equity" will mostly be common and the "cash equity" will mostly be preferred.

For the sake of this post, I am going to talk about a simple plain vanilla straight preferred stock. There are all kinds of preferred stock and it can get really nasty. I am not a fan of variations on the straight preferred but they exist and they can make the situation I am going to talk about even worse.

A stock option is a security which gives the holder the right to purchase stock (usually common stock) at a set price (called the strike price) for a fixed period of time. Stock options are the most common form of employee equity and are used as part of employee compensation packages in most technology startups.

If you are a founder, you are most likely going to use stock options to attract and retain your employees. If you are joining a startup, you are most likely going to receive stock options as part of your compensation.

In reality, so-called “founder’s” shares are simply common stock, issued at the time of startup incorporation, for a very low price, and normally allocated to the multiple initial players commensurate with their investment or role. But that’s only the beginning of the story.

These shares are allocated and committed, but not really issued and owned (vested) until later. Typically, vesting in startups occurs monthly over 4 years, starting with the first 25% of such shares vesting only after the employee has remained with the company for at least 12 months (one year “cliff”). Vesting always stops when an employee leaves the company.

Even though the class is common stock, founders can negotiate special vesting and other terms as part of their stock restriction agreement upon venture investment. Here are some typical special terms for founder’s stock:

• Negligible par value. Since founder’s shares are usually issued at the time the company is incorporated, they essentially have no par value. As the company builds value, shares allocated later for employees or partners will have an appropriate price.

When you start a company, you and your founders own 100% of the company. That is usually in the form of founders stock. If you never raise any outside capital and you never give any stock away to employees or others, then you can keep all of that equity for yourself. It happens a lot in small businesses. But in high growth tech companies like the kind I work with, it is very rare to see the founders keep 100% of the business.

The typical dilution path goes like this:

1) Founders start company and own 100% of the business in founders stock

2) Founders issue 5-10% of the company to the early employees they hire. This can be done in options but is often done in the form of restricted stock. Sometimes they even use "founders stock" for these hires. Let's use 7.5% for our rolling dilution calculation. At this point the founders own 92.5% of the company and the employees own 7.5%.

One of the topics I get asked about most on MBA Mondays is "options." But options are only one form of employee equity. I am going to do a series of posts on this topic over the next month of MBA Mondays. I will start by laying out the logic for employee equity, going over some target ownership levels, and describing the various securities you can use to issue employee equity.

One of the defining characteristics of startup culture is employee ownership. Many large companies provide employee ownership so this is not unique to startup culture. But when you join a startup, you have the expectation of getting some ownership in the company and if the company is successful and is sold or taken public, that you will share in the gains that result.

Employee ownership is such an important part of startup culture. It reinforces that everyone is on the team, everyone is sharing in the gains, and everyone is a shareholder. I can't think of a company that has come to pitch us that has not had an employee equity plan. And I can't think of a term sheet that we have issued that didn't have a specific provision for employee equity. It is simply a fundamental part of the startup game.

A reader asks:  My co-founder and I have been talking to some VC firms on Sand Hill Road, and I think we’re pretty close to getting at least one term sheet.  I read your post a few weeks ago about how one of the common mistakes startups make dealing with VC’s is focusing too much on valuation.  You also mentioned there are other important terms that affect the economics of a financing, including the size of the option pool.  Can you please explain that?  Our company never issued any options – and my co-founder and I each own 50 percent of the shares.  Will the VC firms require an option pool? And, if so, how will that affect us?

Answer: The issuance of stock options by startups is quite common, because it gives key employees an opportunity to benefit directly from any increase in the company’s value, but doesn’t require any cash outlays by the company.  That makes them an important tool to attract talented staffers.

I resisted the temptation to jump in with a response because I knew it was too complicated of a topic to discuss on Twitter.  But I thought I should do a quick post on the topic.

1. Options are gravy — I lived through the first dot com era where we used stock options as a recruiting tool.  I freely admit this (along with nearly everything between 1999-2000) was a mistake.  We set our sites on our IPO price and then worked back to our current valuation and showed potential employees what we thought they could earn (with all legal caveats) if the company was successful.

The stupid thing is we sort of believed it ourselves.  If Ventro was worth $8 billion on $2 million of sales surely a paltry $1 billion would suffice. Goldman Sachs was an investor and the assured us an IPO would happen and riches would be had by all. I think they believed it, too.

We obviously attracted the wrong people for the wrong reasons and this led to a lot of disappointment.  We had a lot of re-setting of expectations to do.

Options are obviously a very important economic motivator for your first 3-5 employees and your most senior management team. But unless you become Facebook or Zynga they likely aren’t going to pay off big for everybody else.

 

Once you grant an employee, partner or service provider equity for their future contributions to your company, you can’t take it back (without legal action). While you can dilute their ownership by issuing more shares that’s difficult to do and can create a liability for the company.

As a result, it’s very important that you make sure to vest every equity grant that you make – giving the recipient rights to more equity as they achieve milestones. This enables you to pull the plug on the relationship at any point down the road, preventing the recipient from receiving more equity.

While equity can vest based upon milestones, such as the acquisition of a key partner, meeting sales targets or the development of a product, time is the most commonly used determinant of vesting. Employees and founders typically vest their equity over a predefined period of time. Most often this is a three to six year period, whereby vesting occurs on a monthly basis.

Some structures will include a “vesting cliff”. Before the cliff, no equity vests. At the time of the cliff, the recipient catches up on his vesting so that it is as though there was no cliff. For example if an employee is set to vest on an equal monthly basis over four years but has a one-year cliff, they would receive no equity until the end of 12 months at which time they would receive 12-months worth of vesting – in this case 25% of their total grant. Cliffs are very useful tools for founders as they provide a trial period. If an employee or partner doesn’t work out before the end of the cliff the company can part ways with the recipient of the grant without giving them any equity.

Most first time bootstrappers end up giving away equity to people who don’t do much (if anything for the company). A vesting schedule with a cliff can help prevent this.

 

There is no such thing as the best or optimal vesting schedule in a startup. That doesn’t mean current vesting schedules are really good but it does mean that many of the so-called best alternatives are not much better.

No such thing as best

“Best” as a concept has natural appeal. It’s great to be best, to know you’ve done something in the best possible way, etc. It tickles our pride and makes is feel good about ourselves. In the process, we tend to forget that there are at least two ways to evaluate the quality of decisions: as determined by current information, given knowledge & experience, and as determined by hindsight.

Hindsight is the harshest and probably best judge. Even then, it’s hard to make accurate judgments since the decisions made earlier, especially if they were made years before, could have influenced outcomes and hence affect the accuracy of hindsight. Still, if we are to talk about “the best vesting schedule,” I can’t imagine anything better than a hindsight test. Did the vesting schedule in a startup help or hurt returns for various types of equity holders? Which is where we immediately get stuck on two issues about how we define “best”.

First is the notion of pareto optimality. A pareto optimal situation is one where we cannot make someone better off without making someone else worse off. Since vesting affects anyone who leaves before being fully vested negatively and everyone else on the cap table through the repurchase of unvested shares positively, almost any vesting schedule is pareto optimal. Therefore, we can’t talk about a best vesting schedule for everyone. We can only talk about a better vesting schedule for certain parties, which requires judgment as to some type of preference order. Do investors come before employees? Do execs come before individual contributors? Do founders count for more? Do you penalize people who’ve worked for years at the company and then leave and reward the ones who joined a year ago? I don’t know about you, but I don’t have set answers to these questions. A lot depends on culture and should be within the control of entrepreneurs, execs and investors. They can set it up however they think makes sense and then others can make decisions about whether to join as employees or investors later.

The second issue is simply that a company has to pick vesting schedules months and years before major events such as product launches and an eventual exit. We all know how uncertain things are with startups. To say that one can pick some type of “best” vesting schedule that positively impacts returns to more than one type of holder regardless of whether the company exits for $3M in 18mos when everyone on the founding team is still there or for $350M in five years after three different CEOs is, to say the least, improbable.

Standard vesting

Just to get our bearings, the so-called “standard” vesting schedules many companies use are along the lines of:

• Founders: 25% up front and the rest monthly over 3-4 years.
• Employees: 25% after one year and the rest monthly over 3-4 years.

An example alternative vesting schedule

A comment to my VentureHacks article on building agile founding teams asked about an alternative vesting schedule proposed by Basil Peters, a successful super-angel. Basil’s proposal has three key points, reproduced here:

• 50% of the shares daily over a three year period; and
• the other 50% when there is a sale of the Company.
• All vesting for senior employees accelerates on a sale of the Company.

My summary analysis is that this is an interesting vesting approach that is more investor-friendly than founder- or employee-friendly and that is likely to work better in the case of companies that have small exits in short periods of time and may actually hurt returns in the case of larger companies. Point by point:

• 50% daily vesting over three years
  • The 50% is related to the next bullet, I’ll address it there.
  • I don’t see a big difference between monthly & daily vesting. Daily is probably better. As rule, I like continuous functions–discontinuities and kinks sometimes influence decision-making in bad ways. That’s why I think quarterly vesting is a terrible idea–someone who’s ready to leave may stay on as dead weight for a couple more months to get that extra bit of vesting.
  • Three years for 50% is a bit long but that actually depends on the size of the initial grant (is it above or below market?), which is something the proposal doesn’t discuss.
  • No vesting cliff means there is a penalty to pay for people who don’t perform well or leave after a short period of time. I don’t have a problem with this–same argument as why I prefer daily or monthly vesting compared to vesting over longer periods of time. Perhaps it will make companies more careful about who they hire.
  • No founder acceleration is unfair to the effort founders have put in prior to funding the company. If founders have a choice, they may prefer to raise money from a different investor whose ideas about vesting do include acceleration. Therefore, this clause may actually hurt an investor’s deal flow / win rate and, therefore, returns in the long run.
• 50% on exit
  • The argument here is that up to 50% of the value is generated close to the time of exit and by running a great M&A process. This may be true for exits that are near rounding errors on the acquirers’ P&Ls. It’s certainly not true for larger startups most of the time. Analysis by M&A powerhouses such as Updata and Jeffries/Broadview suggests there is such a thing as a “market rate” for exits and it’s hard to get far outside the valuation curve of the day. Yes, there is such a thing as a strategic premium and I do agree with Basil that very few companies know how to make trade-offs between investments that grow their strategic premium and investments that just grow the business. The bigger the company, the more inertia there is and the harder it is to make changes that quickly impact the strategic premium. M&A execution also matters but I haven’t seen any data that suggests that M&A execution, independent of the company’s state, can influence exits on a regular basis by that much. If anyone has that data, I’d love to see it.
  • Holding equity/option grant sizes constant, withholding 50% of vesting till exit seems grossly unfair to founders and employees. What if a company takes six years to exit? Why should an engineer who built + helped launch many versions of the early product and left after four years be penalized that the company hasn’t exited yet? Why should a founding CEO who hits her ceiling, brings on a successor CEO and leaves after three years be penalized for doing that?
  • There is an additional macro industry impact. A provision like this restricts labor mobility perhaps in a bigger way than non-competes. Vesting shouldn’t be a tool to force founders and employees to stay with a company. It should be a tool to connect their equity stake to their continued contribution in building the business.
• Acceleration on exit
  • The way I read this, it implies full (100%) vesting on exit. This may be OK in the case of small companies that are being acquired for their technology as opposed to the ability of their teams to create additional value. If an acquirer doesn’t care about the incoming team in an M&A situation, there is little impact to the acceleration. If, on the other hand, the acquirer wants the team then full acceleration on vesting can depress exit values to an extent. The acquirer will need to create a retention package, say $5M, for the team since there will be nothing transferring over through the acquisition that has retaining value. That retention package increases the total cost of the acquisition by $5M. If the acquirer was willing to pay $100M at most in total, they’d only be willing to pay $95M of that directly to the company.

Author: Andrew Payne

Contents 1 Stock 2 Stock Classes: Common and Preferred 3 Dilution 4 Vesting 5 Stock vs Options 6 Founder's / Restricted Stock 7 Salary vs Equity 8 Negotiating a Fair Deal

The re-heating of the venture funded tech market has pushed a heat up of the hiring market, and I'm getting more calls from friends asking for help understanding startup stock (equity) offers. More than one friend has suggested writing the advice down, so here it is.

Important disclaimer: I've got experience negotiating stock compensation packages from both sides of the table. However, I'm not a tax accountant or attorney; my notes here should not be a substitute for real tax or legal advice.

UPDATE: If you're a founder or near-founder, your equity terms are likely defined by the funding terms negotiated with the investors. For a very good summary of investor terms, see Brad Feld's writeups on term sheet terms.

Stock

Let's start with the basics: a share of stock represents fractional ownership in a company. To know what the fraction is, you need to know the total shares outstanding (i.e. total number of shares issued). For example, if you have 100,000 shares of stock in a company with 10 million shares outstanding, then you own 1% of the company.

Here's the point: a share number is meaningless without knowing the total number of shares outstanding. Owning 1 share of a company with 10 shares outstanding is a much better percentage than owning 100,000 shares in a company with 10 million outstanding. If you've been presented a offer in terms of a number of shares, you need to ask about the number of shares outstanding. Unfortunately, some startups are hesitant to give that information, because it can give insight into confidential terms on how the company has been funded.

My advice: politely ask for the shares outstanding, or for what percentage your share offer represents (then confirm the approximate shares outstanding). If the company won't provide you with this necessary information, it's unlikely they're going to be straight with you on other issues; go work somewhere else.

Stock Classes: Common and Preferred

Most venture-funded startups have different classes of stock: common and various flavors of preferred. Your offer will almost surely be for common stock. Preferred stock classes typically go to investors, and in some cases founders (usually where the founders have already invested some of their own money to build the company). By convention, preferred stock classes are lettered, increasing for each round of funding: Series A, Series B, etc.

The preferred stock held by investors has (as the name implies) more rights and privileges than the common stock issued to employees. The most important right is the right to get paid before the common stock holders, a right commonly referred to as "the preference". If the company is acquired or liquidated, the preferred stock holders will get paid first. Then, if any money is left over, the common stock stockholders will get paid.

The preference amount is usually (but not always) the amount invested. For example, if Series A stock is sold to first-round investors for $1/share, the preference amount for that stock is usually $1. (In some cases, usually when the company is in a weak position to raise money, there may be "preference multiple" where the preference is larger than the share purchase price).

Common stockholders should care about the preference, because that preference is "ahead" of the commons in any acquisition outcome. For example, let's assume that the company raises $5m dollars by selling 5,000,000 shares of Series A stock for $1/share. That means that there's a total of $5m of Series A preference in the company. If the company is acquired for $5m (or less), the preferred stock holders get all of the proceeds and the common stock holders get nothing.

The total preference is less of an issue in early stage companies (e.g. Series A), because it's relatively small. However, it can be a significant issue in later stage companies that have raised a lot of money. I've seen companies with $75m of preference, and very frustrated common stockholders that realize the company needs to get acquired for $100m or more for them to start making any money.

(To keep things simple, I've omitted many details for preferred stock, such as "participating preferred" mechanisms. Common stock holders can use the "total preference" to estimate their returns. In addition, IPOs are a special scenario, where the preference usually goes away and all stock classes are in equal footing).

My advice: get the "total preference" number from the company, especially for companies that have raised a lot of money. If the company is reluctant, point out that you need this information to accurately value your common stock. If they won't tell you, go work somewhere else.

Additional advice: Also, don't ask for any preferred stock unless you really know exactly what you're doing and are prepared to write a check. Asking for preferred stock will usually peg you as a total novice.

Dilution

Companies raise money by selling new stock after the board of directors authorizes the sale to investors. Those new shares are created out of thin air by the company, and will dilute all of the current stockholders.

Let's say you have 100,000 shares of a company with 10m shares outstanding (e.g. 1% ownership). The company raises $6m by selling 2,000,000 Series B shares for $3/share, resulting in 12,000,000 total shares outstanding. Since you still have 100,000 shares, your ownership percentage is now dropped to 0.8333% -- you just got diluted.

In startup, dilution happens, and you just need to factor it in. If you're considering a early stage offer (Series A), your percentage ownership will likely start out as high as it's ever going to be, then go down with each round (Series B, Series C, etc.) In some cases, the company may "re-up" you by granting some more stock. But this usually happens NOT to compensate for dilution, but to recognize a bigger contribution to the company than what you were originally hired for.

Unfortunately, some companies play games with offers timed around funding rounds. Make sure you understand your offer in post-funding (e.g. diluted) terms. I've seen cases where a 1% offer was really "pre-Series-A" and quickly became a 0.6% ownership after Series A was done.

My advice: negotiate for the largest equity portion you can, because that initial grant is going to be the bulk of your ownership and will get diluted down from there. If there is a round of funding, make sure you understand your post-funding (post dilution) ownership.

Vesting

You usually don't get all of your stock up front; it vests over a period of time, starting from your first day at work. Vesting parameters vary widely, but a classic model is 4 year vesting, a 1 year "cliff", and then monthly or quarterly vesting after that.

Four years means that you will have 100% of your stock after 4 years. Vesting is usually linear: 25% vested after 1 year, 50% after two, 75% after three, etc.

A "1 year cliff" means that you don't vest anything the first year, but you get 25% on your one-year anniversary. The idea behind this is preventing a "hit and run"; the employee who's there for 3 months, doesn't work out at all, and then leaves. If you're still there after one year, it's pretty safe to assume you're contributing and should get your stock.

Monthly or quarterly means that you start vesting at that interval until you are 100% vested. Personally, I prefer the shortest vesting interval possible; long intervals (e.g. one year) can cause employees to do unnatural career acts to make it to the next big vesting event. The last thing a company needs is someone hanging around who doesn't really want to be there, just because they have a big vesting event coming up.

The vesting terms are usually set by an "Incentive Stock Option (ISO) plan" approved by the company's Board of Directors, and are used for all employees. Unless you are considering an executive or other senior position, it may be difficult to negotiate changes to vesting terms; deviations from the standard plan require board approval. Also, most companies try to keep all employees on the same terms, and there are good management reasons to do that.

Some vesting plans may accelerate vesting for certain events, such as an acquisition. For example, the company may vest 50% of your unvested stock if the company is acquired, or may accelerate an additional year. The vesting may also by conditioned by a so-called "double trigger": you may only vest if you are acquired AND you lose your job. The idea here is that the company is partially compensating you for the stock you could have earned by staying for your full vesting period. These terms are frequently given to executives, especially ones who stand a good chance of losing their jobs in an acquisition.

My advice: make sure you clearly understand the vesting terms. If you are considering an executive position, make sure you understand the acceleration terms and consider negotiating something more favorable if your position is at risk of not surviving an acquisition.

Stock vs Options

So far, we've talked about the stock as "stock", but in most cases the company is not going to give you actual stock, but will grant you an option to purchase stock for some fixed price (the "strike price"). To actually own the stock, you have to exercise your option (as you vest), and write a check to the company for the total strike price.

For example, your 100,000 shares may be in the form of an option, with a $0.10/share strike price and a 4 year vest. At one year, you could write a check for $2,500 to purchase your vested 25,000 shares. At that point, you would be an official stock holder with 25,000 shares and 75,000 unvested options.

Owning the stock has a potentially significant tax advantage: it starts the timer for long-term capital gains. Any capital asset held for more than a year is taxed a low, long-term capital gains rate (currently 15% percent, maximum). Continuing the above example, let's say your company is acquired after another year for $10/share. Your 25,000 shares are now worth $250,000 and you only have to pay long-term capital gains tax when you sell. To liquidate your remaining vested options (e.g. exercise and sell) will likely incur steep regular income or short-term cap gain tax rates.

(My general advice to common option holders is to exercise as soon as you vest to get the long-term timer going, AS LONG AS you are (a) bullish on the company and (b) have the money. However, doing this has it's own tax issues (AMT); consult a tax professional for real advice).

Where does the strike price come from? It's driven by the Fair Market Value (FMV) of the common stock, set by the Board of Directors. In early stages, it's typically some fraction of the most recent preferred stock value. For example, it's common to see Series A sold for $1/share, and the FMV for common set to 1/10th of that (e.g. $0.10/share).

The strike price typically goes up as the company raises additional funding (at higher valuations). If you are joining a later-stage startup, the strike price could be quite significant, requiring you to write large checks to exercise.

My advice: understand the terms of your option grant, especially the strike price.

Founder's / Restricted Stock

If you are joining the company early enough (typically before or during Series A funding), you may be able to get so-called "founder's stock" or "restricted stock". This stock is just common stock, but you purchase it all up front instead of getting an option. The company implements vesting with a buy-back agreement; if you leave before you are fully vested, the company can buy back the unvested portion at the price you paid (i.e. unappreciated). For example, if you left after 2 years on a 4-year vest, the company would buy back 50% of your stock.

As described previously, holding stock has a HUGE long-term gains tax advantage over having an option. Companies can usually only do founder's stock at the early stage because a fair market value is established after the company is funded, and that amount can be significant. Let's say you're being offered 2% of a company with a valuation of $10m after funding. Buying your stock would cost $200,000!

Why can't the company just grant you the stock? The company can, but it creates a tax problem. If the company is funded, then the stock has value, and the grant of anything valuable is taxable income. In the above 2% case, the IRS would be looking for taxes on $200,000 worth of "income".

In the old days, companies would sometimes set up a loan to the employee to cover the amount of the stock they were purchasing. That loan could be repaid later (when the company was successful) or forgiven by the company. Those structures are rare today; even though they can be perfectly legal, they attract the attention of regulators and auditors.

In recent years, companies may provide an early exercise clause to provide option recipients some tax advantages. This clause allows you to exercise all of your stock (unvested) up front, as long as you agree to let the company buy back the unvested portion if you should leave. Assuming you can afford the exercise price, the net effect is nearly identical to founder's stock.

My advice: if you are joining before or shortly after Series A funding, you should ask for a founder's stock agreement. Some companies will push back, arguing it is "special", but it's not really; it's just more paperwork. The tax advantages can be huge.

If you can't get founder's stock, ask for an early exercise clause. See this sample agreement: [1]

Tax Advice: You probably should make a Section 83b Election if you are getting restricted stock. The IRS lets you choose: pay tax on the stock up front, or pay taxes as you vest (and the stock value appreciates). The former option is almost always the best in a startup scenario. However, the IRS requires you make that choice formally (i.e. declare it to the IRS in writing) and you have to do it in 30 days. Consult a tax attorney for details. Also see: [2]

Salary vs Equity

Most startups look at your compensation as a total package: stock plus salary. Since cash is precious at most startups, many will try to negotiate your salary down, arguing that equity is making up for any salary hit you might be taking.

It's hard to give general advice here, because the situation is totally dependent on the company and your personal circumstances. If your current salary is low relative to the market, you may be able to match or even increase your salary. If you are working at a large company paying above market salaries without equity compensation, you may take a salary hit. If you're coming from another startup, you may be able to argue a salary match because your existing salary already reflects an equity compensation component.

At a minimum, do your own personal finance homework so you know how much salary you need to live and not spend your savings.

My advice: share your current salary, but avoid telling the company "what you really need to pay the mortgage". Let the company make you an offer first, then negotiate from there. Make sure you get the full offer (salary + stock + terms) before you begin negotiating.

Negotiating a Fair Deal

I get asked all the time: how much equity should I expect? Unfortunately, there's no good answer. It's totally dependent on you, your circumstances, the company, the company's development stage, and how badly they want you (or not).

Keep in mind: when a company is figuring out how much stock to offer you, they're usually doing it relative to ownership for other employees, and they're doing it within some budget (the cap table).

For example, if you're the 5th engineer hired after the company has been around for 6 months, the company will compare your offer to other engineers. You'll probably get a little bit less than similarly skilled engineer #2, because you're coming into the company later. As the company progresses, expect stock offers be lower; late joiners are coming on board after more of the risk has been worked out.

The other factor is the "cap table" (capitalization table, or summary of who owns what stock). Companies allocate a pool of stock (usually called the Incentive Stock Option pool, or ISO pool) to grant to employees. The pool size is set during the funding negotiations with the founders and investors, and is typically sized to cover the first batch of hires up to the next round of funding. What's really going on when a company is figuring out your stock offer is not so much figuring out a percentage of the company, but a percentage of the ISO pool. The company not only has to balance your ownership with other employees, but it needs to budget enough stock in the pool for additional hires.

Depending on the company circumstances, the ISO pool may be large or small. For example, if the investors own a large portion (>50%) and the founders have large shares, then the pool may be very small. In other cases, if the company was highly valued at the funding rounds, the investor ownership may be relatively small (<25%) with a large ISO pool. Also, if there are a large number of "founders" the pool may be small.

You should care about the size of the ISO pool (in addition to your grant), because the size of that pool represents the ability of the company to attract top talent with competitive offers. Investors and founders that leave small ISO pools are usually being penny-wise and pound-foolish.

My advice: gently inquire about the size of the ISO pool and other ownership blocks. The company many not tell you, but if done correctly it doesn't hurt to ask.

My final negotiating advice: do your best at lining up multiple options (e.g. competing offers). That will give you the quickest and best sense of your market value, and the relative value of each of your offers.

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