7 things to know before signing your startup offer letter

Armed with this new knowledge you can confidently apply for a startup

With startups increasing day by day in India, universities are seeing increasingly more hires from the industry. Even with the startup image taking a hit—the Flipkart and Grofers hiring fiasco a major factor—startups remain amazing places to work: there is no substitute for the steep learning curve and work culture they have to offer.

If you’re looking for a job, chances are, you are going to end up with a job offer from a startup and, if you’re not careful, there may be several things that go right above your head. Let’s fix that by outlining a few things that you should know before you sign on the dotted line.

Founder and team

If you are applying to an early stage startup, the team will probably consist of the founders and a few team members—interns, consultants, VPs et al. It makes for a pretty small workplace with founders having heavy influence over ideologies and culture.

It’s pertinent you find out about the founders’ views and vision before you join a startup. Research their past work experiences and ventures, if any, and don’t hesitate to ask questions on how they see you fitting into the team. A fallout with the founders or a culture mismatch won’t end well for either party.

Role and career growth

Your role will, no doubt, be discussed in detail with you before you join. However, as startups go, job roles are flexible. Startups are all about burning needs and about getting the job done. Discuss your job expectations and how they see you fit into the growing needs of the startup.



Will you be leading a team sometime down the line? Will you transition into a new career role or will you be handling the same responsibilities a year on? Will you be called upon to do things not strictly within your job description? It’s best to leave nothing to question when discussing your role to avoid an unsavoury conversation six months down the line.

ESOPs

Employee stock options (ESOPs) are a great way for startups to create a sense of ownership for every employee and providing adequate compensation with no outward cash flow. If you are applying to an early stage startup, a major chunk of your salary will be your ESOPs. The amount of ESOPs startups award to their employees is dependent on their role in initial growth.

Early stage employees are awarded their compensation mostly in equity whereas it’s more about cash-in-hand as the hierarchy progresses.

All ESOPs are awarded to employees at a strike price, a price set on the stock option by the startup itself. Note that the strike price of a stock option is not the same as the stock price, a price determined by the number of company shares available and its valuation.

The difference between the strike price and the stock price, gives you the intrinsic value of the stock  (i.e the money you make by selling your shares).

However, there are a few conditions to exercise your stock options.

Vesting period

When you join a startup, you don’t get to exercise all your ESOPs at the time of joining. You receive the right to exercise your stocks in periodic installments determined by a vesting schedule.

You will be able to exercise your full ESOP only at the end of your vesting period.

Cliff

The minimum time after which you can vest the first chunk of your ESOPs is called a cliff. Leaving your job before the cliff means that you don’t get to exercise any of your ESOPs.

Salary breakdown

The number you see on your offer letter may be split into smaller components. While most of it you will receive as cash in hand, some of it will be allocated for very specific purposes like housing and rental allowance, healthcare, provident funds etc. Some of these are pretty self explanatory, while others you may need more clarification on.

There is no one salary breakdown that can be applied to every employee contract, but before signing whatever the startup asks you to sign, you’re better off having it reviewed by a chartered accountant of your own.

The Fine Print

There’s a chance that something doesn’t go according to plan: your stocks might not be vested fully when you’re let go, or you might want to quit before your vesting period has run its course. In such cases, it’s better to have an idea of the fine print.

Non-compete

Signing a non-compete is a clause in which you agree not to enter into or start a similar profession, or trade in competition against the startup you were working for. Most Non-compete clauses stand for a certain period of time (ex. six to 12 months).



Drag-along

Drag-along rights come into play in case of a startup acquisition. It allows a majority shareholder—founders and investors—to force a minority shareholder—you—to join in the sale of a company. The majority owner must give the minority shareholder the same price, terms, and conditions as any other seller.

Accelerated vesting

Another part of your employee agreement that will change with a merger or an acquisition is your vesting period. Ideally, it should accelerate, so that you have the option to vest your full ESOP when your startup gets acquired.

This should be obvious, but it’s better to have yourself covered in case the startup goes kaput.

Knowing these, you have all of your bases covered on the amount of equity you will be entitled to, when you will get it, and the kind of money you will be making if you end up joining the startup.

Armed with this new knowledge in your arsenal, you can now confidently apply for a startup.

This article originally appeared on Tech in Asia.