Ask HN: Is it appropriate to ask a startup to let me see their cap table?

[golly_ned]

Hi,

I'm expecting an offer from an early stage start-up. Would I sound unreasonable to see their cap table? Are there other questions that I can ask that can help me determine what % of the company I'd be getting in this stage?

Thank you!

[jpgvm]

The full cap table probably not. But you generally don't need that to ascertain the most important parts of startup compensation.

I generally ask these questions:

1. What was the pre/post money valuation of the company at the last round.

2. How much runway do they have right now including already planned increases in burn (i.e hiring plans for the quarter/year).

3. What % interest in the company would my options grant represent? (you use this in combination with the information about the valuation to determine value of said grant)

4. Who are the major non-founder investors in the company? (this is generally public knowledge because investors love to announce these but it's worth asking). Sometimes the CEO will also divulge details about how they work with their investors, level of involvement, board seats etc. CEOs love to talk about these things for some reason.

5. When do they plan to raise money next and do they feel like they are meeting the metrics required for an up round? If not then how does my hiring or other planned hiring seek to address that?

The last question is actually really important and generally how I a) tie my employment to actual value at the company and b) justify my compensation in negotiation stage and/or later negotiations when I can show how my performance has directly affected these important metrics.

Any company worth their salt at the sort of stage where these questions are relevant will answer these, the degree of detail will depend on transparency of the leadership.

Generally speaking when looking to join a company of this size you will be meeting with the CEO, usually after meeting everyone else and before negotiating compensation - that is when you ask these questions and this is exactly what that meeting is for.

If they don't want to answer these then take that as a sign things are worse than they seem and perhaps negotiate for a more cash rich compensation and don't bet hard on the companies future.

[babyshake]

Ask about the preference stack (https://www.holloway.com/g/venture-capital/sections/liquidat...).

[auspex]

How many total shares have been issued?

What’s the fully diluted number?

How many shares am I getting?

Those are the important questions.

Assume you get diluted for every fund raise.

[IG_Semmelweiss]

3) i would ask what are total issued shares instead. staff refer to % interest to be based on the total outstanding shares , which will tend to vary.

Of course. The company may still issue more shares but in those cases everyone is getting squashed anyway

[Ozzie_osman]

Cap tables are generally pretty closely-guarded, and most startups would not let you see the full cap table.

That said, things you could ask for could be: the number of fully-diluted shares (to calculate your ownership), whether they have any convertible notes and what the terms are, what their last valuation was (pre or post-money), how much runway they have at current burn, whether existing investors have any liquidity preference, etc. They may not answer all of those, but they should be able to give you enough to know where you stand.

[Xcelerate]

> the number of fully-diluted shares (to calculate your ownership)

This is something I've always been confused about. Suppose there are 100M fully diluted shares and you as an employee are granted (and vest) 20,000 shares, so you have 0.02% of the total shares. And suppose the company has a private post-money valuation of $10B and then IPOs to a stable $10B market cap. So you would think (0.02%)×($10B) = $2M payout.

But! This doesn't include the fact that during an IPO, the company creates additional shares, right? And none of these new shares are sold directly to the public; they are first sold to banks or other prioritized buyers, and only then is the public able to purchase shares from anyone who owns them. Would this not decrease the employee payout? Assume the company creates 100M new shares for the IPO at a price of $50 per share. Now the banks pay the company (100M)×($50) = $5B for those shares, and then they sell them the next day on the open market. The final share price for the day would now have to be $10B/200M = $50 to have a market cap that is equivalent to the private valuation of $10B. But that means the employee's payout is actually $1M, not $2M.

Is my understanding of this correct, or am I missing something? It seems like you can't just take your percentage of private shares and multiply it by the private valuation to estimate your IPO payout.

[908B64B197]

You can always ask.

Their level of secrecy should tell you how serious they are. If they are too opaque, my advice would be to switch to a mostly cash comp.

[sokoloff]

Agreed. You could also ask who their major investors are, but the exact and fully-enumerated cap table is, bluntly, none of your business. (Knowing what fraction of the company your proposed grant is, of course.)

[voisin]

> Cap tables are generally pretty closely-guarded

Why is this?

[supernova87a]

Why? Would it even make a difference if you could see it?

Isn't it pretty much up to the founder and board whether you get diluted (and how much) in the future, and whether any number you see there continues to be accurate (for your own purposes, or others in the table) or not? And unless you're one of the top people at the company, your net worth is going to ride largely on how much of a success the company becomes, not your particular % / exact small share of it.

The VCs and next funders care about the exact numbers. What would you do, use it to negotiate more?

I suppose you could take it as some indication, but it's by no means some kind of binding assurance of the future. This is a thing I have a fundamental gripe about SV startup practices -- there are a lot of things associated with being employed at one that have the appearance of legal obligations and securities regulations to the novice eye, but under the surface they are not at all, and you are largely at them whim of whoever owns the company. The value of your options could evaporate in practice, even though you hold "100,000" of them (either through decline in company's future, or active dilution, or the CEO just doesn't like you).

Or am I exaggerating what I feel after a decade in the area?

There are a lot of questions that people ask, where I feel, is it even meaningful information you would act on or are you trying to feel better about something? (see all the useless 20-year-old-something comments/questions in threads after some company CEO announces the possibility of layoffs... "Can you share the exact formula by which people will be laid off?" "Why are you doing this in successive rounds and not all at once?" etc. etc. What would you do even if you knew the answer?? )

[arcticbull]

The cap table tells you who else thinks the company is worth something at that stage. It can be a great indication not of like future dilution, but of who else is on board.

If you take the lotto ticket perspective, you should do everything you can to maximize your odds and part of that is doing as much diligence as you can on the company.

If I were joining as a first/early engineer, or at a senior level - particularly early stage - I'd want to see the cap table.

[jpm_sd]

Yep, this is 100% accurate. Unless you hold a founding partner sized stake, you have no influence over the cap table and it's going to change drastically with each round of investment anyway.

Startup options are about as valuable as lottery tickets - worthless, unless by some lucky chance they're not worthless.

[phkahler]

>> Why? Would it even make a difference if you could see it?

If they're just an employee then you can argue "who cares" but also "why not?". If they're offered any options I'd say yes they should ask.

[philsnow]

> Isn't it pretty much up to the founder and board whether you get diluted (and how much) in the future

Yes, but if your grant is in the same class as all the other regular folks (vs founders, C-suite, and investors), your protection, such that it is, is that the founders want to keep their good reputation.

If they choose to dilute the normal stock classes to nothing for their own benefit, word gets around and it will be much harder for them to hire at their next startup. If they have no other choice than dilution to keep the company afloat, and can demonstrate that to the rank and file, that's still a negative signal, but less of one.

[bradstewart]

Just ask them what % of the company you'd be getting, directly. They should answer that.

That's a question I've always used personally, and I've refused offers from companies that wouldn't answer it.

[philsnow]

Knowing the % of the company your grant represents allows you to deduce the current valuation of the company, which is considered by many companies to be secret.

[kwindla]

Just one data point: I'm a startup founder and have no issues showing potential employees (almost) all the investors on our cap table and who led or was a major investor in each round. In general, the only thing that's sensitive is exact ownership percentage of each investor.

We do have one small angel investor from our first funding round that asked us not to publicly name them as an investor, so we just don't include them when we share the cap table. That's a rare situation, though, in my experience. This investor is relatively high profile in their non-angel-investing life and they don't want to publicize angel investments.

And the number of fully diluted shares, the ownership percentage that the prospective employee's grant equates to, the strike price of the options, and the price that investors paid (and valuation) of the last round should absolutely be shared with you.

[mannyv]

You could ask, and they'll say "yes" or "no."

If you have a question I'd just ask it straight out. I mean, you're at an early stage startup. It's a ton of risk for you, so you should know what you're getting.

But remember, 2% of $0 is still $0.

[bombcar]

And even if you get the 2%, you should consider it as $0 when evaluating your options. Almost all startup equity ends up worthless; but the connections you may make could be quite valuable.

[dsr_]

Let's suppose that you are not a founder of this company, and that there will be at least one more funding round before they get to think about any shares being worth anything. Here's what you should expect:

A 1% chance that equity in the company is worth anything, ever.

A 100% chance that whatever percentage you are promised after vesting will be diluted by an unknown multiplier.

Together, this means that you should consider the cash equivalent of the promised shares as something between one dollar and ten bucks. Don't let it convince you to reject a cash offer elsewhere, or a cash + actual stock plan in an established company.

What you should ask for is a percentage equivalent to other people of about your capabilities working for the company, and a promise to continue to make you at least equal to similar folks hired in the future. Remember that business promises are made in writing and signed by a responsible officer of the company.

Actual numbers right now are likely irrelevant.

[Mizoguchi]

If a substantial portion of your compensation is coming from equity should be able to ask for any information you think you need to accept the offer. I find the language in these agreements pretty difficult to understand if you don't have experience with startups and valuations, so knowing what % you are getting is meaninglessness if you don't have and understand the terms (many startups don't disclose that information until you sign the offer). Early stage startups are always risky, much more so in the current economic environment, so in my opinion when joining a startup pre Series C take as much cash as you can.

[jaynate]

The chances that you are going to get rich off a VC-funded startup as an individual contributor are very low. I’d focus on whether the opportunity is a good one to grow your career. Do they have solid leadership. Do you like the market and does the product serve a legitimate need (need to have vs. nice to have).

[thruflo]

It’s totally valid and acceptable. If equity is part of your comp, you’re investing your time in exchange for equity in the company. The first document any investor would ask for is the cap table.

Beyond the % it also helps you evaluate whether the shares are worth anything. Lots of companies have badly structured cap tables. This impacts investability, which impacts your likely return.

[ketzo]

I have never gotten a startup offer that did not make clear what percentage of equity I was getting.

If I saw "40,000 shares" with no idea what the denominator was, I would definitely ask clarifying questions.

[graderjs]

I'm not an expert, and I don't want to rain on your paradise, but it probably won't matter. Unless you're a very early employee at a start up that would become very large, you're probably not gonna get rich from the equity. You trying to pick such a start up to become part of is a harder problem than VCs trying to pick one to invest in because everybody wants money but not everybody wants an employee. So rather than working your little butt off for the next 2 to 5 years with the hope of making these guys rich so that you get some trickle down riches, get your nice payday upfront and if you want to get rich from start ups start one yourself.

The core points of working at a startup are: freedom, people you meet, the resume creds, the experience. That's what you really get.

[dehrmann]

If they're offering equity as part of your compensation, absolutely. How else are you supposed to gauge their value?

...not that you'll really know how to. And the company probably doesn't, either. Their TAM is probably way off, and most of their projections will just be guesses.

[brk]

Unless you offer is for a CFO role, yes, you would probably seem unreasonable to ask to see the cap table.

While this is definitely anecdata, my personal experiences with potential hires asking to see the cap table, or overly dig into some of the corporate stock allocations and financials in the very early stages are always indicative of employees that turn out to be regrettable hires.

For an early stage company, the future of the company, and your personal share of it, are 1000 times more impacted by everything that is yet to happen, not the cap table at this stage.

Ask about share class, percentage of your grant, salaries, cash on hand, burn, fundraising plans, etc. But understand that almost every answer you receive at this point is likely to be out of date in a few months anyway.

[ttul]

If your goal is to know the risk-adjusted value of an equity grant, you need more than just the cap table. You need the bylaws and articles of the corporation, all the shareholder agreements, and all the loan agreements the company might be a party to.

Without knowing what special rights are attached to different equity and debt holders, you have no idea how the rights ascribed to your equity will rank against them in the event of a liquidation or exit.

[akomtu]

Look up an old post here on HN that talks about cap tables. Someone (VC?) did a great breakdown of typical startup financials.

If I were you, I'd an innocent question: "how much of the work do you want me to do?" Then lean back and watch how they are trying to square what they're offering with what they expect you to do. The problem is all the employees get allocated a 10% pool of shares, yet they are expected to do all the work.

[paxys]

If all you want to know is what % of the company you are getting, why not ask them just that? The cap table has a lot more information about the internals of fundraising and ownership that the founders may not be willing to share with every employee.

Number of shares outstanding and current 409a valuation are both semi public info, and you should absolutely be getting access to them as part of your offer.

[bfung]

Similar to other comments, you can always ask.

Maybe the line items of the cap table have sensitive info, so if you ask cap table directly, they’ll say no. But asking summary level questions about the cap table relevant to you may give you the info you’re looking for.

For example, you probably don’t care if VC#1 has X shares and VC#2 has Y shares… you only care:

* how many shares there are

* what percentage have Preference (founders, VCs, investors)

* employee pool / your offer

[timr]

As long as it's legal and not weird/personal/insulting and you're polite, you should never be scared of asking a question!

In fact, you should find a question they don't want to answer "yes" to, and you should push on it. It will tell you volumes about who they are, how much they respect you, and their skill as professionals, negotiators, and more. I've lost offers in the past for being insistent about things. That's fine. I dodged a bullet and saved years of my life.

Directly responsive to your question: you want to know the shares outstanding, the liquidation preferences (if any) of prior investors, if there are any weird share structures (e.g. series FU preferred, which converts 10,000:1 to common and is held exclusively by the CEO's dog), if there's a single- or double-trigger clause for employees, the terms of the stock agreement...there are lots of things you might ask about.

[jkingsbery]

Having worked at a couple startups where my stock options didn't end up meaning much: the percentage of the company is kind of a funny thing. What I would ask them about more specifically is their plans for the employee stock pool. Stock options are (mostly) not liquid until there's been at least a couple rounds of funding, and each round of funding brings dilution to the existing shares.

Another bit of advice I wish I received before negotiating with start-ups: stock options are worth what they're worth now, not what they might be worth later. If you get 10,000 shares at a fair-market value of $0.01 that vests over 4 years, that compensation is worth $25 per year. (10,000 * 0.01 / 4). They will try to sell you on the shares sometimes being worth a lot more. I hope the shares are a lot more some day! But their expected value is their fair market value.

> what % of the company I'd be getting

A large percent of nothing is still nothing. Besides your own stock, ask questions to understand the financial maturity of the company. If it's a consumer product, how many customers have they signed up? If it's an enterprise product, have they signed any deals? If they haven't (which happens, signing enterprise deals can take 12-18 months) understand where the deals they are working on are in the pipeline. If they have 12 months of run-way but most of their deals are in the 18 month out horizon, understand that you are taking a lot of risk in joining that company. Also ask about potential customers that are not doing business with the company yet: why not? What are the blockers?

Don't be satisfied with answers like "our founders know this space, they've been here before." No start-up that has funding has an unimpressive founding team. There's no shortage of Ivy League/Stanford grads with years of experience at <whatever company impresses you these days>. Even with those pedigrees, 70% of those companies aren't going to be successful.