The one (additional) question to ask in your next start-up interview
I originally wrote this article in March 2022 but it has been edited slightly in Feb 2024.
When the company I worked for got acquired, our equity suddenly became worth something. Our "options" turned into cash!
If you were an employee who'd been there long enough for most of your options to vest (over 4 years) it was potentially enough money to pay for a flat deposit, to take some time off or maybe invest in starting your own business. So not an insignificant amount of money, and you could argue a fair reward for being there through the ups and downs.
Essentially, the event of being acquired created liquidity for the employees (and other shareholders of course).
But the truth is that liquidity events like that are still rare in Europe, so myself and others who worked there got quite lucky!
Lots of people join start-up's all the time and put a lot of hard work in. For many years. They may like the idea of owning a piece of the company but, as we all know, it doesn't mean that the equity ever materialises into actual money. In most cases it never does.
And so when it's time to negotiate your package next time, a very European approach is to try to maximise your base salary, and consider a bit of equity a nice cherry on top.
And this is fair enough. When we choose where to work we unfortunately can't predict the future. It's more or less impossible to say which horse to bet on that, with 100% certainty, will get acquired at a nice valuation one day. And even less so, can we with any certainty pick a company that will IPO in the future. No matter how soon that rumoured IPO is about to take place.
“Only 13% of employees believe that the start up they work for will ever IPO! ”
And even if you were incredibly skilled in picking the winners, it would be even harder to make that liquidity event time perfectly with the exact time in your life when you'd be in need of some extra cash to realise some of your life goals. Taking into account that the average time for a company to IPO in Europe now is 11+ years, and staying private for longer (or even forever), is on the cards for a lot of companies, it gets quite tricky to put a time stamp on that future exit event.
So equity is a gamble whereas your base salary will pay the bills Makes sense. But what if that's all changing? I hope it is!
Through my work at Capdesk, I had the pleasure of seeing first hand how a European unicorn ran an exercise and secondary window for their employees. There's was no acquisition or IPO happening, they were "simply" rewarding employees who've worked hard to increase the value of the company by letting them sell some of their equity (if they want) to a buyer.
And employees sold shares in the millions of ££, so again, it was not insignificant amounts landing in their pockets.
You wouldn’t have heard about it because there were no big news releases or celebratory posts on LinkedIn like the ones we've grown used to seeing during primary rounds. A secondary often happens quietly (although I'd argue we should definitely be celebrating them more).
But anyway, here's a piece of advice and where I actually wanted to get to with this post.
Next time you're interviewing with a company that offers you equity (options, warrants etc), why not ask your hiring manager if they are planning to create liquidity for employees, how they're planning to do it and when.
“Thanks for the offer! When and how are you planning to let me cash out on the equity you’re offering me?”
Perhaps you'll be interviewing with someone who has no clear answer. And that's fine too, at least then you're aware that you'll likely be waiting for quite some time, or can make your own assumptions about if and when an exit might happen and how you want to value the equity you're being offered.
But if you're lucky, maybe you're interviewing with the unicorn I described above, who will actually let you cash out at some point, or one of the other companies who are putting plans in place for creating recurring employee liquidity.
At least from my perspective it suddenly makes the equity offered a lot more interesting when you know what time horizon you are working towards. And it makes it more motivating to help the company increase its value through your own day to day work. Potentially that equity could then be just as, or even more, valuable than your base salary.
How and when will I be able to liquidate my equity.
Just one to remember among all the other questions you might want to ask at offer stage or when you are negotiating a package.
Oh and a bonus thing! Make sure to get a £ value on the equity today, based on the company’s last valuations.
Let me know how it goes!