Taking a job in a startup can be life changing, but it’s sensible to have a think about the main issues to look out for before you dive in head first.
Here are some of the issues to consider when looking at a job in a startup:
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Salary v equity/ESOP
Will you be receiving any shares (equity) in the startup package being offered?
The majority of startups don’t pay big salaries. As a means of attracting the right people, startups often offer some equity in the business as an incentive to work for less than you might earn elsewhere.
By no means is this is a sure bet. Many startups fail and the amount and value of your equity can become diluted in any number of ways.
There are several things to consider when contemplating an offer with equity. Is it vested in the future, or will I receive it now? How much more could I earn elsewhere? Can I see myself working here in the long term? How valuable could my equity potentially become? Try and answer these questions early on, because once you’ve accepted an offer, putting forward a case for more equity can be tricky.
Ideally, as the business grows and becomes more valuable, so too will your equity.
You’ll need to make an assessment of the financial risk involved in accepting a role in the business. Ask the question: Am I going to get paid less in this role because it is a startup? If the answer is yes, you will want to have a dual interest in the business, both as employee and as investor, and you need to make sure that any offer of equity reflects this interest.
Your employment contract should be reviewed before you sign anything. Check the non-compete and non-solicitation clauses that attempt to place restrictions on your ability to work in a competing business or industry. These clauses usually have conditions based on time and location and apply both during and after your employment with the startup. To the furthest extent you can possibly negotiate, try to have these clauses deleted from the employment agreement. You might not always be successful but there’s no harm in trying!
Have an employment lawyer review the contract to make sure there are no unfair or unreasonable terms hidden in the fine print.
An environment where you’ll learn
Startups often operate in a fast-paced environment. They usually run on tight deadlines, demand long hours and can become frustrating if the company is not meeting its growth targets. There’s a great deal of grunt work and late night slogs. You should be sure that that is the kind of environment you can see yourself working in. The job should present long-term opportunity for career growth and prospects. You should be constantly learning valuable new skills that are both challenging and rewarding and that ultimately make you more valuable as an employee and potential future founder.
Does the team have a good track record?
What kind of track record do the current founders and employees have in building up startups? The quality of the workers and the experience they have in building up new businesses is an important consideration when looking at an employment opportunity in a startup.
It’s important that you look at each key team member and assess their unique skill set and what it is they bring to the company. You’re then better placed to make a judgment call on the likelihood of the business succeeding down the track.
To some people, the substance of a job is what’s important. To others, it is the job title that matters. Either way, if you are joining a startup in its early stages, it is worth locking in a nice job title!
Consult a professional
Last, but not least, seek out professional advice from a lawyer or an accountant, particularly if you’re considering your first startup position. Consulting a professional from outside the business is particularly useful when you are not too familiar with the co-founders. Making sure you get the Shareholders Agreement (where necessary) and Employment Contract reviewed is critical.