Evaluating a job offer in Silicon Valley
May 23, 2015 7:42 PM   Subscribe

What questions should I ask to evalualate a job offer with salary and stock options in Silicon Valley?

Recently a startup company in Silicon Valley approached me about a position and I interviewed with them. I have an engineering skill and experience set that is fairly hard to find but not unique. Currently I have a tenure track academic position (not tenured yet) and do a small amount of consulting on the side. They are interested in making me an offer but have cautioned me that the salary won't make up for the housing cost of living difference. I put down a very high anticipated salary in the job application based off of cost of living differences. Previously I worked in industry and took a fairly substantial paycut to make the jump into academia.

Currently I make approximately $95K for a 9 month appointment and depending on research funding have additional months of summer salary plus usually a little from consulting. When I was working in industry I made close to $115K + bonus when I made the jump to academia. Plugging in numbers to various cost of living calculators I end up with a range $170K to $230K for a cost of living adjusted salary in Silicon Valley. I really doubt they are going to offer me that much and instead much of the compensation will come through stock options (In fact hey have basically told me this). The position seems interesting though I have some concerns about it. I think the startup has a reasonable chance of succeeding though be no means guaranteed. They are very well funded so far and fairly early stage.

I am also a little loath to give up the academic position as I think that door will close and I wouldn't be able to jump back though constantly having to write funding proposals gets old. The startup position would obviously be significantly more risky than my academic posiiton. Ideally in my mind I think I would do some extensive consulting for a mix of cash and equity.

I haven't had to evaluate offers before with stock options as most of my previous positions have been at established large corporations.

What is the salary translation from the Midwest to Silicon Valley in your experience?

What questions should I ask in regards to stock options?

How would you evaluate them as a form of compensation?

Has anyone seen consulting arrangements where the consultant is paid in a mix of cash and equity?

Anything else I should be thinking about?
posted by cycleback to Work & Money (21 answers total) 9 users marked this as a favorite
How would you evaluate [options] as a form of compensation?

I wouldn't. They're a lottery ticket at best. A nice little bit of gravy, but don't take less salary than you deserve or want because they're offering you "options." That is a trick they play on new grads and the desperate.
posted by drjimmy11 at 7:53 PM on May 23, 2015 [12 favorites]

What is the salary translation from the Midwest to Silicon Valley in your experience?

It's enormously different. Use an online comparison calculator to see a what-would-I-need-to-make-to-stay-the-same calculation, then mentally add more to it. It'll hit you in ways you won't think of. Got a car? Great. Your insurance premium and your commute just doubled.

Stock options are like free soda. It's par for the course and worth zero.
posted by Cool Papa Bell at 8:06 PM on May 23, 2015 [3 favorites]

They are interested in making me an offer but have cautioned me that the salary won't make up for the housing cost of living difference

You say no, politely, without even thinking about options, which are the equivalent of vaporware as far as you're concerned. The housing market here (San Francisco, the Peninsula - and I'm not even talking East Bay because if you're working on the Peninsula the commute will be a pain in the ass) is incredibly competitive and very expensive. If they are so startup that they can't actually meet this need except for people fresh out of college and willing and able to live [manypeople] to a house, and you're on TT, then I think you should say no. Unless you are independently wealthy and would do it for kicks and because you're interested.
posted by rtha at 8:11 PM on May 23, 2015 [2 favorites]

Response by poster: The cost of living calculators have a pretty wide range and I am not sure how often they are updated. I suspect if I had stayed in industry in the Midwest I would make somewhere around 120K + bonus. Which from the online salary calculators gives a range from $170K to $230K. I suspect the offer will be around $100K salary or slightly over.
posted by cycleback at 8:11 PM on May 23, 2015

If they won't give you your $170K to $230K number, run away.

These are the housing costs you're looking at. (Rentals--note that anything that seems sort of reasonable will turn out to be a room, or half of a room.)
posted by wintersweet at 8:12 PM on May 23, 2015 [1 favorite]

Response by poster: I suspect that many of the younger employees are renting. I am currently renting in the Midwest for about $1800 for a really nice 1 bedroom. I suspect in the Bay Area it will be at least 2x or 3x for a similar place.
posted by cycleback at 8:15 PM on May 23, 2015

I am a west coast tech veteran. Never work for stock unless the company is masively established. NEVER work for options. Options should be considered a bonus structure. Don't consider them as part of your base salary any more than you'd consider a lottery ticket part of your base salary.
posted by erst at 8:37 PM on May 23, 2015 [5 favorites]

The calculators are probably behind the times anyway, housing has been going up crazily in sf.
A quick search shows a one bedroom apt going for $4k-$6k a month. Which is a lot of money.

If they aren't paying appropriate amounts they're underfunded and going broke anyway.
Demand a real salary, your resume seems worth it.
posted by TheAdamist at 9:28 PM on May 23, 2015 [1 favorite]

Yeah, I meant to add that those numbers should be considered to be behind the curve. :/
posted by wintersweet at 9:48 PM on May 23, 2015

In my West Coast experience, even Silicon Valley salaries are not adjusted to be equivalencies of midwestern * COL modifier and unless you do something very special there is no way you'll get 170 for a 120 job. If anything, you're expected to just be fuckin' chuffed you got a job in SV because of how special that makes you, and take your pay increase in chuffedness and free cereal.

But whatever they offer you, those stock options have the same value and approximately the same odds of hitting as a lotto scratcher. You should just imagine they are lotto scratchers and account accordingly.
posted by Lyn Never at 10:32 PM on May 23, 2015

I agree with everyone else that you should turn down the job. But IME renting a 1BR on the Peninsula is not quiiiite as bad as it's being made out to be. Last year I rented a 1BR near downtown Mountain View for $1750, and I just moved to a 1BR in downtown Palo Alto (even closer to the main drag than my previous place) for $2500. I wouldn't call either place "really nice," more like "average"--but I place a high priority on downtown proximity. I looked at a very nice apartment in midtown Palo Alto (between PA and MV, more suburban vibe), which was recently renovated with in-unit laundry, going for about the same 2.5k price range.
posted by serelliya at 11:13 PM on May 23, 2015 [1 favorite]

Speaking as someone who grew up in Silicon Valley, there will always be startups. Don't jump ship unless you feel a frenzied need to do so or if the compensation + potential lifestyle is absolutely significantly better than your current position, because from my experience and hearing testimonies, a lot of the rationale for entering startups seems to be centered around 'the calling to go to the Valley' or something like that. There are no real guarantees.
posted by yueliang at 11:30 PM on May 23, 2015

I've been working in SF (mostly for startups) for >20 years, and have been involved in the sale of three of them. I own a house here because of stock options. I know a handful of people who are worth millions because of them. I know hundreds of people whose options were worthless.

How would you evaluate them as a form of compensation?

They're a bonus -- if your company does well, that wealth gets spread around. 90% of the time, they will be worthless. When evaluating compensation packages, give them a value of zero. Startups in 2015 tend to be very stingy with options, especially compared to the golden days of old.

If given the opportunity to take more salary in exchange for fewer options, always take the salary.

the online salary calculators gives a range from $170K to $230K. I suspect the offer will be around $100K salary or slightly over.

The position you're applying for and size/funding status of the company is very very important in evaluating this. I know directors of marketing at small shops who make less than a mid-level developer at larger ones. Right now, I'm working in a small lifestyle business, and I'm making about half of what I was at my last gig (with a big public company that you've heard of) -- but the work/life balance makes up for that many times over.

You're not going to see $200+ from a startup today (unless it's one that's already extremely well funded (see: Uber, Pinterest), in which case it's not really a startup anymore). $150-$170 is possible, if they've got some money, your skills are unique, you're really good/senior, and they really like you. If you are on the development/engineering/tech side of the fence, $100k is a low offer... it's "we're getting someone who doesn't understand how expensive things are here" low.

To be very blunt: If you've got a six-figure job in the Midwest, you are not going feel similarly well-off in the Bay Area by working for a startup. Now, there are a lot of reasons why you still might want to move here, but chances are, you're going to feel poorer.

What questions should I ask in regards to stock options?

Well, if you're still considering it:
  • What is the vesting schedule (i.e. how long do I have to work before I actually earn these options -- 3-4 years is typical, with the first vesting event happening after one year and additional ones happening either yearly or monthly. Shorter is better, monthly is better than yearly.)
  • Is there an accelerated vesting period on major corporate action (if the company gets bought, does my option package vest immediately, or do I still have to work additional years for a new company that I didn't sign up for. "Yes" is the answer you're looking for, but unless you're a very early or very important employee, it's not what you'll get -- though sometimes if you ask...)
  • What percentage of the company do these options represent, and how many shares in the company exist? (I can offer you 100,000 options in a company with 10,000,000 shares or 50 options in a company with 5000 shares -- both represent 1%, but most people think the first is more valuable -- it isn't)
  • Is there an early exercise possibility? (This allows you to take a long-term capital gain under some circumstances where you couldn't without it. There are positive tax implications to this, if you are absolutely certain that the company stock is valuable... for instance, after your company has been sold/goes public)
  • What is the strike price, and how was it determined (what do I have to pay to exercise the option and own the underlying stock. Lower is better)

posted by toxic at 11:33 PM on May 23, 2015 [12 favorites]

Don't do it unless you absolutely LOVE all layers of management and are sure that they will make the company mega-successful. Like 1000% sure. It's not the idea that makes it worth quitting your promising career and taking a pay cut to move to SV, it's the people. If they are awesome to the point where you can imagine working your face off for/with them, consider it. If not, wait for the next bus.
posted by Potomac Avenue at 4:14 AM on May 24, 2015

toxic gets it right. $100K is really low if you're on the engineering side; there's so much VC money floating around right now that salaries are going crazy.

The only other question I can think of, if you do decide to pursue this any further, is if there's a liquidation preference on the stock. That could mean that in the case where the company gets acquired, the VCs take more of the proceeds than their percentage ownership stake would normally entitle them to (meaning that you and other employees would get less).
posted by asterix at 5:36 AM on May 24, 2015 [4 favorites]

I wrote a blog post recently about basic options questions. The key thing you want to know is what percentage of the company your option grant represents; a lot of employees are cagey about telling you that and it's bullshit. If you take the job, you should also consider whether early exercise is possible and makes sense for you.

As everyone's said, options are a high risk form of competition. They are also potentially a very lucrative form of compensation; if the risk pays off it can pay off very well. I wouldn't evaluate it at "zero" myself. OTOH you have to pay the bills and the options are no good for that for years. A $200k salary is pretty high for a startup engineer but not impossible, particularly given your academic position and unique skills.

You mentioned having a tenure track position, if that's at a good university and think you will get tenure that's a pretty great position to be in. It's also a completely different career path. One possibility for yourself is to keep being a professor as a real job, but take a year off (after tenure) to work in industry. That's pretty common. Or work part time, or consult.
posted by Nelson at 7:49 AM on May 24, 2015 [2 favorites]

Alternately, you can offer to do some consulting for them working from home on a project basis, just for cash, as a sideline from your Uni career.
posted by ovvl at 10:34 AM on May 24, 2015 [2 favorites]

Any up and running Silicon Valley startup with the potential to put your options in the money is SWIMMING in VC cash. Dream and a prayer operations happen in dorm rooms and uncool cities off the VCs' radar. If they truly can't afford a good salary, taking equity in lieu of it is going from the frying pan into the fire.

A good rule of thumb is that cost of living (rent, car insurance, etc.) is going to be about $40k a year over a low cost locale and your California marginal tax rate (federal, state and local) on your top income is about 50%. So your minimum break even salary is $180,000.

Only take a penny less than that in the (very) unlikely event that they are giving you an old-school-strong equity package, worth at least $5 million cash in your hands (after tax and costs of exercise) using a REASONABLE exit scenario with a REASONABLE intervening dilution assumption. There are very standard spreadsheets you can use to calculate this.
posted by MattD at 10:42 AM on May 24, 2015

(The above assumes that you have no kids. If you have kids in school, you need to add even more for the cost of private school or housing in a good school district, of which there are fewer than you would expect in Silicon Valley.)
posted by MattD at 10:43 AM on May 24, 2015

Response by poster: If I counter to them structuring it as a consulting position for cash + equity are there tax implication concerns?
posted by cycleback at 11:26 AM on May 24, 2015

Cycleback if you are a 1099 contractor you cannot be granted "incentive stock options" which permit you to pay significantly lower taxes on your gains in most cases.

But if you are a consulting employee I believe you can get ISOs regardless of hours worked. Problem is that being an employee of that nature may violate your contract with your university.
posted by MattD at 12:12 PM on May 24, 2015

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