2. Not disclosing who owns what and with what liquidation preference (this alone means you don't know what you're getting even in the unlikely event the startup succeeds)
3. Creating unrealistic expectations about the value of your "equity" package ("0.5% is a lot of money, man, we'll be a unicorn"). Quoted because if it's not equity if you can't sell it or can't get a dividend from it.
4. Requiring that you sell your _exercised_ shares back to the company at the price of board's choosing if you left voluntarily or otherwise. This is called the "clawback" clause.
5. Requiring that you forfeit your _vested_ but unexercised shares if you were terminated "for a cause", in addition to #4. A "cause" can easily be manufactured shortly before acquisition. There are precedents.
6. Abusive terms in case of acquisition
7. No acceleration in case of acquisition
8. Super short exercise window if you leave on your own volition.
With all of the above combined, you're at the complete mercy of the company in whether you get anything at all even if you work there for years.
Do I need to continue? I had all of these at one point or another and I only evaluated offers from 2 startups so far. My lawyer extensively redlined both of them. In one case the board agreed to the revised offer. In another it did not, so I did not join.
Such redlining only works if you're a very early employee and you're very senior. But regardless, I'd argue that if you're taking a pay cut, you should at least know what you're getting yourself into, and $500-700 for counsel is not too bad. If you don't like the underwater rocks your lawyer identified, demand more cash or walk away.
1. Not disclosing the valuation details
2. Not disclosing who owns what and with what liquidation preference (this alone means you don't know what you're getting even in the unlikely event the startup succeeds)
3. Creating unrealistic expectations about the value of your "equity" package ("0.5% is a lot of money, man, we'll be a unicorn"). Quoted because if it's not equity if you can't sell it or can't get a dividend from it.
4. Requiring that you sell your _exercised_ shares back to the company at the price of board's choosing if you left voluntarily or otherwise. This is called the "clawback" clause.
5. Requiring that you forfeit your _vested_ but unexercised shares if you were terminated "for a cause", in addition to #4. A "cause" can easily be manufactured shortly before acquisition. There are precedents.
6. Abusive terms in case of acquisition
7. No acceleration in case of acquisition
8. Super short exercise window if you leave on your own volition.
With all of the above combined, you're at the complete mercy of the company in whether you get anything at all even if you work there for years.
Do I need to continue? I had all of these at one point or another and I only evaluated offers from 2 startups so far. My lawyer extensively redlined both of them. In one case the board agreed to the revised offer. In another it did not, so I did not join.
Such redlining only works if you're a very early employee and you're very senior. But regardless, I'd argue that if you're taking a pay cut, you should at least know what you're getting yourself into, and $500-700 for counsel is not too bad. If you don't like the underwater rocks your lawyer identified, demand more cash or walk away.