Author Topic: Working for the start-up, what is your experience? what would you recommend?  (Read 6715 times)

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Offline mcdesca

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Dear everybody,

It just happened to me, that a small start-up company has offered me a contract.

The conditions are rather good (insurance, flexible schedule, company assets...), salary is good (compared to friends of mine of the same education level/experience/age) and the topic is robotics. The electronics/mechanics are self-designed and produced from scratch, and first prototypes are already running.

It's kind of a dream company I would like to work for, but there are some points that still bring me some concerns:
- They still are a start-up, with yet no product being sold, even if the product is already marketed and interest has been shown, they still depend on money from investors.
- There is no business unit, no marketing department... just engineers. The CEO an CTO are both part time engineers/part time managers, the rest of us are very young and unexperienced. I don't think I will hear much the voice of experience.

I've already work at the multinational, and I don't like the dettachment from the ground science/engineering. I'll give it a go to the small company but I would like to hear some council on what I should be aware of, how could I assess when to carry on and when the company is dead...Basically your experience on the small start-ups.

Thank you very much for your time.

Best,

Xavi
 

Offline miguelvp

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It's hard to give advice on start-ups.
They should have enough backing from the investors at least until a couple of products are finished on time.

Do they offer any stock options? No stock options is ok as well but since you are taking a gamble they should offer something like that.

It only takes a couple of failed products or maybe just one to bring the whole thing down,  so can bad management of assets or trying to grow too fast, so if they do miss payroll start polishing your resume.

I've been on several startups but I didn't have any dependents back then, meaning I was single at the time. Not sure where you are at, but in the US they have to contribute so that if they fail you are at least entitled to unemployment. Some didn't pay their due taxes so no unemployment was available.

At the end, it's up to you. You know what the product(s) is(are) and you shouldn't tell us too many details to know if that is going to be successful because leaking such information might kill them before they get a chance. So you have to trust your gut if there is a chance the product(s) will sell and if you think the company is managed right.

Having stock will allow you to at least be represented in the board of directors so you can find out how things are going with the investors. I you have a chance to attend, just listen and take notes that you can ask the CEO/CTO at a later day, because sometimes speaking in front of the investors for concerns that might be unfounded might hurt the company.

So if you want to take the risk and they do have a decent stock offering and you think the product(s) will succeed and you see the company being run well and not trying to grow too fast I would go for it , that is if missing payroll or having to collect unemployment while looking for another job is not going to get you in financial trouble.

Save every penny you can, don't waste your money on non essentials because if they do fail, you want that cushion for later.

Chances for startups are not great, some make it some don't, even the ones that originally make it, can go down in flames later on. If you are vested of your options and they are public or you can sell them (usually that requires them to go IPO) then use your gut if you want to stick with the options or actually sell them. (how to do that is a totally different subject)

So other than that I couldn't tell you to go for it or not, but I hope some of what I said helps.
 

Online AndyC_772

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I'd definitely say go for it. All the best times in my career have been when I've been working for a start-up.

Yes, there's a risk in terms of employment security, but that's true anywhere. At a start-up, you're unlikely to be shown the door unless the company actually folds. Somewhere bigger, you could find yourself out of a job at a moment's notice just because it's politically convenient to close an office.

Stock options are worth asking about and can be very valuable - though generally they're aimed at the key staff who bring particularly valuable skills to the company. If you're relatively junior, they may simply not be on offer.

Do expect an informal, highly productive atmosphere in which the opinions of engineers are taken seriously. For me, that's the best part by far. On the other hand, there are technical skills which you may have which don't really get utilised in a small company, low volume production environment, and you may find the whole seat-of-the-pants thing frustrating.

Try and gauge how well funded they really are. Take a look around the lab. Do they have a decent selection of kit, or are they scraping by with tools that other engineers have brought in from home? Bear in mind that lots of money for equipment can also mean lots of money for lawyers, middle managers and bureaucrats, so it's not necessarily a good thing if VC's have put in a lot of their own cash. They'll want it all back, as soon as they can have it, and with as much margin as they can extract.

Above all, though, have fun! You may get to develop something fantastic, and the rewards can be really worthwhile. Just make sure you don't stay too long if the company starts to grow and you don't feel your career is growing with it.

Online tggzzz

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Presume it all goes right: what will you get for your efforts?
Presume it all goes wrong: what have you lost?
Presume it struggles along: is that tolerable?
Act like a VC: what's your "exit strategy"?
Be wary of shares that can't be sold for a fixed period after they have vested: they can bankrupt you!
There are lies, damned lies, statistics - and ADC/DAC specs.
Glider pilot's aphorism: "there is no substitute for span". Retort: "There is a substitute: skill+imagination. But you can buy span".
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Offline miguelvp

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 Yeah, don't exercise your options right when they are vested since you have to pay taxes on the capital gain. Also note that options do expire, so if you can't sell them as tggzzz mentions it might not be on your best interest to exercise them and if an IPO is not imminent or a buy back from the company you probably have to renegotiate the expiration with your company.

Also they might be automatically exercised for you at vesting, which you might not want to take the gain at that time unless you can sell them. So keep an eye on dates, etc.

Stock options are a complicated thing.

Say you get a the real bottom at a strike price of 10 cents a share and you get 100,000 of them, and they are valued at $10 when they are vested. So if you exercise them is going to cost you $10K to get a gain of one million, but you gotta pay capital gain taxes on top of fees etc, so unless you can't sell enough of them to cover you, it can get you in hot water quick.

You should not do it yourself, hire an investment or financial services firm. They will explain to you what you need to do and what is in your best interest on how to proceed.
« Last Edit: July 03, 2015, 12:14:31 pm by miguelvp »
 

Offline nfmax

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mcdesca - I've worked for two start-ups, both in the UK. The first was always a bit hand-to-mouth despite being technically successful, and well equipped. Run by engineers, and on the whole a good place to work. However, they bit off more than they could chew, and ended up nearly failing (twice). During that period, it got to be a bad atmosphere, not really because of the money troubles but because of the attitude of one staff member who took it on themselves to imply that everybody else (personally, each in turn) was responsible for the mess. They ended up being taken over by a series of companies who were then taken over by another, etc. They are now part of GE, and still going strong. They offered me stock options which I allowed to lapse (since I could see which way the wind was blowing).

The second was to first sight much shakier, but again engineer run & a fun place to work. However, the management team included a very capable 'money man' who kept the bank & VCs happy; and the MD was a natural born entrepreneur, on his second or third startup. (He is the only man I ever met who made money racing yachts.) They gave me a free hand to set up the electronics lab the way I wanted - tools, test gear, benches & all. They were if anything, technically less successful than the first, but arranged a brilliant (and well-planned) buy-out. I was awarded stock options, and also invested some of my own cash in additional shares during one of the financing rounds. The buyout paid off my mortgage & more to spare.

Was it a risk? Yes, in both cases. But my salary was paid on time (for one month, from a director's personal bank account) and both ended, on balance, well. The incentive to learn new stuff, rapidly and in depth, that you get in a start-up just doesn't occur in a big corporation, no matter how well structured their training & competency procedures are. Do not underestimate this: if the worst comes to the worst, you take the newly acquired knowledge with you. You are also going to see more of the customer than you would in a big company, and you will be pushed outside your comfort zone.

Ask yourself what you would do if the startup folded. Would you be able to find similar work in the same area? Are you having to move, or work overseas? What about your personal commitments, dependents?

Finally, I would recommend finding out all you can about the 'money man'. Cash flow is king (or emperor, or even $DEITY in a startup) and without top notch money management the risks massively increase.

Footnotes: I'm UK based so NHS covered my back healthcare wise; taxation of share options is different everywhere
 

Online tggzzz

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How shares can bankrupt you:
  • they vest with value of 1,000,000, and you have to pay tax (say 10%) on that value
  • you can't sell them for 6 months, by which time the economy has tanked (think y2k) and the shares are now worth 1,000
  • you still have to pay the 100,000 tax, you haven't got it, and selling the shares doesn't help much!
There are lies, damned lies, statistics - and ADC/DAC specs.
Glider pilot's aphorism: "there is no substitute for span". Retort: "There is a substitute: skill+imagination. But you can buy span".
Having fun doing more, with less
 

Offline JuKu

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How shares can bankrupt you:
  • they vest with value of 1,000,000, and you have to pay tax (say 10%) on that value
  • you can't sell them for 6 months, by which time the economy has tanked (think y2k) and the shares are now worth 1,000
  • you still have to pay the 100,000 tax, you haven't got it, and selling the shares doesn't help much!
You can always make a future sale. Immediately sell 20% of those at half price; this shouldn't be difficult, if the intial 1M investment makes any sense. Your taxes will get paid, and you either get 800k or 1k, but you don't get in trouble. If your company/vc/monetary adviser didn't tell you this, they don't know their trade.
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Online tggzzz

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How shares can bankrupt you:
  • they vest with value of 1,000,000, and you have to pay tax (say 10%) on that value
  • you can't sell them for 6 months, by which time the economy has tanked (think y2k) and the shares are now worth 1,000
  • you still have to pay the 100,000 tax, you haven't got it, and selling the shares doesn't help much!
You can always make a future sale. Immediately sell 20% of those at half price; this shouldn't be difficult, if the intial 1M investment makes any sense. Your taxes will get paid, and you either get 800k or 1k, but you don't get in trouble. If your company/vc/monetary adviser didn't tell you this, they don't know their trade.

You have  a very simplistic idea of taxation, unfortunately. In addition, it is country dependent, and the Ts&Cs associated with the shares might or might not allow it.

You might like to explain how ~4000 people in the UK were given a capital gains tax liability (quite a few >>£10000) without having made a capital gain. Basic situation: they had HP shares worth X, which were split into HP shares worth Y and Agilent shares worth Z, where X=Y+Z. They were liable to capital gains tax of 40% on Z.

Half the HMRC tax inspectors people talked to thought that was impossible; it was only too possible.
There are lies, damned lies, statistics - and ADC/DAC specs.
Glider pilot's aphorism: "there is no substitute for span". Retort: "There is a substitute: skill+imagination. But you can buy span".
Having fun doing more, with less
 

Offline dunkemhigh

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how ~4000 people in the UK were given a capital gains tax liability

Wouldn't they be able to offset the tax (either the same year or whenever they sell up) on the capital loss they make?
 

Online tggzzz

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how ~4000 people in the UK were given a capital gains tax liability
Wouldn't they be able to offset the tax (either the same year or whenever they sell up) on the capital loss they make?

What capital loss?
There are lies, damned lies, statistics - and ADC/DAC specs.
Glider pilot's aphorism: "there is no substitute for span". Retort: "There is a substitute: skill+imagination. But you can buy span".
Having fun doing more, with less
 

Offline dunkemhigh

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The difference between what you get them for (the assumed value when taxed) and what you sell them for.
 

Online tggzzz

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The difference between what you get them for (the assumed value when taxed) and what you sell them for.

What loss of value?
There are lies, damned lies, statistics - and ADC/DAC specs.
Glider pilot's aphorism: "there is no substitute for span". Retort: "There is a substitute: skill+imagination. But you can buy span".
Having fun doing more, with less
 

Offline edavid

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how ~4000 people in the UK were given a capital gains tax liability

Wouldn't they be able to offset the tax (either the same year or whenever they sell up) on the capital loss they make?

No idea about the UK, but in US tax law, there are situations where there is never a compensating capital loss, or you receive a credit that can never really be used, or you have a huge amount due in the current tax year and no way to pay it.  Many startup employees were caught by this in the 2000 tech crash - they had million dollar tax bills (usually from Alternative Minimum Tax due on exercise of options), and worthless stock.  It's not as much of a problem now, since people are more aware of the danger, and take steps to avoid it.

« Last Edit: July 09, 2015, 04:38:07 pm by edavid »
 

Offline edavid

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What about your personal commitments, dependents?

Also your personal property :)  Don't leave anything in the office that you can't afford to lose, if you go to work one morning and find the doors locked.
 

Offline dunkemhigh

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Is this a game or something?

You get shares and they are assumed to have a certain value. They must do, because you then owe tax on them, see? Isn't that what this thread is all about?

So, they are worth X and you owe X*20% as tax (or whatever the rate is). Some time later you manage to sell them for Y, where Y is very <X. So the difference between assumed value and actual value is X-Y. But you've already paid take on the X value, right? That IS what this thread is about, isn't it? I mean, the suggestion is that Y < (X*20%), hence why you are stiffed even if you can sell the shares.

Is that not a fair precise of what this thread is about? If not, maybe you could point the bit that I have missed or got wrong.

 

Offline dunkemhigh

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or you receive a credit that can never really be used

Ah, I am in that position. I don't earn enough to qualify for tax, but I am also owed some overpaid tax that will come out of the tax I pay on earnings. Admittedly, it isn't remotely close to owing $1m that I don't have...
 

Offline edavid

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Is this a game or something?
It often seems that way... a sadistic game, if you are not a CPA.

Quote
You get shares and they are assumed to have a certain value.
No, it is not nearly that simple, at least not in the US.  If you are really interested, read: https://www.grantthornton.com/~/media/content-page-files/tax/pdfs/white-papers-survey-reports-articles/2013/Taxation-of-stock-options-Adkins.ashx
 

Online tggzzz

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Is this a game or something?

Many people wished it was a game. Others enjoy the game so much they make their living out of it :(

Quote
..., maybe you could point the bit that I have missed or got wrong.

Yes, you are missing something: how tax laws work in practice, particularly in corner cases.

Note that in the case of HP the shares about half the HMRC tax inspectors (i.e. one step up from tax collectors) didn't believe it was possible. It was; we all have it in writing from HMRC.

Which country are you in?
There are lies, damned lies, statistics - and ADC/DAC specs.
Glider pilot's aphorism: "there is no substitute for span". Retort: "There is a substitute: skill+imagination. But you can buy span".
Having fun doing more, with less
 

Offline linux-works

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I've worked for startups as well as medium and large companies.  started working fulltime in the early 80's and have been in the software field ever since.

when someone approaches me about startups, I'm often interested but I refuse to buy into the 'stock plan' stuff.  its a rich man's game and only 1 person in my life, that I've known, has ever done with with employee options (it was at juniper networks when they were on top of the world and you saw lots of expensive cars suddenly making their presence known in the parking lot/carpark).  one guy did well on stocks, that I personally knew.  everyone else just got their salary and the stock thing never made anyone (that I knew) rich.  its all a game for vc's and execs.  regular guys don't make anything real from stocks; so believe what you want, but its mostly a scam to convince you to join.

what does convince me to join is a living wage, an honest manager/company, a non-sweat shop environment, realistic schedules, some kind of work/life balance and an environment where you feel respected and valued.  that's what I want from a startup or any job, really.  you can keep your stock options; just give me a living wage that I can write rent or housing checks on and I'm mostly happy.

show of hands: how many here truly made out well on stock options at a startup?  was the amount you made close to a car purchase or home purchase value or was it just 'pay off a bunch of bills' level of money?

 

Offline grumpydoc

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Basic situation: they had HP shares worth X, which were split into HP shares worth Y and Agilent shares worth Z, where X=Y+Z. They were liable to capital gains tax of 40% on Z.
Yes, because the tax on the gain is due when the asset is disposed of and HMRC would deem the original shares to have been disposed of when swapped for the new shares.

Actually the tax is not 40% of Z - if you are a higher rate tax payer it is 28% of Z1-Z0-£11,000 where Z0 is what you paid for them (OK, zero if you were given them) and Z1 is what they are worth now, the £11,000 is the capital gains allowance.

If you are not a higher rate tax payer it is 18% of the gain, for the first £31,785 (then 28%).

The bottom line is that it's considerably less than income tax on the same cash amount.

I have no idea what HMRC do if you have restrictions on selling the shares so can't just flog a few to pay the tax due but I'd hope they would be sensible. However this is the British Government we're talking about so,.......

 

Online tggzzz

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Basically, grumpydoc, you are right - except for some wrinkles.

There should, and normally would, have been zero tax liabililty in such a share split. The problem was HP did the split in such a way that some time elapsed between key events - and that time caused the taxable event. The split was tax neutral in the US, but not here.

Now they are splitting again, and I have to think about when to take my pension.
There are lies, damned lies, statistics - and ADC/DAC specs.
Glider pilot's aphorism: "there is no substitute for span". Retort: "There is a substitute: skill+imagination. But you can buy span".
Having fun doing more, with less
 

Offline nfmax

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show of hands: how many here truly made out well on stock options at a startup?  was the amount you made close to a car purchase or home purchase value or was it just 'pay off a bunch of bills' level of money?

(Raises hand) like I said, I made enough to pay off my mortgage. Around £100,000 at the turn of the millennium. Carefully structured to minimise tax liability.
 

Offline grumpydoc

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There should, and normally would, have been zero tax liabililty in such a share split. The problem was HP did the split in such a way that some time elapsed between key events - and that time caused the taxable event. The split was tax neutral in the US, but not here.
Ah, I was going to speculate that there ought to have been a way for HP to avoid large tax liabilities for its employees. If big companies do this sort of thing you'd expect them to square it with the Revenue. Sounds like they screwed up.

Back to start-ups. About 14 years ago I got hired by a start-up, one of their guys had an idea to do with distributed databases. It was a good one  to be fair but  Microsoft already had it in SQL Server before we'd got running. So did the company....

a) use their obvious understanding of the problem domain and leverage the M$ solution to get paying clients

b) try to limp on with an overcomplicated and technically inferior product (though with a pretty GUI) while submitting to internecine squabbles between sales, management and development staff.

OR

c) have another good idea and go with that.

Yep, you guessed it - b) was the inevitable option  |O
« Last Edit: July 09, 2015, 07:25:56 pm by grumpydoc »
 

Offline Galenbo

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How shares can bankrupt you:
  • they vest with value of 1,000,000, and you have to pay tax (say 10%) on that value
  • you can't sell them for 6 months, by which time the economy has tanked (think y2k) and the shares are now worth 1,000
  • you still have to pay the 100,000 tax, you haven't got it, and selling the shares doesn't help much!

I saw exactly the same happening in my country. Some adittional data in his specific case:

-it was forbidden to sell the shares the first 6 months
-goverment "wrote down" the value at the beginning of those 6 months, of course, no change could be made afterwards in that bureaucracy.
-those 6 months were in 2008, shares were Fortis (crashing bank)

Happy for the guy he didn't only inherit shares. There was some money too, some less-crashing shares and some houses.
But that part cost him a fortune.
If you try and take a cat apart to see how it works, the first thing you have on your hands is a nonworking cat.
 


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