Compensation for CPO role in Series A startup

by takeflight77. Posted on Sep 09, 2020    2    9


I'm being recruited for a Chief Product Officer role at a startup that did their Series A about one year ago.

I'm confused by the compensation package.

  • Instead of straight equity, they are offering me stock options.
  • The options are set at2x the strike price after Series B, which the company hasn't done yet.
  • They've offered 0.5% ownership if I calculate it.

This seems low? Or are my expectations too optimistic?

I'm excited about the product and the role would be a fun challenge for me, but right now it just feels like I'd be leaving a cushy job in a post-IPO unicorn, with a lot of unvested equity still on the table, for something that... doesn't even have the promise of big money.

Please help evaluate the offer and guide where I should push to negotiate!


Comments

[deleted] 1

[removed]

julian88888888 1

Please don’t self promote your startup while giving advice

  takeflight77 1

Thanks, appreciate the answer! I will definitely negotiate from here forward, I'm just trying to gauge where I stand right now and what the right levers to push might be.

staysaasy 5

I'm not surprised that you're getting stock options at the Series A stage. However, I would expect your strike price to be the 409A valuation as of when the options are granted (regardless of timing of the next round, although the company may want/need to wait for the options pool refresh that happens at Series B. I believe that this will be to your disadvantage unless it's a down round, but I'm not sure – I would poke around at this though). What you described sounds a little weird to me.

I don't know your background but 0.5% feels low to me although not necessarily insultingly so. I have heard of C-suite / "Head of" offers coming in at that amount of equity at similar (ish) stages. It's honestly hard to say as "Series A" can mean different things especially in these heady times.

I also don't know your background – if you're an APM at a post-IPO unicorn you command a very different level of comp to a Director of Product. What I would consider:

  • If the company is killing it, eg "high growth rate, profitable, >$3M ARR, and raised a $15M Series A from good firms," that's really different than "$250K non-recurring revenue, still figuring out traction, $3.5M Series A from CEO's friend who runs Clown Capital."
  • You're coming at the C-suite level – to me that really means that you should have a shot at retiring after this gig if everything goes very well. I'd look at things through that lens.
  takeflight77 5

This is very helpful, thanks!

Some additional context:

  • Currently I'm at Product Director level, leading 100 people within the post-IPO unicorn. I have "pedigree" with Ivies education, 5+ years at a FAANG, 10+ years experience total.
  • Not unhappy in current role but, as you said, looking for something that carries the promise of retiring (at least from this industry) if all goes super-super well.
  • Their Series A was USD 10mil, they're expecting Series B in early 2021. Valuation currently at USD 50mil and expected to double after Series B, but I haven't seen any financials to prove that.

    If any of this yields new thoughts or considerations, please let me know. Much appreciated.
staysaasy 1

Cool thanks for the details. Some thoughts below.. this is all calibrated to the "hot" startup markets like SFBA, NYC, and to a lesser extent places like SLC / DEN / BOS / Tel Aviv / LON:

I'm assuming that those 100 people are part of the overall product group for which you're a director – eg it's perhaps 5-10 PMs that you manage directly, plus 5-10 Designers, 80+ engineers, some data scientists and maybe PMMs, etc.

If so then IMO 0.5% is a bit too low unless this company has tons of other alternatives due to their strength – this would most likely be due to them having serious revenue, serious growth rate, and a strong moat (eg it's a very technical product in a great market and the existing team are like, MIT professors who specialize in that arcane field).

Your background is strong. There are heads of product at companies that are about to IPO where the CPO gets 0.5% and you're taking on probably 50x the risk that they are.

Btw if you have 100 people directly reporting into you (eg you have a GM model with engineering teams that report into you directly), then 0.5% is absolutely too low IMHO, that's a rare and highly differentiated background.

>Their Series A was USD 10mil, they're expecting Series B in early 2021. Valuation currently at USD 50mil and expected to double after Series B, but I haven't seen any financials to prove that.

Just my $.02 on this one...

  • Valuations have been crazy recently with some companies raising at 30-50x forward revenue, so I wouldn't read too much into the $50M valuation (not that it sounds like you are, just providing a data point).
  • They may not get that Series B, and definitely may not get it on time even though the fundraising market has been hot (or was hot before the market crashed last week). Early 2021 is far away in startup time. This is all 100% fine but it adds risk, and more risk should = more equity for you.
  • If you're going to be their CPO they owe you a view into their financials. Honestly at this stage, I think every new hire deserves this but it's especially true as a potential member of the C-suite!
  • Many companies will offer to let you talk to their investors as well to get their take on the space – I might ask for this. They will of course be positive on the company, but given your background these investors are somewhat incentivized to not outright lie to and/or otherwise fuck with you, as you have a juicy profile for them to invest in or place at a company as an executive in the future.

    *****

    I'm just some rando on the internet but feel free to DM me if you're comfortable with it and I can provide more specific opinions.
AGCRACK 1

It’s fair to ask for revenue ballparks.
They should know and understand that your leaving an awesome cushion to place a bet and that this opportunity needs to show a clear path to 10x the growth of your current company.

Rejust 3

Based on this it seems a little low. Usually at this stage a c-level coming in would usually get somewhere around 2-3%. At least from what I have seen. One other thing I have seen is getting a smaller amount and “unlocking” more based on hitting milestones clearly defined in the offer letter. For example, 1% now and an additional 1% at the completion of launching x product line and completion of a series B fundraise.

Getting stock options is common and what would happen almost everywhere. As someone else said make sure your strike price is based on the current 409a. It is ok if they don’t grant the options until they expand the pool in the series B as long as you have the current strike price and the vesting starts now.

staysaasy 2

I believe it's also potentially to one's advantage for the shares to be allocated post Series B, depending upon the new 409a vs. the dilution of the B. If you get shares from the Series A pool you will be diluted by the Series B raise, but if you get shares from the B pool the options strike price will likely be higher if you're growing.

The idea of having triggers for more equity is a great one. The risk that the company is essentially trying to manage is that you can't scale up to $5M / $10M / $50M / $100M / $500M ARR, and they need the extra shares to hire your replacement (they're probably not quite thinking about it in these terms, they probs like you a lot, but that's the general shape of the risk – they need to "save" some equity for future hires). So if you can hit concrete milestones, you're paying down that risk and giving you that additional equity makes sense.

One aggressive move – ask for shares from the Series A (lower strike if the company is growing) and make them commit in writing to anti-diluting you with shares from the Series B.