The Pavilion Podcast
The Pavilion Podcast

Episode · 1 year ago

RC Extra: Equity Straight Talk

ABOUT THIS EPISODE

RC Extra: Equity Straight Talk

But Hey everybody, it's Sam Jacobs. Welcome to the revenue collective podcast. Today we're bringing you a special episode. A couple weeks ago, myself, Scott Lease, who runs Thursday night sales, is an incredible guy, Richard Harris of the Harris consultant group another incredible person, and Colin Cadmus, who's a revenue collective member, used to be head of sales at air call and it's now a consultant. The four of US had a conversation about I think we called it equity straight talk or stock option straight talk, but the point is unauthentic and open and honest conversation about how individual employees and people that are not the CEO and not the board and not investors how you should think about your equity. And there's a lot of different perspectives. I think I sort of served as like the dictionary person, you know, the person that was defining the terms, but then Scott, Richard and and Colin all had really interesting perspectives to share, particularly Scott who's been through so many different startups. So we wanted to take that recording and turn it into a podcast episode for you to listen to, and that's what this is so we hope you enjoyed. I think it's it's a longer one as I'm recording this. I'm recording this intro weeks afterwards, but I think it's a longer one. But what we think it's a great conversation. So save this one for a long walk or for a long drive. But we hope you enjoy it and if you haven't applied to revenue collective yet, revenue collectivecom click apply now. If you're already a member. Thanks for listening and I hope you enjoy the conversation. Thank you. Hello, everybody, welcome to stock option straight talk. I am your host, calling Cadmis, a lifelong salesperson, two times VPA sales and recent founder of my own consulting an advisory firm where I'm helping startups skill and build worldlass sales organizations. Tonight we have prepared for you and exciting, first of its kind live event. Whether you are an individual contributor or an executive leader, tonight we're going to teach you all of the details that you need to know to fully understand your equity. We've got a packed ninety minute agenda. From jumping straight into things, will be taking questions throughout, so drop them in the Qa and, without further ado, allow me to introduce to you our three subject matter experts, Scott Lease, Richard Harris and Sam Jacobs. Scott lease is a six time start up sales leader and author of addicted to the process. Richard, or sorry, Scott, is the founder of both Scott Lee's consulting and the surf and sales summit. Scott is a consultant and strategic adviser to companies around the world and was recently named top twenty five sales leaders by crunch base. Richard Harris is a sales leader and trainer with over twenty years of experience helping startups build their sales infrastructure and train their sales teams to get there faster. Richard is the founder of the Harris Consulting Group and the cofounder of the SURF and sales summit. And last but certainly not least, Sam Jacobs is the founder of revenue collective, a community of over two thousand global revenue executives and top performers at high growth companies all over the world. Scott, Richard Sam, thank you guys so much for agreeing to come talk about this important topic. I think employees and executives are often oversold or misled when it comes to equity, so I'm excited to dive in with you guys. Thanks for thanks for helping us put this together. Palm for sure. For sure. So give the audience a sense of what the agenda looks like, I've broken it down into five parts and we're going to spend roughly thirty minutes on the first four parts and then the fifth part is going to be about an hour. So in part one we're doing the high level introduction. We're just going to define what stock options are, what they're for, why they're why they're out there. Part two will go into expectations based on your role. Are you in AE and SDR? You a VP of sales? What should you expect? And we'll try to break that down by stage of your company as well. Part three will go into some key definitions and terms that will make sure you understand, and part four is stuff you usually don't know but should. So we'll start to get into the interesting things there. And then part five is where we're going to go through each of our panelists. They'll have about twenty minutes each to talk about hot topics for them and different ideas that they think are exciting that should be looked at and considered to change for the future. So, without further ado, Sam, do you want to kick it off? What our stock options? Why are they issued? Why are they a thing? Okay, so let me thank you, Colin, on our to be here, honored to be with this estimabile group, including Scott and Richard. So first, a couple of caveat, you know, like a financial advisor, of past performance, no indication of future results, and I'm not in the count and I'm not a lawyer. So please, I will not be liable if I missed speak. And there are so many different variations of some of these ideas and some of these terms that what I'm going to focus on is the most common. So the most common. When we when we say stock options, what do we mean? We mean the option to purchase a share of common stock from the...

...company that you're referring to, typically that you're working for, and that that option is. It's not. It's not a security unto itself. What it is is the right to buy a security, the security being a share of stock. So when you're granted equity options. When you join a company, what you're typically granted is and an amount of options that vest over a period of time, typically for years, as they vest. What is vest mean? It means it triggers your ability to actually exercise that right and purchase the stock, meaning unvested equity. You do not actually have the right to buy the stock. You are granted that right at a certain price. The price is typically the most recent valuation that the company has gone through, either because they price to funding around or because there's been an independent audit, that's called a foreign nine evaluation, that puts a price on the security. So what am I missing? I mean, there are there are different types, right. There's NSOS and ISSOS, well, related to whether you're a contractor or whether your an employee of the company. But the most important thing to just understand. It's not a share of stock, is the right to purchase a share of stock, which some people get confused on. The other thing that we'll talk about, you know, later on is that it's the right to purchase the most junior security in the preference stack. Right. So the way that people should think about, you know, financing a company is that you put in money and you have rights associated with it and the most senior security is going to be dead right. I lend you money before any of the equit and shareholders, who are the investors, before they get their money back. The debt gets paid back and then the equity gets paid back after the debt. And there are different types of equity. There are different from securities, each with different preferences and different rights. And when investors to venture capital firms or other people typically put in money, they are typically granted not common stock. There typically granted preferred stock or some other type of security that has more senior rights. So what we need to understand is when you're granted options, you're granted the right to purchase stock at a specific price, common stock, which sits beneath. It's at the bottom of the preference back relative to the rest of the investors in the capital providers in the company. Awesome. Thank you so much, Sam. So, guys, if I'm if I'm joining a company, there's different roles. Right, let's say we'll use three examples. I'm joining as an SDR or an AE, or I'm joining as a VP of sales or a or a cro what should I expect? How much money am I going to make off of my options? How many options should I get? How do I look at that? I'll tackle this one first. Maybe. Let me start with the role. So your expectations as an str quite frankly, should probably be that you don't get any equity in an early stage organization. I know that that is not a popular opinion, necessarily, and I'm not in saying that it's the right way to do it. I just think that that is very common still and and if you want to set yourself up for realistic offers, you're probably not going to get that in the original offer of your employment. You might be able to earn options and grants along the way through performance and tenure and things like that, but I think would be a mistake for you to have an expectation that has an str you're immediately entitled in your first offer of five options or a thousand options or tenzero options or something like that. So I think your expectation should be should be none, and I think you should view getting options in an initial offer as a really favorable offer and it's going to signal that you know the company that you're going to work for. Potentially really believes in in sharing, you know, ownership in the organization. So what if I Scott? So what if I am an str and I do get stock options, what can I expect that to amount to? In your typical scenario, in a best case scenario, like you might end up with five figures, low, low kind of five figures realistically, because as an FCR you're going to get, you know, maybe five hundred options or, you know, maybe a couple thousand, you know at the most. And and if you do that, if you do the math on like a billion dollar exit, which you would all love to have, which is like a best case kind of situation, it doesn't shake out much more than, you know, a down payment maybe at best. You know, maybe you buy a new car or something like that. It's not going to be any kind of life changing money whatsoever. But take your family orfication or get a car and to tend to fit power. So it's safe to say no matter how cool the start up, if I'm joining is an str I'm probably not becoming a millionaire and I'm definitely not retiring, regardless of the exit scenario. Hundred. I mean, if you do do the math, if you have a thousand share at ten bus to share. That's tenzero right. Not, not every organization ends up getting to...

...ten bucks to share right about as a AE is it is it drastically. I want to jump in there for a second column. So the other thing, I think, particularly for strs and a he's in anyone, but particularly strs, your goal of the exit. You know, if you can get some options in some cash is it's great, like that's awesome. It's literally icing on a very small piece of cake. But what your real expectation is? You now have a successful exit. You've got something on your resume that says, Hey, I've been part of this growth start up, I've helped get it to here. I understand what that's like, and so where your income will become affected by that will actually be in your career. It jumps you ahead of the next person who hasn't had an exit, right, and so that's a they're different. You know, there's this tangible money thing of options, and then there's this other thing of wait a minute, this can also help me make money in a whole other way. Right, if you can start getting higher salaries at the age of twenty five, then you know two or three other people than by the time you're thirty of your salary should still be getting higher and forty. So it has sort of this this compounding interest effect on the exit. Yeah, I've been talking about near term kind of value. Richards absolutely correct talking about them more long term value over the course of your career. Yeah, and I saw that. I saw that play out at my first company, single platform, after they had a huge exit. Many, many, many of those folks who had less than a year, maybe a little over a year, of sales experience straight out of school, because they would live through that exit, even though they didn't get rich off of it right then. Maybe got a little bit of cash, but they went on to be directors of sales, they went on to be VP's of sales and now I know multiple them have second exits under their belt at like the age of twenty four or twenty five. So so I'm glad you stopped me there. I jump quick. They're just us from basic stuff that we just got to make sure we cover that. I've seen questions around. So the first is that, you know, I saw some questions in the in the bottom thing. Ask a question and people are saying like is a thousand options good? Is Five hundred options? Good? Let me just give you some basic terminology and some some understanding so that you want that that question actually doesn't unfortunately. I'm not trying to be a Dick, it just doesn't make a lot of sense. The first thing you understand is what are the total shares outstanding? Right? So the company has a right to issue a certain number of shares. How many shares have they issued? Typically, so for my company, revenue collective, it's a million shares. Right. We fish. We have a total of a million shares outstanding. Many companies that might be two million, ten million. Right. So, and now you don't understand means. When you say outstanding, it means that's how many shares exist that can be issued. Right. A two ways to talk about outstanding. Actually, there's how many have been issued and how many can they issue, because one of the things that happen when you go through a financing round is you create an option pool for the employee specifically. That's typically twenty percent of the entire company. Right. So it could be ten, ten, fifteen percent or twenty percent. But those options may not have been issued if the people have not yet joined the company. So there are total shares outstanding now, which is all of the people that you've issued shares to, but you still might have, you know, a big chunk of equity that hasn't been issued because you're waiting to hire Scott least to be your cro or Callin cadimist to be our cio or Richard or etc. That ca you want to ask what's the total possible right, what is the total available shares to be? I see, so outstanding has been issued, but there's a total numbers. You could have ten million shares. You've only issued five million, exactly, exactly. So that's kind of one thing. So when you take a look at your five thousand or one Tho options, you need to divide that number over the total shares outstanding to understand what is the implicit value. Now there's another question, which is, well, what does it mean to have a value? Because if so, again, like there's a price per share and and it would be a mistake that the value of those options is not the value the number of options times the price per share. Just to be extremely direct, right, because that's that's the size of the check that you will have to write to buy the stock. That's not so. I've had an offer letter from two companies ago where they're like the market value of these options is nine hundred and Fiftyzero. Well, not really. That's the size of the check that I have to write. Yeah, we need we need an outcome that is greater than that to equal a return. Right. So if the price for shares two bucks and there's a million shares outstanding, when the value of the company to value the equities two million dollars, right, and then I need an outcome that is four dollars or four million, an enterprise value of four million dollars to equal some gain. And then my gain is the you know, the realized price, lest the strike price. Right. So it's four minus two times my number of shares. That's my gain. So just again a lot of folks someone said what's the what's the first question I should ask. How many shares are outstanding? What's the price per share? What was the most recent valuation? What does the company value that? Those are the basic questions. If you don't know that, then talking about the number of options just doesn't make a lot of sense. Yeah,...

...that's a great point. Some companies it could be drastically different. So I've seen people were like, I got five hundred options, is that a lot? And some people say well, I got tenzero and they're like I all Hawd I get ripped off, like no, no, it you tenzero could be equal to less than the five hundred. So you have to follow the math that that Sam's describing and ask those questions. And, by the way, if the hiring manager hesitates to give you that information, maybe they don't know what they need to go get it come back to you. But if someone is hesitant or doesn't or unwilling to share that information with you, that's a major red flag, in my opinion, in the hiring process, especially if you're already employed there. Cool, thanks for that SAM. Let's let's jump back. Now we're talking about the expectations by roll. We set the we set the record straight for str what about an account executive? How different is it for that role? I mean, in my opinion it's a little bit different, but not a lot different. The biggest differentiator, I think, is a stage at the company now, because if you're an AE at early stage company, part of the allure of you taking on that role and responsibility to help prove out product market fit and get the organization going. It's a decently significant chunk erectrity that might turn into something. So I think in the early stage, you know, I think Tenzero plus chairs, depending on all this stuff Sam was talking about. I've seen five thousand shares. So anywhere from like mid four figures to kind of low end five figures, I think is a realistic expectation to to look for ask for in an offer letter from an organization if it's an early stage company. I think the bigger the organization gets and grows, your expectations should go way down and starts to fall closer to that of what I was saying before, and they are, which is you shouldn't expect equity necessarily at all. Yeah, and it's not uncommon, I think, in those earlier days. Correct me if I'm wrong, but from what I've seen, when you are one of those days that's joining very early and you're getting a nice trunk of options, you're probably not getting your market rate ot, you're probably not getting the highest base that you could get, you're probably not getting the best commission plan and you're sacrificing a little bit in exchange for that. Is that what you guys have seen in most scenarios as well? Yeah, what what I see is, you know, so there's this sort of the first ae hired right now, they're going to go out and get that person. There's some challenges and strengths to being that first person right. Often Times it doesn't work out to we'veout fifty fifty percent of the time. Yeah, but you know, when you're in a Ar and str keep one thing in mind. In most cases, right, you're there to make other people millionaires and billionaires at startups. That's it. ITCU's just the way it's. That's the way now. I don't like it, and we will probably get into this later, Scott, and I've been ranting about this for a while, but that's just the way it works. As you move higher in your career, right as you become sort of this team, tenured Ed a field, rep those kinds of things, you don't necessarily get more options. Right. You get an opportunity for it, but you're not all of a sudden going to strike it rich like it's just it's not there. So, depending on where you are in your career and where that company is from a growth perspective, is part of your decision equation, right. You know, I want to win. If I'm twenty something, thirty something, single, not married, I'll take the risk, I'll go after it and then I'll use that in party, that in to my next Gig and then my next Gig and next Gig. You know, if I'm the the forever a EU who doesn't want to manage people and just wants to be a field wrap at a great company, well then those options become a bonus and you learn how to negotiate. Well, yeah, the options are there, interesting, but that's not what's going to that's not sexy to me as if I'm twenty something right, like it's just a totally different things. I just want to make sure people have understand some of those things. Yeah, may sense. That's okay. You know, there's some questions about like how do you avoid delution and what? You're not going to avoid delution. That's not a thing. There may be something. Is that Anti delution protection? And what would anti delution protection mean? It would mean that as you raise money, you are issued new grants that maintain your percentage ownership of the company. But I can tell you it's extremely rare even for executives to get that, and certainly nobody below the executive level is typically going to get that. The share the investors themselves, who they view themselves as superior humans to all of us, right, and they view themselves as the money. They say, you know, you can get any excutity you want, but it's my money and the money. Sometimes it doesn't have antidelution protection. The only way to their percentage is wifred Wilson talks about like sidecar funds, because they need an amount of money so that as the valuation rises, they can put in more money to maintain their ownership percentage. But as employees, you're not going to be able to avoid delution. Cool, there's all right. That are going to happen, which we will talk about later. All of which, you know. Somebody asks like are you going to my money being late? My on the talk is probably to try and kill your buzz. All...

...right, so SDRs A's, if you're super early, maybe you're going to get some decent options. You're not retiring off of it. It'll potentially be a nice pay day. But if you're coming in later stage and you're getting paid a normal salary, it's going to be small. In many cases, to Scott's point it, it may be nothing and you're there for the experience, you're there for the commission, you're there for the benefits and you're there to learn. And, to Richards Point, you have the chance to be a part of a great journey that can speak the springboard to the rest of your career. I've seen it happen and I see a lot of the folks who come into those early ae rolls are very entrepreneurial. They want to start their own company some day and that's why they want to take those risks. They want to see it right on someone else's time, and so those are good scenarios where you would go into a role like that and the expectations is more about learning and growing than it is about money. Don't look at the don't rely on that paycheck. Look at it as a it's cool if it happens right, it's great if it happens it's great if I get something, but it's not why I'm taking this job. What about the VP? The CRRO right? I've been a VP twice. Scott has been a VP. What was six or five or however many times? Sam's been a CRO multiple times. Richards run multiple sales orgs. What's the right expectation for a VP OF SALES? And let's start by just talking about the first VPA A company hires. Maybe they're there past their seed stage, they raised some their first round of institutional capital and they're ready to hire their first, you know, real vp of sales who has some experience. Maybe they've done it a bit before. It's not a stretch. Higher it's not a manager who's going to become a VP, it's someone with a bit of experience to do the role. What's the right expectation there? I think with those qualifiers, anywhere between one and two and a half percent ownership in the organization would be a reasonable expectation. Now there's so much nuance involved in that and I'll tell a quick story to illustrate that. One of my most recent VP of sales gates about ten years ago I had two percent ownership in the organization. The last company that I was at I had a little bit less than that, but I took less than that on purpose because the potential upside of this most recent organization, in my have to Mak an and and and others, is about ten x what the first company was, if that makes sense. So it's not to say that you know, you you could get one and a half in a company that's going to do a billion dollars. You could get two and a half in a company that's going to exit for a hundred million. You're going to come out better in the company that exits for the larger amount. So there's there's nuance there and there's this dance that you you're going to do with the founder in the negotiation. And I encourage everybody not to get like two emotionally attached to what you had last time. Right, because if I would have gone to my negotiation and said look, this last Gig I had two and a half percent, which I so I went to two and a half, one point seven five, right, I went up and then a bigger companies with higher upside, higher I could get haircut on the point, because I think that the upside would be significantly larger. And if I tried to, you know, hold my ground and be like no, I was two and a half last time, I want three percent of this time, I probably wouldn't have wouldn't have got the GIG. But to answer your question. You know, if somebody who's been a VP before, you've got experience. I think one percent is kind of a baseline or the floor, and two and a half percent is probably the higher end. I've seen as much as three three and a half percent floating around for cro kind of roles, depending on the size and stage of the of the ORG. But that's that's why I experience getting Richard and Sam brand upon that. Have you guys seen different or do those numbers sound right to you? Those sound about right. You know, the last Gig I had as a as a VP of sales was two thousand and twelve. So as the funding rounds have gotten bigger, the grants have gotten bigger. So I had to fight hardcore to get to one percent. They want to meet it to like a quarter of a percent. And what's like time? Your company seed prestinct. Okay, wow, I was early. Yeah, and and so I was like, you guys got to be kidding, like I walked away from it like four times. But wait, though, it was seed stage and you struggled to get them to one percent. I would think that's where you're going to get higher percentage now. Well. So, so that had to do with who the founder was, and I won't mention the name, okay, and sort of how things were being promised and not delivered. Not Actually it was a great technology that does work, because their competitor came and just ate their lunch. So I didn't make it through the end. But I want to come back to a question that's in there for Scott because you experience this, which is, you know, when do you start to exercise your options? Right, which...

...means you got to pay for them right and, just so people understand, you still have you have the Sham said, you get the right to buy them and then you have to decide to buy them. which counts, and Scott will explain that because I know the story. But the other thing that happens is the amount of taxes you've got to pay on it and whether or not you're able to hold them for a year or not for them to be shorter long term capital gage. So, Scott, you know in one of your scenarios where you've exited and had to buy your options, what was that like? I'll give you three quick situations that I want to derail collins agenda too much, but the first time I exercised what amounted to be hundreds of thousands of pairs. It cost me like ninety bucks, true story, because each share was valued at like point throus zero, zero, one sense. So it was like unbelievably cheap. So I entered. You made. You made hundreds of dollars. Yeah, well, I ended up making a lot more than that. That that's story had a positive outcome. The the second story is I had to come up with almost two hundred thousand dollars in cash to exercise right, and I'm now, years later, still sitting on that and waiting for some miraculous thing to happen. Said differently, I'm out two hundred Tho for something that may never come to fruition at all. Third Story, I spent. I also had to pay taxes on that too, though, didn't you? Yeah, we're going to get into later, later on though, for sure. But third story, you know, I spent about a hundred and fifty, hundred sixty grand exercise again, and that outcome is yet to be, yet to be determined. So one situation that came up with, you know, dinner for two, and the other situations an extreme amount of money. That, if I didn't have that kind of line around. I'd be host I wouldn't you know, I wouldn't. I wouldn't be in the running for some some exit of any kind. have any of you guys ever, before I jump back to the agenda, have any of you guys ever experienced or know someone who has, just a quick, quick answer and example of you had the options, they vested, you left the company in the decision. You decided or they decided not to exercise them because they just didn't think it was going to be worth it. You know what? Where do you? Where do you draw the line on that decision against them? You have to make. You make a better what you think about the company. And I have a terrible story here because one company I'd been there long enough that I just felt this emotional attachment. One of the things I would say is when you're thinking about exercising your equity and to the point right, you're writing a check and then you're typically, unless you're writing the checkup the most recent valuation and then you don't have to pay income tax because there's no gain. But if there has been a recent valuation, that puts that means that like you're exercising for five bucks and the company's valued at ten bucks, you actually pay income tax on the depths of the difference between ten and five immediately, right immediately, which sucks. And so I did that once. Because so the point that I would make is that just every time you write a very large check, just make sure you take a step back and you say to yourself, what else could I do with a hundred and seventy five thousand dollars? Right, I could put it into the stock market. And guess what, no matter what you think about the ups and downs in the stock market, you can get it out any time you want. Right. I could put it down payment on an apartment, and I so I think we get really, really attached and we fail to remember that, like, there are risk reward profiles and this is just one choice that you could make among many. So one company, I work there almost five years, I wrote a check because I just couldn't bear to think of the idea of an exit without me participating in it, and I paid a Shitload of money and taxes. I wrote a very large check for me at the time and the company, you know, to the end down round ninety percent. You know, though, you've been cut the ninety and by ninety percent. You know it's around, but nothing's happening. So I learned from that, I thought, and I went to another company and I was leaving and I said, you know what, if I'm not there, that's me voting with my feet. If I'm choosing to leave the company, I'm not going to exercise and that was unfortunately live stream, and live stream was acquired about three months after I left, like right after the ninety day. By by Vimeo, I see, and I was getting all these texts from people like congratulations, high five, this must be awesome. So I bet wrong both times, which sucked, but anyway, that's my life, all right. Well, at least we're learning from someone who's been through it. So real quickly, quick answer, vpcro, we said one to two and a half percent at a like a series a. How different is it, guys, if this is series C, Series d's companies raised, you know, billion plus dollars...

...the crank and revenue. Am I going to expect five percent down or I going to expect much less, much less, much less. Yes, okay, just wanted to make sure that was clear. You know, as the company gets bigger, what you need to say you need to stop thinking about like percentage ownership and what you need to start thinking about is what is the outcome that would feel acceptable to me, you know, in a variety of scenarios. And so, you know, like the Pier C O person, if you're Scott or my age, right, and so we're probably not going to go work for somebody unless we think there's at least a seven figure, likely likely seven figure outcome. Right, I need to at least make a million dollars in probably much more if I'm going to commit the next, you know, two, three, four years of my life. And so then you look the value, you look at what you think about the the ability for the company to preach a value, and you say, does that make sense? Do I feel like this company has an ability to become worth two billion dollars? Because that's what it would take to make me, you know, two million bucks or whatever. And how important is it, on that note, to take into account that the average ten year of these rolls is about a year and a half, maybe two years, massive, massively important for each go for it's got under you're going, I just lit the fire, yeah, about ramp coming massively important. So, folks, what that means is for the VP of sales, the CRO roll, the average ten year right now, even for excellent Vp's and crows is quite short. It's about a year and a half, maybe eighteen months, nineteen months, maybe two years. If you make it over three years a you're really good and you're also really lucky. And so if your options are vesting over four years and you're asking the question that Sam just told you to ask yourself in an exit scenario, is this worth it for me? You should not be thinking about those options vesting one hundred percent. You should be thinking about what amount of them will probably vest in the time that I'm going to be here. And don't just assume that you're going to be the one who beats the average. I've done that before and, as we know from recent announcements, I'd beat the average by like fifteen days. So yea, and I think that's I even think that's Linkedin like grounding up to to the to the next month or something. So the math you do on that, if you're no longer doing math on two percent, you own two percent. You write doing math that you own point seven, five basis points, and then too stands point now you have to do the math and figure out what exit, what liquidity, has to happen in order for me to to, you know, get a windfall of an acceptable number for me. So if I'm looking for a seven figure extra seven figure of liquidity or windfall from this on point seven, five basis points, that's got to be a massive multibillion dollar exit. So don't don't do the math of your situation based on a four full year vest if you're in a BP of sales role or, in my opinion, if you're an any role, because it is very, very rare for any of us right now to work some place for four years or longer for a variety of different reasons, and gonest what happens to the rest of those options when you don't make it the full four years. Well, let me let me add on to Scott's point because I think it's important and common. Band see your question. You know, and I think it's been in the chat, but typically your right to exercise those options expires after ninety days unless you negotiate some kind of extension, and that's becoming more common. But to the point, what does an exit look like? One thing I would say is just understand if you're going in as a series a or a very early stage executive, that there's going to be a tremendous amount of dilution between probably between you and whatever the outcome is. So it's not one percent, it's one percent times point eight five, times point six, five, etc. Etc. And so what you actually end up with this much less. Plus. Will talk about preferences. In a raising a hundred million dollars is probably at a very high valuation and you have to understand that a specially if you just joined, but even if you didn't just join, right, the investors need to make return on that investment and that means the company has to exit at a multiple of whatever the valuation was. So if you raise a hundred million dollars at a six hundred million dollar valuation, the company needs to be worth one point five at least, but probably north of two billion dollars. Right. So you have to understand the climate because it's not easy to make a company worth two billion dollars and in the previous now the world maybe change and maybe valuations are coming into you know, more realistic boundaries. But you should actually look for companies that have raised less money, even if they're not on the front page of tech crunch, because they have more upside optionality. Right, if I've only raised ten million dollars, I can sell the business for two hundred million dollars and everybody's happy. Single Platform Right, single platforms like example, yeah, million dollar exit right now. Some, most of the companies we've all work for our last couple of years, they raise their series be at a post money. That was a hundred million dollars. They couldn't assault for eighty million. So that's kind to think of. All. All Right,...

Sam, I want to give you some rapid fire here, where we're falling a little bit behind my my ocd schedule. I've got just some some basic terms and we've used a bunch of them already. But can you give us just quick, ten fifteen second definitions of each of these and what they mean pertaining to looking at a stock option agreement that gets presented to you? Quantity of shares? We talked about this, but how would you define that really quick? But number of shares that you get? Are you talking about the numbers outstanding or that just that just what's on your on your offer? Yeah, strike price, right, crisis the price of the option that you would have to pay to purchase the stock. Cliff period. The cliff is before the cliff. You don't have any vesting at the cliff. A lumps on vests all at once. Typically we're talking about a four year vest with a one year cliff. That means if you're there under a year, you don't get anything at the one year anniversary. Twenty five percent of your best of your options best, which means twenty five. You have the right to purchase twenty five percent. Right, vesting period. That's the length, the total length of the vest so it's forty four years. Right. There's a why is it? For here's it's four years because in the olden days that's how long it took for company to UPA it takes a lot longer than now. We Ski. We actually asked Scott and I had marker bears on the podcast and we asked him and he even said he didn't know, because I don't even know why that's the four years. There's a build early fog post about it's them where that you know, in the olden days their regular charmer constraints were less and so is easier to go public so smaller companies would go public anyway. Yeah, my understanding of that was that it actually comes from companies that the stock was already worth money. Right, if you go work at Mery Lynch, they're giving you generally a one year cliff and a four year vest, but you don't care because when you leave they're worth money and you you make money off of it right away. So I don't know if there's true to that, but what I've always been told is that that model was just sort of recycled and brought into the startup world and makes no sense, but it's what we've got. Okay, exercise period is the period after you leave. How much time you have to exercise? Traditionally it's about, as you said, ninety days, but it's becoming more common to negotiate for longer periods. I will tell you is very important it for you to try very hard to do that and you're going to have more leverage when you are accepting the job. Now, if you're an Stra A, forget about it. Don't even ask. You're going to be crazy to try to negotiate that. But if you're coming in as a VP or a cro you should absolutely ask for a ten year exercise period before you accept the job, and you should push for it, because otherwise what they're telling you is that they essentially don't really want you to have your stock options. At least that's that's my opinion. Well, they do. There's a very strong incentive not to give you that that benefit, and that's because if you don't exercise the company and or the equity into the extent that the company thinks the activity is worth something, I can get a brother better and they get to regift it. Yep, YEP, exactly. No, and they plan that way, I think. I think I asked you that earlier. Is What happens to those options, right. And so when they, when a company decides are we're going to put two million shares or whatever, twenty percent as an employee stock option pool, and they know how many they're going to issue. They also know statistically how much of what they issue is coming right back to them, which just goes to show you that you should never expect to get everything that's it's being issued. All right, a couple more things to define really quick and I think we touched on this a little bit, but just so we have a quick definition for everyone the difference between preferred and common stock. Who wants to take it? Then a quick quick definition, Sam's our dictionary. Preferred stock is just a different security and it comes with better rights and it's got more preferences and it's it's got easier, quicker access to an outcome than common stock and it's what investors negotiate for when they invest because they don't want to be in the same boat as us. They want to be in a better boat. It also gives me we are not getting preferred stock right, but it also means the control of making the major decisions right, that you don't get to go and have the same weight. If you own one share of Burkshire Hathaway, your vote will not matter, right. It does not matter as a common stockhold. Well, last and to like preferred. There's all kinds of different for first share. Some of them have voting rights and super voting rights and some of them don't. Some of them don't even have an voting rights at all. They just get better access to the money. So, SAM, if I'm a VP and you're the CEO and I'm negotiating with you for my job, is it fair for me to ask who has preferred stock and what the terms are. It's fair for you to ask anything you want. Absolutely, one hundred percent. Is it important for me to know that? You want to know what the preferences are. You want to know how much money raise. What are the preferences, because you're trying to understand what is, what sits on top of my ability to get money out of the common so if there's and typically they're going to get at leas one time participating, right, typically investors are going to say, I need to at least get my money out before we distribute any money to the common shareholders.

So that's why raising a lot of money is a very bad thing. Right. So if you got a middling company, typically what happens is like companies hot series a, they raise this huge be right at the moment that they stall in their growth. They've now raised fifty million dollars, but the companies only do in eight million and rr with high churn, they going to go into a see, and you want to understand that there needs to be a lot of money distribute and fifty million dollars needs to go out the door at a minimum before you get anything. So a hundred million dollar exit. It's a fifty million dollar exit, not a hundred million dollar exit. Yeah, okay. Last question, and I think somebody asked some some questions about this as well. Do you have an opportunity to sell your stock to someone else? Referred to selling secondary. Who wants to define it and and give us a sense of who typically gets to sell secondary and who do you think should get to sell secondary? Well, first of all, yes, it's possible. I've actually done this before. I've sold stock back to one of the VC's who was dumping money into into the company. So this means, just to make sure we have a definition, we are at a at some sort of an event where we are are raising more capital or we're issuing more shares and there is an opportunity for people who have vested shares or exercised shares to sell them to a new or existing investors. Correct, not just at that part also in my particular case, it was upon departing the company, okay, and this this was a way for me to raise the capital necessary to exercise the rest of my options. I see. So sell off some of them and use that capital to exercise the rest. That's one particular example that I've been a part of it. I did. Yeah, I said matter and it teaches and revenue collective about pashless exercise, exactly a Scots Point, which is essentially a way of keeping less than the actual grant without coming cash out of pocket, because you basically sell the difference between the strike price in the new valuation and use that to exercise the rest of your options. And you can do that all in one transaction. You don't have to put up the cash if they let you. But yes, if you gets you but you know a lot of this stuff it's not. These aren't public companies and it's there's not. The SEC doesn't regulate private companies in the same way. A lot of this stuff. You're like, what are the reporting requirements of a start up? There aren't any. Back to the comeral. They don't have to tell you shit. Yeah, to San to Sam's point on this, I initiated this process and I was like, is that something that you know we can do? And they're like why? I don't know, let me get back to you. They have no, they didn't know. There was no hard and fast rule. I pressed the issue and so you know, they they accommodated and we yesked eventually, and I think they acquis because there was an investor who wanted this batch of options that I have. But you know, I asked. You would never what happened if I didn't ask and didn't push for it and there was no rules about it. To Sam's point, it's a great point. Yeah, I mean in my career I've seen two different scenarios. One was just like I was very fortunate, where something was offered to me at the time I was parting away from the company. But, and I would say ninety nine percent of scenarios, it's what Scott saying. If you don't ask, you won't get. And so when they're asking you to sign that separation agreement and they're asking you to not disparage the company, to not reveal trade secrets, to not hire their employees when you go to your next job, that is your moment to ask for these things. That is your moment to make your case for why it's fair, for why you deserve it. Of course, if you join revenue collective, and now I've learned all the things I've learned from Sam, the real moment to ask for that is when you're before you sign your offer letter and especially when, when you know, strike while the iron's hot, right, they they want to hire you at that point. But you do have a second chance to ask for things at the time of leaving the company, because they're going to ask you to sign a separation agreement and they generally really really want you to sign that and they want to come to an agreement. So that's your chance, your second chance to ask for these things. All right, let's move on and I know, yeah, you asked. Does everybody get a chance? Typically, most people do not get a chance to sell secondary, and you should ask before you join the company. Has Anybody sold secondary right, because what you want to understand is, particularly if you're an executive, the founder will give you a pitch about how we need to go on this journey, we need missionaries. It's going to be ten years, but we're going to change the world. This piece of marketing technology is, you know, going to help the poor and you know, change world piece, etc. Etc. But you want to understand. Have they already taken money off the table because they they are not obligated in terms of like reporting requirements. There aren't any. So oftentimes they will sell secondary at an early stage. Back in the day. You know, we don't know post covid in this recession. I'm sure the terms are tougher. But back in the day, you know, six months ago they would raise at twenty million dollars series A. Twenty million dollars is not going to the balance, you to the company, right. So eighteen million dollars might go into the balance. You to the company and two million dollars might go to early investors, including the founders. You want to understand that before you join. It's not that,...

...it's they're not doing anything nefarious, in my opinion, like good for them. They had an opportunity to sell, they took it. But you want to understand what's their incentive system, because if I just put two million dollars in my bank account, I'm good for a couple of years, right, and you might still be hungry. You might not have that two million dollars. So you just want to understand what's happened before I got here so that I am not I know what I'm walking into. Now they might not tell you and I talked to a lawyer, Wilsonson Seene, a couple months ago and they said we just did a series a and the founder express they said, do not tell anybody else that I'm doing this. So they may choose not to tell you, but I think you should ask. Agreed. Agreed. So for the folks in the audience that Sam is essentially saying here. And you see these stories in the news of these massive companies, big valuations, companies never strike a profit, they end up tanking. Somehow the founders walk away millionaires ten times over. This is how it happens, right, because they are they are taking money off the table when they're raising around of capital. Right, let's say they're raising twenty million and they are going to sell five million worth of their stock out of that twenty million, so that five millions going in their personal bank accounts. It's not going on to the company Balance Sheet, but they are going to sure as hell right on crunch base that they just raise twenty million dollars, even though five million of it went to their own personal net worth, and they're going to continue to expect you to take that company, you know, to the finish line that you need it to go to in order for you to have something. But I think to Sam's point, if I'm reading between the lines, it's just nice to understand how comfortable are they and and how badly do they need to get it to the same place that you need it to go to for you to get what you are owed. They come. We got a bunch your questions coming in, but I don't know if you want to hold. Let's let's take some. We're a bit behind schedule, but it's okay, let's go with it. Let's take a few questions. Yeah, and I can't remember. Did we discuss the difference between a trigger and a double trigger? We did not, so I don't think so, at least tru again, I'm going to turn it over to Sam as our as our encyclopedia, Wicky Sam, that is that's a book I'm not I'm not expert on all things. But so a trigger, what we're talking about as acceleration, right. So what we want to understand is, I've been there year, I'm on a four year vest the company gets acquired, does that mean that all of a sudden the three years of invested options immediately become vested and I get to realize the full potential? The answer to that question is no, unless there's acceleration provisions in your in the Equity Stock Option Agreement or the equity stock option plan. So what is acceleration? It just means something happens and my unvested equity accelerates. So there's a single trigger and a double trigger. Single trigger is very rare. What it means is there's an acquisition and all of a sudden all my invested equity accelerates. Why is that rare? That's not in the interest of the acquirer. Right. It makes the company less attractive. I don't want everybody going out the door the minute that I make the acquisition, right, so I want there to I want them to stick around. The acquirer wants you to stick around. Double trigger is not any scenario, though. Write Sam. In some scenarios you get acquired and your role is obsolete, right, and you're going immediately get fired. Was the water that determination? I don't want it to be happens because I was a bit my company was getting acquired and I was, you know, let go. They hugged me out the door in a good way, but within, you know, ninety days, they got acquired. What was happening is they laid me off before the acquisition. Right, bought by a huge public company that you would all know, and that was because the acquiring company will look through the spreadsheet. We don't want this person, this person, this person, this person, right, and so I was part back group. Now my company, I think, protecting me. They came in and gave me a ton of cash and health insurance because they hug me out the doors. I say, so it can happen that way now and I've seen. What I've seen in stock option agreements is is usually it defines what would happen in those scenarios, at least in the ones that I've had. It defines, you know, what would happen to your options if you were terminated in the first, you know, x days because of a liquidity event, and and also what would be the scenario if, at that liquidit event, you buy default lost your job, because they don't need to have a piece of sales for everything. And here people understand is these things look triggers and double triggers that you negotiate. I don't think I've ever seen it as something to negotiated at str ae level. No, not manager, maybe a director level you could negotiate that stuff. So I think, yeah, run off until everybody could do this, like be mindful of what you're trying to accomplish. Her right, like you're trying to understand, you know, if you're an str and AE, your goal is to understand this as it's going to parlay into other roles in your life. Hopefully. That's yeah, it's they don't have to give you any trigger whatsoever. Nor. So if you're you're a VP of sales, you should a hundred percent ask for a single trigger. You know why? Because they're the founder is going to assume, Oh shit, this guy knows what he's talking about and they're going to tell you, nope, you don't...

...get a single trigger for all the reasons Sam was talking about. So then you now have a better chance to get double trigger. So now you start figuring out what are some of the triggers? So, yes, obviously, like an acquisition might be one. But what if you get topped off, meaning there's somebody who comes in above you? That could be a second trigger. What if they change the nature of your role so you're no longer managing, let's say, an inside sales team and now you're managing a field sales team? That's could be a trigger. That helps you if they move your office outside of thirty miles to meaningfully change your commute, that could be a trigger. There's all these things that you can negotiate up front that become double triggers. So this is a way for a VP of sales to protect themselves as best they can. There's no perfect kind of scenario, but I've baked all these random things and so I have like a dozen potential spin dary triggers that, you know, I felt would be a meaningfully impactful for me if you lower my compensation, both base plan or total, you know, variable compability and whatnot. So to all that motion will underscore what Scott just said, because he's making a really important point for any executives out there that it's want to like, you know, plus one on or plus a hundred, which is if you ask for a double trigger, their rested default response will be to give you a clause that says if you're fired. And then you also have to make sure. Sometimes they say with that acceleration not a hundred percent of your unvested equit sceller, it's only fifty percent might accelerate. So you want to make sure Ay that you're asking for a hundred percent, because acceleration is just a word that could mean any percentage. And then, again, exactly the Scott's point, ask for a will trigger. That company that I worked at, they came back and they said if you're fired, and I didn't at the time think to say or material change in job, responsibility or geography, which is exactly what he just said, because they can just say, listen, your jobs in Duluth, you know. I know you live in Austin. I'm not saying you're fuck you're not fired, you're choosing to quit. I'm just telling you your job five hundred miles away. So all of the things should be I can trigger. It's a great point. I would have never thought of that. It's question and no disrespected duluth by the way, but hey, as you're progressing through your company, right, all their ways to apply. Are More options. Scott, you may be good at answering this. What happens if you get to your four years? Right, you make it to four years as a sales rep, your options are there, all right, can I go ask for more? Right? So how do you negotiate new options? And then can you negotiate them back to your original start? Date several years ago at that price. Right. You used to be able to do that. I'm not sure if you can anymore. I don't. Also thing in the first bubble, if I recall, yeah, you can't. You can't negotiate back. You can't update it to the original price. Right. That I don't I've never seen that that fly before at all. You absolutely can negotiate constantly for more options. You just need to know that your besting clock is going to start over. Yep, not going to back date to your original start date. So if you've been there for two years and you get another grant, now you have two clocks. You have one clock that you're halfway through and another one. They are on day one of that as a brand new cliff. So that that's very important tore in mind. You've been somewhere for four years and you're fully vested. From an equity only standpoint, there is no reason for you to stay put in that particular job, in my opinion. That's why I'll say from the employer just from equity only right. You might be happy with the job right, like the role, you might be able to get a different title eventually. You might like the cash whatever, but unless they're giving you more equity, right, what are you sticking around for? So you absolutely should be negotiating for it from the employer standpoint. There, Scott it. That's a that's a reason that you should have a program in place to keep those folks around, to issue more stocks. I know we've done that at one of my startups. It was common practice that when they're approaching their four years, we proactively wanted to talk to them about another grant. It's probably not going to be anywhere near the size of their initial one, especially if they were early, but it's enough to to continue for them to have that upside to stick around. Well did it depends also if you're getting promoted. So so, for example, you have one clock that is as an ee, but you've been in that role for two years and now the company has grown, you've done well and you're moving into leadership. So now you have a new clock that starts as a sales manager, and the number of options that you've been given might be Luwer, but they're they're different. They're different clocks. But in some cases I've seen it be smaller. If you have an a who joined really early, got a really nice grant better, then later executives might get because they were so so early, and then that person becomes a manager for years later and they're like, wait a minute, this this grant is, this doesn't compare to what I first guy that. Yeah, I think the most, the most of their alone. The most important takeaway for forever, Pilkley and all this is like you don't get what you don't ask for. You know, all of this stuff is negotiable. Sam...

...made a point earlier about getting a second grant that kind of keeps you at a percentage level right, and how rare it is. I've had that happened to me a couple times because I pushed for it and lobbied for it both before I accepted my job there and then when it was happening. So I had it in writing that they would have to do this if we raise the particular round, and I got diluted and I still had to ask them and just make sure and hold their hand. Yeah, they actually did it. So you absolutely should and be. You should only be doing it if you intend to stay there, because if somebody gives you an extra grant to keep you employed there, right. But you're looking around you're like die. You know, I didn't get any extra salary. I've got no upward mobility. That grant is meaningless for you if you're not going to stay there for at least a year or you don't believe in the successful future of this particular company. You made a really good point there, Scott, of making sure it actually gets done right. Even if you trust people, you need to read these documents very carefully. You need to log into whatever system them that they're using and make sure that things are put in there properly, make sure that it's executed right. I've seen just clerical errors. I've seen things just get forgotten. I like to think that that's not intentional, but if you're not checking, whatever is on record is really what matters. It's not what you talked about, you know, in a conference room. So always check on that stuff and and own that to the extent that you need to hire a tax attorney or a lawyer to review things, because I'll tell you those they're very, very hard to understand, the the legal jargon in these things. All right, guys, I think we I think we somehow covered almost everything in part four. We were going to talk here about exercise period, cost to exercise, the risk involved, preferential treatment and the impact that could have on you. So it's just stop me if we didn't cover this stuff. Inability to sell secondary while founders are getting rich, tax implications and what happens if a company exits before you vest. I think we actually hit on all of those already. Yeah, okay, all right then then let's move into let's move into part five. Part five is where we're going to give and give some time. I think we've got. We're going to have less time now than we originally plan, guys, but it's okay. We're gonna give some time to each speaker to go through some some talking points that that they see as hot topics, some ideas and things that they think needs to change. So let's kick it off. Scott, we've got you here. I know you've got a handful of things, so so take it away. You're on mute, Scott. One of the things I want to talk about is the expected earnings from a particular exit. And this is going to be real loose Napkin math, of of course, so take it with a little bit of a grain of salt. But let's say you have one percent and you have a hundred million dollar exit. Right. So there there's your one million. But to SAM's point, there's all the delution that's occurred depending on how many rounds you raised and whatnot. So let's say you got diluted by thirty percent. Now you're at seven hundred K. Now you got to pay taxes, let's say the taxes and what not amounts of like forty percent. Now you're at four hundred and twenty K, right. So if you have one percent a hundred million exit, a good case scenario for you is to make four hundred K, less than less than half a million, and the real again, Napkin math, it's probably a very inflated, optimistic kind of number to even make that much. I had a hundred and seventy five million dollar exit and I had a couple percentage points and I ended up with just a little bit over the four hundred k amount. So if you're thinking about a five hundred million dollar exit or a one billion dollar exit, just to do some Napkin math for yourself, just multiply those by, you know, five times the hundred million number and ten times and and so forth. That's one of the things I kind of wanted to talk about. The time frame is a complete fallacy that you are going to make it to number and any kind of time frame that you'd expect that exit I was just telling you about. I got paid on that six years after I left, six years where my money was out there from from exercising, and I'm sitting there, you know, periodically, every day, every week, going when the fuck is this exit going to happen, and I'm asking people who are there what's going on, whatnot. It is a extremely long waiting game. Now, caveat to that. I always go into very, very early stage companies, so I bring this upon myself. Somebody mentioned before is like a seven to ten year horizon nowadays instead of a four year horizon in order to have an exit. So if I go in and I spend two to three years at an organization, by nature of when I started there, I'm teeing myself up for a long waiting period. But that's that's got to be part of your mentality when you go to exercise like am I okay without laying this cash for no expected return for years down the line sky. While you're on that topic, there's...

...a question that relates to it in regards to how soon you should exercise something and how that can can differentiate the tax implication. Can you touch on that? What my opinion is you, it depends completely on your financial situation. For us, to exercises as soon as you possibly can while your strike prices as low as possible. You might have a strike price of ten cents right now. If that company raises another round and the strike price goes to a dollar, your tax implications now will be bigger because you'll get taxed on the game from prior strike price to new strike price. If that makes it. That makes sense. Calling you and I talked about this. Not. Yeah, yeah, I follow that one up myself. Yeah, one of the smartest things you can do is, if you've got a significant junk of equity and you know the company is getting ready to raise or it's just about to raise, exercise and is there for the say your let's say you're staying at the company or whatnot. I don't know if this is true or not, but if you're, if you exercise the options and you hold them for a certain amount of time before you sell them or before there's a liquidity event, are there ways that you end up paying less in taxes when you do that. I think I heard that if you hold them, you own them for a year or something, that you're paying different taxes. The and I just put in the chat. There's short term capital gains you hold. I mean that's like any stock. If you sell it before a year, I think it's thirty five percent and if or whatever, I don't even know. And every long term I think it's twenty percent. So yeah, there's major difference. And then the other thing I put in there is the qsps exemption, and you got to have to read it, because I don't. I'm not a lawyer, so you gotta understand it. But I think the basics of it are that if you own the stock, not the options, but the stock, for five years and the company is below a certain threshold, and I think it's fifty million dollars an assets when you originally purchase the stock, I don't think you have to pay taxes on it at all. So that is a very special situation and another good reason. But read the article. That'll tell you all about it. But that came into play with, you know, with Gerson Lamar Group, where that was a company that you know. They paid a lot of money out to shareholders over the years and a lot of folks had a great tax benefit because they had purchased the stock well in advance. So if you believe in the company, I think it's Scott makes the right point. We exercise before the valuation goes up so that you don't have to pay taxes. Thank you. The next thing I kind of want to touch on is in I've been at this question before, is like I'd how you optimize for cash versus equity. Again, depended upon everybody's financial situation, maybe as well as risk profile. But what I typically tell people is optimized for cash earlier in your career, optimized for equity later in your career. So at my at my stage of life, you've been a VP of sales number of times. At this at this point, like, if I go get a VP of sales job, the cash I'm going to make in terms of salary and commissions is roughly this, the saying probably in each of those those orgs, and it's not going to do much to change my life. And I'm at a situation, in a place in my life where I'm looking for fuck you money. I'm looking for something that will generationally change the game for my family and my kids, and I right, and so I will probably be more skewed to optimizing for equity. But early in my career I didn't optimize for ectly at all. I was trying to get experience, I was trying to move about the ladder in terms of job title. I was trying to optimize for a higher base salad Figuerote, more responsibility, that type of thing, and so that's kind of how I how I think about that. If you're earlier in your career, you might want to optimize for cash and later in your career you can change that that dynamic and optimize for equity. That's a that's a big piece of advice. I'm curious to ask if Richard and Sam agree or if you see that differently. So I go. I'm a little bit different than Scott. I've been doing stocks and options my entire life. Like my very first stock that I bought a age of fifteen, a long time ago, was in TV right, and this is an I'm by long time ago, I mean in the in the mid S. Scott was maybe for yeah, so it Scott still optimizing for cash. Yeah, so I've always been like yeah, let's focus on the stock and and that's I think that's a naive approach, you know. That's a traditional approach in a different mindset, and I think that was probably a challenge for me. I probably thought I knew more about this stuff than I do, or did at that point, because I had been doing stuff and I still play traditional stock market games on a regular basis. So I didn't do that. I just sort of was a very aggressive about salary anyway. So, whether you call it optimizing, I was. This is the differenceweing Scott and I'm sort of like, nope, do this, do this, do this. Scott negotiates his way through everything and then he makes them feel go good about having them do that for him. As me, I'm a little...

...bit more direct, and so I have not done it probably the way that I should have. Sam I. Yeah, I agree with Scott. I mean I would even put it differently. I don't even think you should optimize for casually in your career. I think you should optimize for experience. I think as you get, you know, into your mid s, then you got to start thinking about gen building wealth. I think before that it's really just about to the point. Someone, I think maybe Richard, said, you know, it's like look for exits, look for great experiences, look to learn as much as possible. That's what's going to generate well for you over time and that's that's what I think. I think, I do see and I advise. You know, a lot of people in revenue collective come to me and they want to talk about cash comp and and you know, at the VP level and above, and I typically tell them it's a they're thinking about it wrong, because I remember having that call with you exactly. People are like it, and it's often because they haven't watched something like this, they haven't thought about it or they're scared, they're intimidated by this concept of equity and they think it's mysterious. So that, like, I got to make two hundred and twenty five, they offer me two hundred. What should I do? And you know my personal opinions. I well, who gives a shit? Like the difference? Twenty FIVEZERO dollars in a year is two thousand dollars. A month is a thousand dollars of paycheck is five hundred bucks after taxes. So like that WHO cares? I've not. I don't mean that. I'm sure it's meaningful to a lot of people, but at a at a level where you're a VP, like, I really don't give a shit about five hundred bucks a paycheck. What I care about is exactly what Scott said, like at a certain point, as you get into your s and int your S, you need to start if you're trying to do you need to start getting rich, like at some point you need to start generating well. So how do you? How do you generate well? And I know that there's like Rich Dad, poor dad and a millionaire next door and, like you know, you can live like a monk and never spend any money, and I get it. And that's a that's one way to save and that's one way to Genera. Because I'm going for lumps, some cash opportunities, and equity is one of those lumps, some cash opportunities. Let me put out there one thing, though. I think that there are other things you can ask for instead of equity that function like equity, like milestone payments, right, because the reality is that oftentimes you're not going to value the equity the same way. I have that the same way that the founder of the company will the counter of the company. The equity is incredibly valuable and you might think it's just a lottery ticket and you're not sure how to feel about it. So one of the things you might do in a negotiation to say I want two and a half percent. They come back and they say no fucking way, we never given that. We can give you one percent and say, you know what, how about this? How about give me three quarters of a point instead of one percent, but when we get to ten millionarere I want you to write me a check with three hundred fifty thousand dollars, or at the next financing round, I want you to write me a check for two hundred and fifty thousand dollars. And if you structure it that way, I as a founder, I would prefer that. I would prefer that. I don't mind paying people cash. I think he is refer that too. As the VP, I don't I don't want a don't like that table like equities forever. Once, once Scott or Richard or you exercise you're you're on my cap table forever, for twenty years. I don't want to do business with you for twenty years. So I think like we should look for opportunities to trade equity, which really isn't going to be worth as much as they tell us, and look for opportunities to get those lumps some payments in other ways. Yeah, and then, as a sales leader, to those. Those are our milestones. That's after talking about. It is the cleanest, simplest, easiest way to do that, especially if you're going in early stage. Milestone at two million, milestone at five million, milestone at ten million, milestone at twenty million. I think I would take that over all the complication, and probably that's financially stupid, but that motivates me more, I think, to seeing the most. It's not necessarily finanty stupid. One could argue that it's actually smarter because you're one hundred percent in control now, yes, yes, the operator and as the builder and as the executor, rights exactly tied to your performance. You can get an execute on that right. Yeah, the only thirdvice, the only the things I want to bring up in my section of the the rant is the antiquated four year best thing schedule, as Sam alluded to. Here's why it exists. You know why it exists, because all of us fucking let it exist, because none of us and say no. And I'm telling you, if all the sales VP's out there from me to call into everybody else who's on this call who's in a director or VP of sales level role, if all of us were like no way, four years, give me a break, that doesn't make any sense, then the game would start to change because founders would have a harder her time finding sales vp's to go lead their organizations. What makes sense is stage appropriate besting schedules. If you're not going to do the milestone stuff that Sam's talking about, stage appropriate besting schedules. Matter of ton we've got an eighteen month average. You know lifespan, if you will. Well, I'm an early stage BP. I go in, I'll get you to two thousand and twenty five million are art's going to take me two to three years period. That's what I do. I've done it six times. I've helped gotten how many companies now do that exact thing? How are you going to fucking tell me that I don't deserve my full best just because...

I did it in two and a half to three years instead of four years the way you did it? Better and I'm giving you less. That's not fair. Yeah, exactly. So instead, instead, why not just say look, you're the early stage VP. We're probably going to top you off anyways when you get to twenty five million, because we're going to disrespect you and tell you that you've never taken a company to a hundred million before. So you're going to end up getting topped off and fired. or I've never seen that happen. Scott or right. Why not just give me my full one and a half or two percent or whatever it is, if I achieve what I went there to do, and my goal is to sort of start this revolution, if you will, for all the sales leaders out there to stop accepting this for your best start pushing back and go for either these milestones or this stage appropriate besting schedule. And I think, I really do think, that if we push hard enough, things will start too, things will start to change. But it won't change if there's BP's out there who don't know any better right and just accept whatever they're given. It's one of the reasons why I really love forums like this is because hopefully the nine hundred and sixty seven people who are on this call right now pause for a moment and they think about these things. They're like, you know what, I remember what Scott said or I remember what Richard Said and I pushed back a little bit more and we negotiate a little bit better. Or would you say, if they're if they won't budge on the four year, then you just need more options. You need to be okay with only getting seventy five percent or fifty percent of them, but there's you can ask for more options. You could do the milestone thing like Sam's talking about. I mean, there's a lot of different ways to kind of go about it. Right what we need to do is take the power back away from the founders and take control. We are the engine that makes these companies go. Every department, I'm sure, probably thinks that okay, but unless you have any commerce site that makes money without a sales organization, we are the engine that makes this company go and as a sales leader, you're the ones steering the ship and you're the one guiding it. Don't tell me that I deserve to make four hundred K when this motherfucker is about to make four hundred million off of everything that I've done and built. That doesn't make sense to me, and you need to go into the room when you have that conversation with your fucking battle face on, because if you think that they aren't really good and really prepared for that conversation, you're out of your mind. You need to be ten times more prepared. They are good at it. They are great at making the every read, everything they're offering you sound generous. They're good at almost making you feel guilty for asking for more. If you're at a successful start up, they've raised money. Those CEOS know how to negotiate. You need to be able to one up them and they will play on your emotions and they'll make you feel bad. They'll do all of those things, and don't think for a second that they don't know exactly what they're doing. They're fucking you and they know it. Still call it out. It's okay. Sorry, I had to add my little rent in their sky. You have more. I'm done my topics. I see the cons to those two. All Right, Richard, my man, I see here there are four kinds of fuck you options. Is that what we're going to get to hear about here? A couple of things around that. Of course. I'm sure my kids will here in this fantastic Scott. Bring Caleb and Braden in the room so I can teach them too. Right. So. So the thing I want folks to understand is that, based on where you are in your career stage, there's the kind of options you're going to get. Right, you're going to get either, you know, Fuck Air, fuck you options right, fuck you options to in the real world, or seven figures that, as Scott said, change the existence of not just your lifestyle but generations. Right, if you can get a million dollars and do something with that and parlay that into something else. Right, first time it could be five hundred thousand. That's fine. It depends on where you're coming from and where you live. But you're also you know, then there's the six hundred figure. You know the six figure, and then there's the five figure options right. Like I think the key is that I want people to know the ustrs, the AEES, who are listening to this call and learning. I hope you taking a ton of notes, but there are other things you could negotiate that are not just options, right, and I at least want to give people some of that right, because part of this is learning how to ask for these things. is about learning how to ask for these other things later. Right, you should be asking for well, now it's kind of easy work from home, right. That used to be here. I used to coach Scott on that one. Like he got two years, two weeks off every summer to go to Lake Albanar. Right, built it into his plan. Right, that's easy now, Um, but negotiating that, negotiating your cell phone, think about the food stuff that they're giving you, right, like if they're bringing food in, or they were bringing food in, you know that's a piece of compensation, right. You know all of you who are now working from home and that foods not coming in. What's it now costing you per month? That's such a good point, Richard, and I did not think of that as a VP and when we went remote I was shocked at how many people that have really impacted their life that they did not have access. They were now spending more money to work from home. You're spending a hundred fifty, two hundred dollars a month. I mean a Weich is right, and granted, you know, I don't want any be going how getting happy meals either. Like that's unhealthy like. So you think about those things, think...

...about you know, your healthcare, and it's going to sound weird. Be Like Wow, I'm going to do I sound like an idiot asking for them to pay for my cell phone. Well, now, parley that into when you want to ask for Tenzero more shares. This is your runway to practice that, to ask for those other are things that matter so for people were earlier in their career. I just want to make sure you understand it. These there are tones of other things to negotiate for that are really, really important. So I also think I would I would add to that real quick. I think a great thing to ask for is for them to invest more in you, in putting you through certain training sessions, are certain programs. That's a very hard thing for them to say no to. There's one thing and that. So there's two parts of that. One is, how are you going to help me keep learning so I can be better for you? Right, that's what you're selling. Hey, you're investing in me so I can go help make us more money, so I can make you that millionaire billionaire. The other thing they can that I think people should be asking for, particularly earlier generations, although I think it can happen in your s and s is help me pay off my student loan, like I want some kind of stipe, in some kind of way where this is going, and you know it's going to my student loan, because that moved a lot to that is a different way to invest in your education, so to speak. So anyways, I'll pause there and I'll let me. I want to add a quick point on that, Richard, just from from the VP's point of view. Be Very cautious around when and how you ask for things. There is definitely a time and a place that's optimal for asking and there are times and places that are very much not. If you are coming off of the worst quarter of your career, and I've seen this happen and I just walk out of those meetings like, what were you thinking? That's not the time to go make that ask. If you're coming out of a quarter where maybe you did really well but the company is struggling, it's probably also not the best time to ask. To keep both of those things in mind, I think a really good time to ask is that your one year review, or at some sort of a scheduled review, where you did really, really well, that's a good time. You're you're okay to ask. So I disagree with the company's doing really well. I think you can politely find a way to say, look, I need these things, and then you get creative about the future. If it come he's running out of cash and they just failed to raise their route. It depends, I guess, the scenario. But point is, be conscious of that. Don't be toned deaf to that. There is more going on than just you, because if you walk in at the wrong time to make an ass, you can blow it when whereas if you waited a month or do the month earlier, it would have gone well. Point being, the timing is is important. Sam, did you have something to add? So you put your hand up before them. Kelly, that might be Kelly Snyder, but then she just put it in there, which is one of the things you should ask for. Is the cost of your revenue collective membership? I was but I make sure to pay annually. So after they shit, can you it's prepaid. M Damn. Straight. All right, richer, do you got more? Are you good? Good to go? All Right, Sam, the man, you're up. I covered a lot of it. I think we overvalue. To the point of this conversation, a lot of the comments I've made, I think that there are very specific situations where equity is going to be worth something and I think that we should just be mindful of other there things that you can ask for that function like equity. I think that you know, I personally, and this was controversial, like I don't believe that. I don't believe that a he's or SDR should get equity. Kind of discuss point. Why? Because you're not going to make because I want to give that equity. Two people work can really change their life. I'd rather give another two points to Scott than give point one percent to twenty other people or to forty other people where the outcome for them is not meaningful, but to the company it is meaningful because that's two points and it would be meaningful if I could reallocate that to executives or more senior people. So that's a different rant. But the point I would make is just there's there's things like milestone payments. The other thing that is you know honestly, because I get fired all the time. Severance is another thing that functions like equity, and you know, my last company before I started working on revenue collected full time and negotiated for twelve months of severance paid in one lump sum. That is the same. That was very, very similar, if not exactly the same, amount of money that's Scott made on that, on that hundred and seventy five million dollar exit. And so there are other things that we can ask for that are cleaner and easier to understand, as opposed to just assuming that we should get equity because it's like a lottery ticket. Well, you know, you got to think about whether it's going to be worth anything. That's that's that would be the point that I would make. All right, we've got a little bit of time. Let's take some questions. Somebody just asked who would you recommend tapping for advice during negotiations? I recommend that you're in revenue collective. It's been the greatest resource for me personally. Wish that that I was in there before I negotiated my my last job, but during my departure. It was super helpful and I've seen them help lots of people. Do you want to involve a lawyer? Sam? Correct me if I'm wrong. I think a lawyer's probably...

...going to be best to help you review the documents make sure they actually say what they're supposed to say and maybe they can identify some things that could be changed. But are they the right person to go to to help negotiate? They could be. I mean it just depends how senior you are. When is it a bad time to have have a lawyer? I guess. Yeah, question and you don't know to be able to afford one, that's the bad one. Yeah, be ready for a thousand dollars an hour for a good one. Right. So it's a negotian point about revenue. Collective revenue collecting is eighty bucks a month. You gotta ask Twozero plus people who, presumably at least half of them, might be able to help you with this kind of negotiation. or You can talk to this or lawyer is going to cost a thousand bucks an hour in New York City or for whatever. Right. Yeah, and it's going to take them ten hours, equivalent to actual thirty five minutes work. My best piece of advice there is build a relationship with somebody who's been there and done that a few times and it cost nothing. Yeah, I've been working on and it's just really hard, but I got a lot of good nuggets from this. I'm working on putting together an ebook about all of this stuff, compiling everything. I don't know when I'll feel confident enough to actually release it because everything changes so fast, but hopefully that will be a resource to some of you some day. What else we have in here, Richard, from a question perspective? Yeah, got most of them. We see there was one. There was one question about you know, what do you do if you know you're based in one company? Look, let's just use this. It's an American company. You have employees in other countries. Right, any advice about if I'm the employee in the other country? Right, what can I do? What should I do? And I suppose I could go reverse. Hey, I'm working for a company's based out of the UK or or somewhere else. What kind of thing should I look for? And in terms of their stock options, like like. Should they expect something different? So I worked for a Paris founded company. The only thing that I noticed it was different. I mean a I shouldn't expect something to be different just because they're based in another country. If they're hiring people here in New York, should be getting you know what? What is the the market standard in New York? If that's what the question is. I did notice that you will see some things when you start reviewing the documentation that culturally just maybe different, which is something that maybe is a norm in that country that here is not very much the norm. And some of those things weren't necessarily fair or unfair, they were just different and they were like, well, I've never seen that before. Some of them were actually good, one of them not so good. But yeah, that's the only thing I'd noticed is that there could be some cultural differences where maybe we say there's a one year cliff, and these are just examples, by the way. Maybe in the US the one year cliff is is normal. Maybe in another country it's normal that it's a year and a half or that it's less, and there could be some different terminology in there that might be favorable to your unfavorable. But yeah, it's worth looking through. That's I mean, I'm not sure if that's exactly what the questions asking, but cultural differences. Other than that, I think you should be treated the way that you should be treated. Different countries have different legal and tax implications. At the biggest issue like the UK is far more punitive actually on foreign distributions, and so the options are worth less in the UK if coming from an American company for a bunch of tax reason. So that's just what you got to know. Is In this is not weren't not know. None of us are lawyers or accounts you got to understand that tax law and the securities law in your country and how, because windfalls for tax really differently. That's a good point. Yeah, the company I joined was found in Paris but they incorporated in the US, so I didn't I didn't see much of that in my experience and and I will just double down on I meant to do this in the beginning on Sam's disclaimer. We are not lawyers. We have experience in this area, but don't hold this legally responsible. I recommend that you consult a lawyer at tax attorney on anything before you make a big financial decision or career decision based on it. We have advised you to the best of our knowledge. I don't know if that's legal jargon well written, but it sounded good. Any more questions? Are we ready to close out here? Well, there's a couple more. One was, you know, is. How valuable is the story of I've been a part of an IPO right as vary your career, very pretty high, very valuable at any stage of your career. That's extremely valuable. Like I said earlier, I watched it catapult people's careers. Not It wasn't. It wasn't an Ipoh, but it was a large acquisition and those folks would not have been able to score the jobs that they scored. And I will tell you that when I left single platform, I actually joined there the month after the acquisition. They got acquired for a hundred million. I think it was eighty million in cash, something like that. They acquired for a hundred million dollar exit. They were doing a very small amount of revenue. The company was only two years old and I joined the month after, so I wasn't even there through that phase. But then I got to grow with the company and I got to hire hundreds of salespeople and be a part of rapid scale. I then completely skipped over the director role and...

...went straight into a VP role. And what was the number one reason that they wanted to talk to me and to interview me? No question, everything that I experienced at single platform. That was the reason they met me, that was the reason they wanted to talk to me. It was every question they asked me and the interview was had a single platform do this, this, this, this, this and this, and the fact that I lived to that was a hundred percent the reason that I got the job. Well, maybe maybe I had a little something to do with it too, but without that I would never point counterpoint to all this calling and others like him being a option title. Inflation is very real. So if you're if you're looking at folks have been through, you know, an IPO or a big acquisition, whatever, and you're thinking about hiring them, yeah, it's a signal that they've been successful and whatnot, but that doesn't mean there's suddenly ready to like be in charge of everything. You right, there's a lot of people, I'm sure that Colin knows, and we don't have to talk about them, at single platform, that moved into roles that they were not ready for and those folks struggled and or failed, and some of them, I went into leadership roles and they weren't just ready. So if you're interviewing people who've been through some of these events, don't let that blind you to you know, real, real talent that's in front of you. Collins the exception, but there's plenty of people who got rolled. They weren't. I it's a great point when they like if they leave happen or sales force and they got some VP title and then they go to a startup and they don't. They've never actually built anything. They don't know what it means to act right. They had to follow a playbook that was written for this and there's nothing wrong with that. Like, you know, Kudos for them for being in those great places, but make sure that if you're interviewing people based on their dest that you ask them about the down and dirty. Where have you done this? Where have you got your hands dirty making this kind of sausage? Like, did you really get in there do it? Because if they haven't, then been we're buying an over and played a title. You. Yes, yes, great point. All right, guys, I think we're just about up on time here. Want to say thank you once again to to Scott Richard and Sam. If you are in sales you and you are not a member of revenue collective and you want to be, go to revenue collectives website and fill out the application. If you are in sales or not in sales and have never read addicted to the process, you need to go on Amazon right now. It's the best value. I think it was is like ten bucks Scott and bucks. Yeah, it's my it is my favorite sales book, particularly for people just getting into the career. I actually bought a copy of that for every salesperson I've ever hired in my last role ever since I read it. Highly recommend it. CHECK OUT SURF and sales. Whenever quarantine's over. I'm sure those guys are going to be getting back out to Costa Rica or somewhere cool. What else? I recently got to to sit in on a free training that Richard's been doing for the Harris Consulting Group and I got to tell you, I was blown away. I mean, I've been in sales, I've trained hundreds of sales people, hired hundreds of sales people. I learned a lot. Then I immediately started for recommending it's other people. I think Richards doing that for free again. Richard, when is that? How can people get sign up? Yeah, it's June, twenty three and twenty four this month. So yes, we'll be doing it and you can find it on my website or hit me up on Linkedin. I'll send you a link or find it here real quick and sued in the chat. Awesome to for postime. Thanks everyone. If you enjoyed today, please share the recording with people. Spread it around. We'll be sharing it Sam I believe, through the email or they just use the same link. Right link, the same link will work. In ten minutes you can watch the recording and we'll you know, we'll send out a thank you email, but the same link works awesome. And so if you guys are not already following all of us on Linkedin, we're all putting out gran content all the time. A bunch of us are on twitter, instagram, all that sort of stuff. So follow along, stay in touch with us and I hope that you enjoyed tonight great, great jog rating. Thanks everyone. Hey, everybody, hope you enjoyed that conversation. That was a that was a great one and a long one with myself, Richard Harris, Scott Leas and Colin Cadmus. We've got a lot of bonus episodes coming up for you at revenue collective podcast because we've creating so much content and you're going to be hearing some of its. We've got a lot of great stuff coming up. We've got an awkward conversation, the conversation, an honest dialog about race and Corporate America that we had with myself, Brandon Myers, Davante, Luis Jackson and Robert Daniel. We've got the town hall that I presented and we've got a lot of the sessions from our most recent virtual offsite and we're excited about it. So if you want to reach me, can you can email me Sam at revenue collectivecom. You can also find me on Linkedin. Linkedincom for the word in for last same of Jacobs, of course. If you're revene e collective, remember you can find us on slack. We'll talk to you next time. Thanks for listening.

In-Stream Audio Search

NEW

Search across all episodes within this podcast

Episodes (240)