Ruby Bhattacharya of Coinbase re-joins us for a conversation about evaluating the equity component of your offer letter from startups.

Previously Ruby’s joined the show as a guest to talk about what the job market for software engineers look like in a recession.

Topics of this episode include:

  • how to communicate with a startup recruiter about your offer letter’s equity component
  • what are some key vocabulary to know about startup finances when evaluating your offer
  • who at a company can walk you through your offer letter to help you assess your offer

For the full text transcript see below the fold:


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Max: Welcome all, I’m Max of the Accidental Engineer. Today we are rejoined by Ruby Bhattacharya. Ruby is Senior Technical Recruiter at Coinbase, did I get that right?

Ruby: That’s correct.

Max: For our audience that might not know what Coinbase is, do mind sharing real quick what you guys do? You guys are a San Francisco-based start up…

Ruby: We’re a San Francisco based startup. Basically it’s the future of digital currency. If you’ve heard of crypto-currencies, Bitcoin, Ethereum, what Coinbase is trying to do is open a open financial market for everybody. So that’s the basics of Coinbase.

Max: And Ruby’s role at Coinbase is seeking and hiring and making offers to very talented software engineers.

Ruby: Basically, all I do is hire senior software engineers where we go through a rigorous interview process, sometimes a rigorous negotiating process, which I believe we’re gonna talk about a bit today.

Max: Like Ruby said, the topic today is about compensation and negotiating compensation with an employer or a recruiter at an employer. And specifically, in the case of startups like Coinbase, the equity component and understanding the equity component of offers you might get when you get a job offer.

For our audience that might be new to the concept of getting equity as a portion of their total compensation, what is common in the industry beyond cash for employees to get?

Ruby: Got you, okay. You mean the percentage?

Max: Not percentage, but even just the concept of options.

Ruby: The concept of options, okay. If you’re getting an offer and brand new, you’ve got equity in this component, you’re probably thinking, “I really don’t know what that means. What does it mean that I get this percent? What does 8,000 shares mean, really? What do they mean?”

They don’t mean anything. It’s not comparing apples to apples. You don’t really know what those figures mean. What you’ll also get in an offer letter, you’ll have the diluted share price. They’ll try and give you a valuation of the company, they will try and give you a strike price if they can. Now, these are all questions like, “What are these elements in it,” and, “How do I compare?” So we can start going through those, start unpacking what’s in your offer letter.

Max: Okay. Well, for people who might not have two offers on the table where they can’t compare that they’ve gotten an 8,000 share options offering at company A with their 5,000 share options offer at company B but the strike price is different.

Let’s say, in isolation, looking at one offer with a certain set of options and a strike price, how do you present that offer to engineers that you make job offers to?

Ruby: Right, after you’ve discussed that you’re giving the person the offer, then we start getting into numbers. This is what your offer looks like and a lot of thought and effort is put behind picking that salary band that you’ve been given and the equity that you’re being given as well, so don’t think that someone will just come out and these figures out of the air and said, “You get this,” they haven’t.

There’s normally a committee, the engineering team–recruiters involved as well–who will be looking there. They’ll try and level out where you might be.

Companies don’t like telling you about this, but they’ll try to level out what experience level do you have, are you a level 5 engineer, 4, 3, whatever. Then based on what your experience level is and where you fit in with the company, technical ability, a salary is picked from that.

With someone like Coinbase, we do a huge amount of research into salaries. So the offer that you’re gonna get, I’m pretty confident I’m giving a good offer.

So that’s how to relay across to candidates, “Will you believe me? The offer I’m giving you is really good.”

They’re not gonna believe that necessarily. Typical questions that I get asked include: what the current valuation is? I get asked what our strike price is, when to exercise the options, what happens if they leave, and it’s been a few years later, do I still have options to exercise them?

If you’re sitting there with one offer then the things you want to look at is not just percentage or just the amount.

Do try and get a ballpark figure of what the shares look like now, today. If they do have a 409A valuation, you will have a strike price.

Now, to evaluate whether those shares are actually worth anything at all, that’s the clear question. I could take startup A and startup A has 12 people. You’ve come in as their first engineer, and they’re probably going to give you, I don’t know, maybe 0.5% equity. You might get something as high as that, right?

Does that mean anything compared to someone like the bigger startups of this world like Coinbase, companies like Instacart, companies like that? Now where are they going, where are they gonna be in 5, 10 years time? Are they gonna be global? Is that where they’re heading?

If they’re heading globally, then you should really, really think about that because if a company is thinking, “I’m gonna just be acquired” it’s probably not gonna be worth much. And if the company isn’t really growing, if they’re not hiring a ton and it isn’t going in the right direction, then you’ve got to be thinking, “Well, I’ll just ignore this piece and just focus on salary, maybe.”

Max: Last time we spoke, you shared a piece of information that I wasn’t really familiar with, even from my time as an interviewer and engineering manager.

The topic was that recruiters often—in order to base their offers on reality–do similar to what is done in the real estate industry, which is you find vendors of data about what is the market paying for different job titles and use third party data to inform your guys’ salary bands of what salary offers to make.

Is there something comparable for equity offers or is it a much more fluid, dynamic process for deciding?

Ruby: It tends to be much more strictly decided. You can sometimes negotiate up or down, you could optimize for equity and ask them what they can do if you were to trade up or trade down your salary. That’s a very common option to do and companies don’t mind doing it. What was your second question?

Max: Was whether you have, as a recruiter, a third party data source…?

Ruby: Oh, third party data for equity, no. What we’re doing is basing it on the rounds of funding that’s happened.

Obviously, earlier rounds, people were getting a lot more. As the shares get more and more diluted, they’re worth a bit less, but then what’s happened is you get more of them, if that makes sense, to make up for that differential. So people who start later on aren’t affected by the fact that they started later.

Max: The other keyword that we should definitely cover before we move on is the topic of a “strike price”.

Instead of just being given shares in the employer that you have the opportunity to join as an employee, you’re given options. You’re given a contract that gives you the “option” to buy shares, and that’s not for free.

You actually need to pay what’s called a strike price to actually buy the shares. There’s a lot more nuance to that, but the big point here is that when you’re joining a company and part of the negotiation of an offer letter is there’s this strike price, which is the price at which you have a right to buy the underlying shares in the business.

So what is the strike price usually decided to be for different employers? Isn’t it based of off the valuation of the company?

Ruby: It’s completely based on the 409A valuation.

Sometimes what happens is you’ll get a 409A valuation that you know is the rough amount, but it hasn’t been set in stone. And then you really have to wait for the 409A valuation where they say, “Okay, this is what we’re valued at,” and that’s when the strike price comes out.

I wouldn’t be too worried if a company has just gone through a round of funding and, let’s say, they’ve had some kind of valuation and you roughly know what it is. If they don’t have a strike price, they just don’t have a strike price. They’re not gonna be able to find it for you because they don’t because they got nothing to base it on.

Max: This is for our audience that’s ignorant about it, which I was until not so recently: 409A valuation, the number and letter is referring to a government form that businesses have to file when they receive investment.

When a company like a startup receives an investment, it is done at a certain valuation of the total value of the company and that’s a government filing that businesses have to file when they take investment. So depending on when the most recent investment was received by the startup, that impacts the price of the shares or the strike price of the options that you’re gonna be receiving.

So what Ruby’s referring to is: when there’s uncertainty about when the next round of funding will be closed or announced, or that 409A form will need to be filed with the U.S. government, that creates ambiguity about what exactly will be the strike price in number of shares combination you’ll get in your offer letter.

Ruby: Right, which can be frustrating because you wanna know and you’re wondering why they’re not telling you, but it’s they can’t tell you because they have no idea.

There’s certain information, you know, you might do a little research into equity and start asking a bunch of questions that probably isn’t relevant to your offer, but I understand the need to ask these questions and to understand exactly what we’re talking about and what exactly the company’s offering. If you’re gonna devote yourself to this company for a number of years you really need to know what’s gonna happen if you fully vest, stay there four years. You have to make a guesstimate. This is like the lottery. Like, it can mean nothing at all or they can mean everything, you know? It literally is like that.

I think the comparing part is another big issue because what you wanna do is really look at the size of the company, where they’re growing, how big they’re gonna get rather than, “this company’s giving me, like, 0.45% I’m getting all these shares and they’re worth this amount.”

Well, they’re just really guesstimating. Without a full valuation, without the strike price, you can’t really fully say this is how much it is, and early stage companies, it’s very difficult.

Max: For candidates, that’s probably extremely unnerving to hear from a recruiter. So on the other side of the table, as a recruiter, how do you communicate confidence in your offer when it’s ambiguous what might be going on?

Ruby: I think it’s really just getting across the facts. The facts are this: you play with what you can play with.

Let’s say I do have a valuation, I do have a strike price. Well, I can use that very easily and then the question is answered. If there isn’t one, what I have to do is step back and get the candidate to step back a bit and look at the company. “Where is it going? Are we hiring 300 people or are we hiring one person because we can’t afford to hire people? Are we planning to be a $10 billion dollar company or are we planning to get acquired or we just wanna get here and someone to buy us out?”

You wanna look at those things because that’s gonna be important. You really need to look at where the growth projection of the company. What are they telling you? So when you have conversations with the VP of Engineering, any of the leadership team, those are the questions you wanna be asking them, specifically.

The recruiter can help in a certain amount by giving the facts that we’re given, but we can’t negotiate on that part, that’s gonna come from above, that’s gonna come from the candidate. And there is flexibility about how you can…if you are concerned about the state of the company or you’re concerned that “this is too much of a lottery, I don’t know how much these shares are worth,” then negotiate more on your salary, optimize the salary part, especially if you’re not planning to be there that long, optimize on salary.

If you plan on being somewhere 5+ years, then make sure it is a company that has got a huge growth potential, so that you can really see, “I think they’re gonna be worth something.”

Max: One question that some people give advice to job seekers of startups is that, when a job applicant receives an offer from a startup, is asking about what the startup’s capitalization table looks like.

And for those of us who don’t know what it is, the capitalization table is a spreadsheet often, which shows the breakdown of who exactly owns shares in the company and what percentage of the total number of shares there are and the absolute number of shares. And this can serve as a really good guidance for, well, proof that the number of your shares you’re getting is the percentage of total outstanding shares like they say it is, but also gives some insights into what advantages or what different types of shares are outstanding.

So a topic that often comes up in compensation and discussions about equity incentives for employees, is that different shares have different what’s called “liquidity” or “liquidation preference.” When an investing company or an investing individual invests into a business, they often do so under the condition that the shares they’re getting in the business have a pay out before other shares.

This is a common risk mitigation tactic or negotiating tactic that investors use when investing. As an employee or as a prospective employee talking to Ruby maybe, as a recruiter, do you often get questions about what is the capitalization table of Coinbase or previous places you’ve been a recruiter at and how do you react when you hear those questions?

Ruby: Right, I actually haven’t had that exact question. I have been asked about preferred liquidation. I don’t have that information at hand. That sort of information I’ll have to get from the VP or I have to get from the CEO, but if you do ask those questions, don’t expect the recruiter to be able to come out with the answers for that, because they’re in-depth questions.

The stuff that isn’t critically important in an offer, but if someone wants to know, I’m not sure how much value it is to the person because if an investor puts a lot of money in, it kind of makes sense that they’re gonna wanna get returns from it. They’re putting a lot of risk in putting up that money. So I’m not sure how much that matters, but obviously, if you got specifics and it looks a little wrong or a little off-kilter, then you can worry about that.

But I would strongly advise a lot of times…ask the recruiter what they can tell you about the equity because depending on the recruiters’ level of knowledge, how long they’ve been talking about equity to candidates, they may or may not know the answer. But what you wanna do is try and arrange–do this after you’ve got the offer, don’t…

Max: Everyone–all of the advice that Ruby’s telling us is, like, after you get the offer.

Ruby: This is after you get it. Don’t often ask any of these questions before. There’s no point, right? Get the offer in hand, then say, “Hey, I’d like to discuss some of the details of this. Who do I speak to? Who is the best person to speak to about it?”

The recruiter might be the best person to speak to about it, but they actually might put you through to one of the leadership team, for example. If they really want you, they probably will, so once you speak to the VP of Engineering and guarantee you’ll be accepting the job offer because they will be able to tell you, “Okay, this is…let’s just break it down here, let’s just look. This is where we’re going, this is what we’re doing, we’re doing A, B, C. This is why this is worth this much. This is what I thought when I joined the company.”

I think it’s very powerful hearing from a VP of Engineering and other engineers the reason that they joined and why they believed in that company so much that they thought it was gonna go somewhere.

Max: And I think one of the reasons that you might not often get asked about, “What is the capitalization table of the company I’m getting this offer from,” is because it doesn’t actually give you a great deal of information. It can give you some really big red flags in some circumstances…

Ruby: Absolutely, yeah.

Max: …but by asking about the cap table, it often suggests you don’t trust the recruiter and, inherently, the employer, which is in some cases reasonable, but in other cases, it kind of is a slap in the face to the prospective employer you’re engaging with.

Ruby: Yeah, I mean… Can I be totally honest?

Max: Yes, absolutely.

Ruby: It is frustrating when people ask lots of questions about the equity because what happens is it’s like someone’s read a book and they’re picking out all the key words and asking exactly what those key words mean to that company.

A lot of the time, it isn’t important. The main factors are, “What’s the total amount in diluted shares, what’s the total amount that’s out there, what percentage of it do you have,” and make sure it figures out.

And then, using that 409A valuation, that’s helpful, that’s very useful in seeing what it was like when they got another round of funding and start just maybe doing some of your own research into seeing how far they have come, and if the company’s kind of flat like this, “Do I care about shares in this company? Do I want to join this company?”

And it also depends on what you want.

Do you want money or do you want equity? It depends. If you’ve got a house and kids, you’re gonna optimize on cash if you haven’t and you can put some “skin in the game” and you can see the company growing, then you want to probably optimize on equity because that will pay out big time.

Max: Yeah, and for people that are coming from careers where they had no previous job that had an equity portion of compensation, one of the things we should definitely distinguish with options is that getting this options component or equity component of your offer is not a signing bonus.

The standard is that you often only get these options over the first four years that you are at that employer. If you leave before four years, you only get a prorated amount based on how long you’ve been there. And there’s also the typical one year cliff, which refers to the fact that if you leave in less than 12 months after starting you don’t get any of your offered options.

And the other distinction I should make about the strike price is that, like I was saying, it’s not a signing bonus.

The strike price is the base at which you start your job and you’ll only make money off these options–and in some cases, not even then—you’ll only make money off these options if the valuation of the company goes up from when you joined.

So it’s really an incentive to care about how the business as a whole does, which is often something that gets lost in the conversation because the word “equity” refers to shares where you’re really getting options to buy shares. That’s a really…I think a helpful distinction to make for people who’ve never gotten options before in an offer.

Are there any other topics that we should cover about equity and the negotiation process and, like, what are good things to ask, what are bad things to ask?

Ruby: Right, I think what you wanna do is get the facts. Just say, “Is there anyone I can speak to about equity just to get a bit more detail?” They should be absolutely happy to put you through to senior leadership so someone can go through it, in absolute minute detail, every single thing that you need to know.

Whenever I’ve done that, people have come away happy, signed, taken the job.

Max: Makes sense.

Ruby: It makes sense, you know? So then, it suddenly all makes sense to people, and they realize some of the questions they’re asking, they don’t really need to ask them. But it all comes from a place of not knowing, obviously. There’s little information out there about what you should know.

And also it’s confusing because you can get people coming in with competing offers with completely different sized companies, different series companies, and just don’t compare the two because company A that’s worth $5 million is not the same as a company that’s worth $100 million, at all.

Max: For sure, for sure.

Ruby: So you’re gonna get a less portion of that, but it’s probably more likely to pay out in the end.

Max: Yeah. One thing I wanna highlight is that if you guys have any questions for Ruby, by all means, drop them in the comments on the episode.

Ruby: Yeah, please do.

Max: …whether on YouTube or on our website at We should absolutely take an opportunity to plug roles that you guys are hiring for at Coinbase. You guys are hiring engineers, I would imagine?

Ruby: Hiring a lot of engineers right now. Basically what we are looking for, we are adding to our senior engineer elements. We’re hiring a bunch of senior backend engineers, frontend engineers, people to work on platform.

We’re hiring big in the data team, data analysts, machine learning experts or engineers, data engineers. It’s actually everything. And I think after a certain time, keep an eye on the website because we are starting to hire more entry-level, more entry- to mid-level people, and then that’s definitely an exciting time to join because you will actually have a lot of mentors to actually learn from.

Max: And we’ll include links in the show notes.

Ruby of Coinbase, everyone!