I don't have experience with start-ups, so the question "How much money is left in the bank?" was interesting to me. I understand that it's important for potential employees to know the start-up can afford to pay their salary for more than a few months, but on the other hand I can imagine founders being reluctant to divulge too much financial information. Does anyone have experience with asking/answering a question like this? What kind of answer can you expect? Are there better ways to ask this, such as "How long can you guarantee that you can pay my salary?"?
Asking about the funding status, burn-rate, lead investors, and related details is pretty standard. While most companies won't put this data out in a press release (well, actually, they usually put out a release when they raise money, they just don't talk about their burn openly), it's not a taboo subject. It might be better suited for a round 2 interview though.
They should tell you about funding, if they won't divulge burn rates, you can usually factor $8K-$15K/employee/month for a grossed up burn rate (ie: salaries, rent, equipment leases, travel, etc.). Startups that are more hardware-centric and/or have a large sales force (which == travel) are on the upper end of that. A dozen guys squatting in Class B office space building a webapp are going to be on the lower end.
These points probably are not relevant to the "interview process" but they can often be vital to the economic decision whether to join a startup:
1. What equity will I get and what form will it take?
2. What are the total outstanding shares in the company (fully diluted)?
3. What is the total dollar value of the investor liquidation preference?
You can get 100,000 options vesting over 4 years, for example, but this could represent potentially 1% of the company (if 10M shares are outstanding) or one-tenth of 1% if 100M shares are outstanding or any other percentage depending on the total capitalization structure. In the one case, on a $100M acquisition (assuming pro rata participation by all parties), you would get $1M and, in the other, $100K. Key point: the absolute number of shares is much less important than the percentage they represent of company ownership.
Same scenario but assuming preferred stock in place holding $50M of liquidation preference and full participation rights beyond the preference amount: in the $100M acquisition scenario, your 100K of options would net you $500K if there are 10M shares outstanding (1% of the $50M that is left after payment of the $50M liquidation preference) and $50K if there are 100M (.01% of the net $50M amount). Key point: outstanding liquidation preferences can (and often do) materially reduce the equity return to common shareholders, particularly if the company is sold in a marginal acquisition (in an extreme case, the preferred investors can force a sale where founders and employees get nothing).
Of course, if you haven't vested in full, and you don't have any accelerated vesting on acquisition, the numbers get shaved even more. Say you worked 2 years at the startup on a 4-year vesting schedule, you would net $500K in the best case under the above examples (1% potential ownership that is 50% vested, no liquidation preference) and $25K in the worst case (.01% potential ownership that is 50% vested with $50M liquidation preference).
These days, many who join startups as employees after the early stages are generally aware of the above issues but it never hurts to remember them if the major reason you are joining is for the hope of a large potential equity payout (if the terms you get are good apart from the equity, and you see it as more of a "tip" if things happen to go well, then these issues are of course much less important to you).
Capitalization questions are awkward to raise in an interview but are important if equity is key to the offer. Interview as is best for you, then, but make sure to consider these points in deciding how to finalize your deal.
I've always asked it in this sort of style and don't remember anyone ever having a problem with it, and as the author points out, it's critical for your evaluation of the risk of the startup, which is necessary for you to price yourself, set your expectations, etc.
Asking this shows interest in the company, asking "How long can you guarantee that you can pay my salary?" sends a very bad signal of among other things risk aversion. The employees of startup have to have a healthy appetite for risk....
