When you go for such a job you have to examine certain things. Company's attractive business plan, its professional leadership team (meaning competent professionals at the helm of affairs), and a reasonable compensation package can see you coming out unhurt. If your package is dependent on the wellbeing of the startup, you are in for great trouble.
Scan the business plan and the leadership
Before joining a startup look at its business and who is heading it. You can even ask the startup to explain how it is going to make money. Go for straight questions like what is its exit strategy and when it expects to make profits?
Do you understand the potential startup's financials? No, you don't? Then seek the help of anyone who is well versed with analyzing company financials and ask him to read the financials of your prospective company for you.
Are you sure the business plan of the startup is viable? Take a look at the track record of the company's leadership and its investors. Did they accomplish anything in the past? If yes, you are safe.
If the startup has the venture capital support, it means its business plan has attracted the attention of professional investors. Then you can deduce the company has enough cash to launch its operations and pay you compensation.
Understand compensation
Many startups are cash-poor. If a startup can't give you any compensation, then you are taking a risk. You should accept all equity in lieu of cash compensation only at the earliest stage of the startup and only when you are positioned as a founder with rights on par with those of other founders who had put in initial funds. The rights we are talking here are the ones like a seat in the board with voting rights etc.
If you are told you won't be paid within six months, you take it for granted that the company would never find funds to pay you. In that event, you can join this company if you are sure you can survive on your own.
Don't go anywhere near such companies that need you to forgo salary and contribute funds unless you have complete faith in the founders of the startup. You may find yourself in a situation where you are asked to contribute more or forgo your equity.
Stock options
Carefully study the kind of stock and options you are being offered and if possible find out how the options compare to the total shares available. Do you know what do stock grants mean? They mean you own the stock outright and you can sell it, pay back the basic price of the stock and pocket the profit if you make any. If the stock value decreases, your options are worthless. You make profit only when the stock gains.
Vesting schedule
The vesting schedule, that is the plan that says when you get the stock, is important. If you leave the job, or the company is sold or collapses before you are vested, you get nothing.
Smart moves
Sharks that are smart to start up a company can as well swallow all the profits. Such smart people appear to offer you something wonderful and later they tactfully dilute your ownership.
Taxes on stock options are very complicated. You may have to pay taxes on the stock you can't sell. So it is better you consult a tax lawyer before you accept an offer. Take every care to get a detailed compensation contract covering all eventualities like buyout, substantial third party investment in the company, bankruptcy and intellectual property you develop.
Meta: In startup jobs you are offered lower salary and stock-option and sometimes just stock-option without any salary. Many won't go for such jobs as they consider them shear gambling. But people with good negotiating skills don't hesitate to take up such jobs.
When you go for such a job you have to examine certain things. Company's attractive business plan, its professional leadership team (meaning competent professionals at the helm of affairs), and a reasonable compensation package can see you coming out unhurt. If your package is dependent on the wellbeing of the startup, you are in for great trouble.
