This week’s newsletter was written with our friends over at SecFi, a company that specializes in equity planning for startup employees. It originally appeared in their newsletter, where you can get insights on public and private markets, what to do with your stock options, and startup trends straight to your inbox.

Now, let’s get this equity, fam.

Employees — or any employees with equity — often forget that the most concentrated asset in their investment portfolio is usually the company they work for.

If we exclude real estate and the home you live in as an asset class, most startup employees are incredibly exposed to the performance of their employer.

We stress over a couple hundred dollars we threw into Gamestop, Bed Bath and Beyond, or the S&P 500, but rarely think about the company we work for from the same “investment” perspective.

As an employee, you invest your time every day just by showing up to work. And, if you have to buy your options (more on that here) you are also investing your money.

I thought about this a lot as I was recently evaluating a new role. Certainly, it can be different depending on the size of the company. Personally, I was much more interested in joining a smaller company. This way I’d know I’d have a lot invested in the growth of the company — both for my career and for my portfolio.

Most articles you’ll come across online about questions to ask in an interview focus on company culture, paid time off, and if you have to go into an office or not. These are all totally valid. But today I’ll arm you with questions to also treat your next job choice as an investment decision.

I wanna see some growth.

Question 1: What’s your topline growth rate over the past twelve months?

This gives you an idea of what stage of life the company is in.

+100% hyper growth
+50% high growth
+30% growth
+15% mature
<15% dinosaur

Question 2: How many more years do you think you can grow at this rate?

If a company believes it can sustain the current growth rate for three or more years, that’s an excellent sign. The law of large numbers says that things have to come back down to earth eventually, but the market will always pay for sustained growth. More on revenue growth rates to attract funding here.

Question 3: Can you walk me through how the company makes money?

A seemingly basic question, but it may uncover some hidden secrets about how cash enters the building. You’ll want to understand the makeup of their revenue. The six most common models are:

Subscription (Recurring)
Consumption (Usage Based)
Hybrid (Mix and Match)
Transaction Based (Take Rate)
Advertising (Views)
Professional Services (Hours)

The market usually rewards the first three with higher valuation multiples because they are more predictable and have a higher Lifetime Value-to-Customer Acquisition Cost ratio. That being said, all can be successful if applied to the right market opportunity.

Show me your financial profile.

Question 4: Are you burning cash?

This will show you if the business is at a point where it’s self-sustainable, or if it will need a cash infusion via VC support in the future.

Question 5: How many months of cash runway do you have?

As a rule of thumb, you want the company to have at least 18 months of cash on hand. This way you know in the worst case you’ll have at least a year and a half on your resume (assuming no layoffs) to advance your career.

Question 6: How many employees do you have today? How many do you expect to have in 12 months?

This reveals the level of investment they are planning on making into the company. To test the level of aggressiveness, compare the headcount growth rate to the revenue growth rate. If they are investing ahead of growth, that means they are trying to capture a market, which could either lead to great payoff or great ruin.

Raising funding.

Question 7: Who are your investors?

Investors provide cash, but they also allow you to borrow credibility while you are making a name for yourself. Brand names help, anyway you slice it.

Question 8: Have there been any employee secondaries to date?

How motivated are employees to keep building? Have they had any liquidity (via tender offers) to see short-term value from their equity? If not, they may be more apt to sell when the opportunity arises.

Beating the competition.

Question 9: What’s your competitive advantage?

What’s their secret sauce? What makes it difficult for another company with more cash to come in and just copy them?

You need to decide if the company has a sustainable competitive advantage that will allow them to protect and grow market share.

Question 10: Which competitor do you beat the most?

Is there a dying, beached whale they are picking off of? How many incumbents are there to disrupt?

Question 11: When you lose a sale, who is it usually to?

If a company says no one, they are lying.

Going the distance.

Question 12: What tailwinds do you benefit from?

A rising tide lifts all ships. It’s better to be lucky than good, but it’s even better to be in the right place at the right time with the right solution.

Question 13: How many products do you think you’ll have in, say, five years compared to now?

Is the company a one trick pony? If there’s just one product, it’s probably a tool or point solution. You want to work for a platform, preferably one with the potential to define a category.

Vesting schedule.

Question 14: How does your vesting work?

Is it the typical one-year cliff, then monthly vest thereafter? Or Is it a quarterly vest thereafter? Is it back loaded to the final two years? It’s important to know so you can make an exercise plan for your investment.

Question 15: Do you allow early exercise?

A company’s approach to equity can tell you a lot about their culture. If they allow employees to exercise before they vest (which can have huge tax and cost benefits), it says they take care of their workforce.

Subscribe now

At the end of the day, like most investment decisions, it’s more art than science. You have to go with your gut feel and if you believe the company can execute on its big audacious vision.

I fully get that you probably won’t either have the time or the right person in front of you to ask ALL of these questions. But if you can get a handful answered, you’ll have a much more informed perspective as a future shareholder.

What I’ve been reading

The Rebooting by Brian Morrissey is how I keep up on the business of how business is covered. Very meta, I know.

More specifically Brian digs into the inner workings of running a newsletter business, the incentives that drive how tech is covered in Silicon Valley, and micropayments as a monetization model (feasible?).

Also, that guy SBF has some crazy hair!

Quote I’ve been pondering

There are really only 3 stages to wealth:
You don’t have debt
You can order anything you want on the menu at a restaurant
You can go on vacation anywhere and not care about the cost
-Stuart Butterfield, Founder of Slack on How I Built this Podcast with Guy Raz

Subscribe now

Mostly metrics

The REAL questions you should ask before…