Evaluating a biotech job offer -- version 1.0

Introduction

Congratulations on landing your new job! You’ve navigated the maze of job hunting and emerged victorious. Now comes the exciting yet daunting task of evaluating your job offer. You might see terms like ISOs, RSUs, and 4% 401K match in your offer letter. What do they all mean? This guide breaks down everything you need to know to determine if your offer is “fair,” “poor,” or “generous.” While we’re focusing on privately held biotechs, much of this advice applies to public companies too.

Key Tips to Remember

Pro tip: I am NOT a tax lawyer or financial advisor. This guide is based on my experiences and research. It’s neither guaranteed to be correct nor complete, so always do your own due diligence.

Pro tip: Always negotiate your initial offer. Most companies have flexibility in many aspects of compensation, and this is your prime time to leverage it.

Pro tip: Don’t let companies rush you into a decision. Take your time to understand and benchmark your offer. This is your moment to negotiate.

Understanding your total compensation (TC)

Your total compensation (TC) will likely include salary, bonus, equity, and benefits. Companies weight these differently, so consider what matters most to you—be it a higher salary, better benefits, or more equity.

Components of Total Compensation:

1. Base pay
2. Bonus percentage
3. Equity
4. 401K matching
5. Starting bonus/moving expenses
6. Employee stock purchase program
7. Perks

Base pay

It’s frustrating that the biotech industry lacks a tool like levels.fyi to evaluate job offers. Companies use compensation surveys (Radford etc) to set internal bands, but it’s often unclear where you fit. Evaluating your base pay is easiest in states like California and New York, where employers must post salary bands. You can also check competitors’ bands, H1B data, or Reddit’s biotech salary survey for reference. Small startups typically offer below-market base pay but compensate with more equity.

Bonus percentage

Most offers include a discretionary annual target bonus percentage. This is often linked to company performance, runway, and your performance. Negotiation room is limited here, as these percentages are usually fixed across a band within a company.

401K matching

Many companies offer 401K matching, where they match your contributions up to a certain percentage of your base salary. For example, a 4% match on a $100K salary adds an extra $4000 to your 401K, tax-free. This is often a great deal, so consult your 401K administrator to maximize the match. Some companies may not match up to a percentage but may instead have a cap on the match amount.

Starting bonus/moving expenses

If you’re moving states or are in a highly sought-after role, you can sometimes negotiate for a starting bonus or moving expenses.

Perks

Perks vary widely and can include onsite gyms, paid meals, home setup stipends, and more. Their value depends on your circumstances. For instance, free meals can be worth $5-10K if you go to the office daily but nothing if you’re fully remote.

Equity

Equity is one of the trickiest components to evaluate. Consult a tax professional to understand the nuances of your options and RSUs. RSUs are shares issued by the company, while options allow you to purchase shares later at a specified price. Options come in different forms, such as incentive stock options (ISOs) and non-qualified stock options (NSOs), each with different tax liabilities.

I cannot do justice to explaining the nuances of this topic so I highly recommend reading through the Holloway guide to understanding equity. The full book is $25 but you can get an older free version here. This blog contains a lot of detailed knowledge on how to think about equity, options etc. It also goes into far greater detail on tax implications of various options etc.

Key Questions About Equity:

How do I evaluate my equity offer? A lot of companies will start by giving you a rather mysterious number (say 50K) of options or RSUs, and thats it. In the case of options, you will be provided with their strike price. At this point, you have to reply back and ask for a few extra pieces of information.

1. Know the number of fully diluted outstanding shares to determine your ownership percentage. In order to evaluate how fair the equity offer is, you need to know how many fully diluted outstanding shares there are. This will tell you what fraction of the company you own. A lot of times, executives and HR get REALLY squeamish about providing this. However, you need to know this to think through how fair your equity component is. You cannot know if you own 1% of the company or 0.0000001% unless someone provides you with the denominator in that equation.
2. Ask for the fair market value (FMV) and preferred share price from the last 409A valuation. Their free market value (FMV) AND preferred share price. These should be available in the last 409A valuation that the company performed. Usually the FMV is below the preferred price though the latter is used for company valuation. The difference between these gets smaller as the company matures and gets closer to an IPO.
3. Understand the preferred share multiplier/liquidation preference. This is a piece of information that you are VERY unlikely to get but a steep multiplier can dramatically reduce your chance of a successful exit. See this article for more details.
4. Timeline to new raise. There can be certain tax implications if you join a private company right before a large raise.

How much equity is fair?

Equity ranges are mystical and depend on the company size, stage, and funding. For early companies Holloway’s guide provides some benchmarks for tech. However, biotechs are capital intensive and their equity ranges tend to be much smaller.

How much could my options or RSUs be worth?

This depends on future scenarios that are impossible to predict. You could be holding on to stocks in the next Regeneron or its completely worthless.Tools like Front’s options evaluation tool can help you understand exit scenarios. To do this, try plugging in the market caps of various biotechs from the xbi. Just remember, this is index tracks only around 150 biotechs from 1000s. Usually, you should think about exits of around 500M, 1B, 3B, 5B, and 10B+ to get a range for what you will hopefully eventually make.

Are there any special tax exemptions I should know about?

Again, you should be talking to a tax expert here. Early-stage employees can often file an 83(b) election with the IRS, allowing you to pay taxes at the current FMV and trigger your capital gains clock earlier. File this within 30 days of equity assignment.I highly recommend doing this if you have the opportunity. The difference could be hundreds of thousands of dollars down the road.

How long will it take to the exit event?

This will depend on the company runway, its valuation, the quality of its scientific data, and state of the public markets. Companies often stay private for 7-10 years before going public. This exit timescale can get exacerbated by external circumstances. For example, in 2024, we have been seeing a major slowdown in companies going public for several years now due to the higher central bank rates and continued inflation. The potential for such a long time horizon should factor into your calculations above. The same payout in 2 vs 10 years might mean very different things to different folks.

However, sometimes companies do a secondary market offering for their employees even though they are still private. This allows the employees to get liquidity for their vested stocks at their most recent valuations. This is rarer in biotech but more common in larger private tech companies.

Golden handcuffs and taxes

A rather common scenario in joining startups is the golden handcuffs problem. This happens rather frequently in highly valued private companies. This can proceed in a couple different ways. One way is that if you have been issued lot of expensive options (i.e high strike price) you will have to pay for those options AND all taxes (i.e FMV - strike price) out of pocket. The tax treatments are different for ISOs vs NSOs.

Also remember that in most places, you will have ONLY 3-6 months after you leave to exercise your options. I.e you will have to come up with the entire amount during that time or you will forfeit your vested shares (yes even if those are years old). In a publicly traded enterprise, this is not an issue because you can immediately sell a fraction of the corresponding options/shares to cover the cost of the options/shares. In a private enterprise, you are outta luck unless you have the liquidity.

Final thoughts

Do not accept the first offer you receive. There is almost always wiggle room along several dimensions. Once you’ve signed the offer, focus on maintaining a healthy work-life balance and gratitude for being in an industry that enables us to practice bleeding edge of science AND impact many human lives. In the end, it will all be okay.