Ask HN: How much equity for first engineer when there is no salary involved?
3 comments
I get the idea, but in reality there is no fair equity position unless you are considered a co-founder. If you are considered a co-founder then this is workable, but basically you need to have an equal say in all things, otherwise the company needs to find a way to pay you.
To be clear, equity is a promise that is broken in all but a few percentage of cases, and even when it isn't broken entirely many times it is nowhere near what you were promised or believed would be the outcome.
I say you must be considered and treated as a co-founder because you are taking the same risk the founders are and you need to be treated equally and be able to have unrestricted equity, full voting etc. This mostly prevents them from creating a share class now or later to minimize your payout, or to dilute you first before their shares are diluted.
Whatever you do, don't do a deal like this without a lawyer helping you get it all in writing correctly to protect you. If they object to that then you should run away from this deal.
To be fair, I have done this type of deal once, where I took only equity for work (and I had most of these protections but not all and not co-founder "status") but I will never do it again without being a founder/co-founder. There are just so many ways to be screwed, even by well meaning founders who just are naive to how investors and business works. It is also easy for people to speak about being fair when a multi-million dollar payout is just a dream, but people change when the money is really there and they see themselves "losing" millions to "non-founders". Not saying all people are like this, many are great and wouldn't be douches, but you have to protect yourself from those situations no matter what. And good founders won't object to you having those protections in place because they were never going to be the ones that tried to screw you in the first place. Lots of lawsuits and insane amounts of money gets paid to lawyers because people don't protect themselves up front and get things clear and in writing.
To be clear, equity is a promise that is broken in all but a few percentage of cases, and even when it isn't broken entirely many times it is nowhere near what you were promised or believed would be the outcome.
I say you must be considered and treated as a co-founder because you are taking the same risk the founders are and you need to be treated equally and be able to have unrestricted equity, full voting etc. This mostly prevents them from creating a share class now or later to minimize your payout, or to dilute you first before their shares are diluted.
Whatever you do, don't do a deal like this without a lawyer helping you get it all in writing correctly to protect you. If they object to that then you should run away from this deal.
To be fair, I have done this type of deal once, where I took only equity for work (and I had most of these protections but not all and not co-founder "status") but I will never do it again without being a founder/co-founder. There are just so many ways to be screwed, even by well meaning founders who just are naive to how investors and business works. It is also easy for people to speak about being fair when a multi-million dollar payout is just a dream, but people change when the money is really there and they see themselves "losing" millions to "non-founders". Not saying all people are like this, many are great and wouldn't be douches, but you have to protect yourself from those situations no matter what. And good founders won't object to you having those protections in place because they were never going to be the ones that tried to screw you in the first place. Lots of lawsuits and insane amounts of money gets paid to lawyers because people don't protect themselves up front and get things clear and in writing.
If this person is treated as an employee (with no decision-making authority) rather than as a co-owner, they might have the legal status of an employee and be required to be paid at least minimum wage. There are definitely a lot of issues here for lawyers to work out.
Yea, something I don't think a lot of people understand, in general, equity can't be used in lieu of compensation for an employee (at least in most US States that I know of, pretty sure it is all but not 100% sure). This hasn't always been true, but the laws changed when a fair number of people were getting screwed with share class changes etc where they put in years of work to come out with not even minimum wage because founders/investors got greedy. Some founders who fought for their people didn't have enough stock to control the outcome so the board would vote the changes through over their objections. Hence why when you are doing these negotiations you have to recognize the person talking to you now may not be the person making the final call in 5 years.
There are ways around equity only with specific contracts & wording, but that is where the whole issue around not being a co-founder with equal footing comes in as you are in an unprotected situation. My 2 cents is just never do it, your are a co-founder or getting paid a fair wage.
There are ways around equity only with specific contracts & wording, but that is where the whole issue around not being a co-founder with equal footing comes in as you are in an unprotected situation. My 2 cents is just never do it, your are a co-founder or getting paid a fair wage.
Remember to get the % of equity in written. An oral agreement isn't worth the paper it's written on. Get your lawyer to read the written agreement.
How many other founders? How long is the other people working in this? How much magic does their equity have? Do they get salary?
Do they have some MVP? What happened with the previous developer?
How many other founders? How long is the other people working in this? How much magic does their equity have? Do they get salary?
Do they have some MVP? What happened with the previous developer?
More questions to ask: What is their source of funding (VC, bootstrapped with founders' money, etc.)? What is their business plan, and at what point do they anticipate being profitable? If they're not profitable from the beginning, how long do they think they can run the company on the funds they have? Would they expect you, as a co-owner, to help fund the company? Do the founders have any prior business experience? Have they researched the market they're entering?
If you don't know how the business works, there's no way for you to evaluate whether their equity is worth anything at all.
If you don't know how the business works, there's no way for you to evaluate whether their equity is worth anything at all.
Everyone is part-time moonlighting, but how many others are involved?
If only 2 or 3 of you then I think the range you're asking for makes sense.
If only 2 or 3 of you then I think the range you're asking for makes sense.
This would be a part-time moonlighting thing for all involved. Still though, having no salary obviously puts me in a much more risky position. I'll be trading life / hobbies / free-time for a large "maybe." That risk should be reflected in the equity, right?
Going off Paul Graham's Equity Equation, the small skunk works aspect of project, and the fact that it doesn't get built without an engineer means that I'd expect to ask in the high range, like, 30-40%. However, it's really tough from reading around online to tell if this is reasonable or not.
What are the reasonable equity ranges for this situation?