Ask HN: How to properly negotiate employee equity
6 comments
If the average company was a well funded biotech startup, then there would be some basis for "above/below" average. But it's a one-off both in terms of the company and your position and your other options.
Generally speaking, my opinion is that 1% equity is entirely worthless: not in the sense that to a first approximation all startup equity is worthless, but that it signals an unwillingness to share the value your employment adds to the company. A first employee, even a receptionist adds more than 2% to the value of the company, otherwise the person wouldn't be hired.
To me, 1% equity is a symptom of finite-pie thinking; a symptom of Owners who believe that employees are costing them money. Don't get me wrong, it's ok to work for someone who doesn't want to make you rich. Just be aware that they are actively going about not making you rich.
To put it another way, the difference between 1% and 7% is nickels not 100 dollar bills. If the company exits at $100 million or more the large shareholders get rich either way. But until the exit approaches $1 billion, 1% doesn't let you walk away with "Fuck You" money while 7% gets you close at the lower number.
Of course, 1% of $100 million is a nice payday. But 1% means that you don't really have a seat at the table, and deliberately so. You will always be the hired help and less equity means you are cheaper to replace and it is easier to reduce the value of your equity to zero if the company is successful.
Good luck.
Generally speaking, my opinion is that 1% equity is entirely worthless: not in the sense that to a first approximation all startup equity is worthless, but that it signals an unwillingness to share the value your employment adds to the company. A first employee, even a receptionist adds more than 2% to the value of the company, otherwise the person wouldn't be hired.
To me, 1% equity is a symptom of finite-pie thinking; a symptom of Owners who believe that employees are costing them money. Don't get me wrong, it's ok to work for someone who doesn't want to make you rich. Just be aware that they are actively going about not making you rich.
To put it another way, the difference between 1% and 7% is nickels not 100 dollar bills. If the company exits at $100 million or more the large shareholders get rich either way. But until the exit approaches $1 billion, 1% doesn't let you walk away with "Fuck You" money while 7% gets you close at the lower number.
Of course, 1% of $100 million is a nice payday. But 1% means that you don't really have a seat at the table, and deliberately so. You will always be the hired help and less equity means you are cheaper to replace and it is easier to reduce the value of your equity to zero if the company is successful.
Good luck.
I just did a lot of research into this sort of thing, and thats fairly in line with what you're going to see these days.
Being first engineer is going to pretty much sucks. You don't get founder equity, but you'll deal with most of the same problems. Getting market rate cushions that quite a bit though. In todays environment there is very little risk for a developer doing a startup, if it goes down in flames another job can be picked up the next day.
https://www.wealthfront.com/tools/startup-salary-equity-comp... is a nice visualization for funded tech startup equity percentage.
Realize that equity is very much a lottery ticket, and with 1% best case scenerio is that you end up making baseball player money for a couple of years when you look back at option value and have some nice incentives to stay on if acquired.
Things to ask for:
Stock grant, not options. Being first engineer this should be doable and not cost you much in the way of taxes since the company should have almost no value from the IRS point of view. On the chance that you get a good outcome you cut your tax liability roughly in half (US).
Single trigger vesting. Usually more for people who will be fired during a sale like marketing, but I see no reason for technical people not to request it. After a change of control you'll be fully vested and free to move on and do something else or free to stay on for proper incentives.
Being first engineer is going to pretty much sucks. You don't get founder equity, but you'll deal with most of the same problems. Getting market rate cushions that quite a bit though. In todays environment there is very little risk for a developer doing a startup, if it goes down in flames another job can be picked up the next day.
https://www.wealthfront.com/tools/startup-salary-equity-comp... is a nice visualization for funded tech startup equity percentage.
Realize that equity is very much a lottery ticket, and with 1% best case scenerio is that you end up making baseball player money for a couple of years when you look back at option value and have some nice incentives to stay on if acquired.
Things to ask for:
Stock grant, not options. Being first engineer this should be doable and not cost you much in the way of taxes since the company should have almost no value from the IRS point of view. On the chance that you get a good outcome you cut your tax liability roughly in half (US).
Single trigger vesting. Usually more for people who will be fired during a sale like marketing, but I see no reason for technical people not to request it. After a change of control you'll be fully vested and free to move on and do something else or free to stay on for proper incentives.
Where do you need help?
- Valuing stock options? (http://www.payne.org/index.php/Startup_Equity_For_Employees)
- Negotiating compensation? (http://www.amazon.com/Negotiating-Your-Salary-Make-Minute/dp...)
- Establishing a benchmark? (check AngelList)
What are the stock options worth? If you have not tried to value them, then that's step 1. If you haven't done any research into how to think about valuing stock options, that's step 0.
This vague question is asked every few months on HN. Search hn.algolia.com to see answers provided by others. A few of them are worth reading.
Mine aren't the best, but might be worth skimming:
https://news.ycombinator.com/item?id=7370839
https://news.ycombinator.com/item?id=8092653
- Valuing stock options? (http://www.payne.org/index.php/Startup_Equity_For_Employees)
- Negotiating compensation? (http://www.amazon.com/Negotiating-Your-Salary-Make-Minute/dp...)
- Establishing a benchmark? (check AngelList)
What are the stock options worth? If you have not tried to value them, then that's step 1. If you haven't done any research into how to think about valuing stock options, that's step 0.
This vague question is asked every few months on HN. Search hn.algolia.com to see answers provided by others. A few of them are worth reading.
Mine aren't the best, but might be worth skimming:
https://news.ycombinator.com/item?id=7370839
https://news.ycombinator.com/item?id=8092653
Fred Wilson's posts on this are still excellent, and relevant.[0] At Aptible (S14), we convert equity stakes and benefits to dollar values and offer a few different equity/salary options to each prospect.
One big question is what your expected role is going to be in the future. 1% is far too low for a VP- or C-level prospect with experience managing a team. If the company is already well-funded (i.e. somewhat de-risked), 1% may be appropriate for a line engineer.
[0] http://avc.com/2010/11/employee-equity-how-much/
One big question is what your expected role is going to be in the future. 1% is far too low for a VP- or C-level prospect with experience managing a team. If the company is already well-funded (i.e. somewhat de-risked), 1% may be appropriate for a line engineer.
[0] http://avc.com/2010/11/employee-equity-how-much/
Here is a great overview of things to consider:
http://searchquant.blogspot.com/2011/11/startup-equity-surve...
Too many variables to give a good answer here.
given a market-value salary, is 1% stock options considered above/below average?