How much equity should I get as the first employee?

[hangryhippo]

Hi guys! Needed some equity advice. I am moving to a sister firm, which is a design tech start-up incorporated 2 months back, with two founders(CEO, non-technical and CTO, technical) and me as the first and only current employee. The shell prototype has been developed by CTO over 2 years (Concept Dev and UI). I worked extensively over the last 5 months and contributed significantly to major milestones, through which we gained significant traction with client/ VC interest. The company is still at pre-seed funding, with some money coming in from the CTO's family.

I am now formally migrating to this firm and negotiating equity. My skillset is kind of a rare find - I have a Masters in Architecture, I can code very well and am good at Math, three skills crucial to develop the core tech, for which there is a lot to do. I have good work ethics and am very reliable, something the founders are familiar with.

Given my formal education in Architecture but my job scope as an amalgam of coding and architecture, I am unable to pinpoint a base salary (coders obviously get paid higher, coders with archi background should get more?). I am also unsure how much equity I should be vying for. I am being offered 1%, which I think is rather low. Any advice will be greatly appreciated!

[simonebrunozzi]

I suggest you change the title to "Ask HN: How much..."

In terms of your question, there is not an exact % but rather a quite large window. I would consider these two things heavily:

> I worked extensively over the last 5 months and contributed significantly to major milestones

> My skillset is kind of a rare find

Those two things in my mind position you as a quasi-co-founder, and them offering you a 1% is a warning sign for me - meaning they might not value your contribution as much as they should.

Not having any other detail, I would suggest you to ask for a 6-8% equity, but I would also ask myself: why can't I be a third co-founder? What did they do that prevents this option in the first place?

[hangryhippo]

I think they would want me to chip in some money, which I don't have (graduated last year) or work with no salary, which I also can't due to student loans and being a foreigner (rent)

[quickthrower2]

Ask anyway. Be prepared to walk, to give you more negotiating power. You don’t have to threaten to leave but having other option will make you stronger. Don’t worry about offending, coming across too greedy etc. be greedy! Ask for a lot and say you need a salary and you are not in a position to invest your own money.

[smush]

According to [1] 1-2% is common but IMO too low. Ask for 5%, settle for 3+%

[1] https://news.ycombinator.com/item?id=973060

[desireco42]

This is excellent advice. Also, take into account that you can essentially negotiate anything, and at this point it would be easiest for them to give you anything as well.

Make sure you are reasonably happy with deal.

[hangryhippo]

Thanks! Is there any math I could apply to arrive at that number? Also, since there is so much development left to be done, could I be treated as a co-founder instead that takes salary?

[smush]

There probably is some certain math, but I don't personally know it. I will say you will be functionally a third cofounder so if your negotation skills are up to snuff then yes you can angle for that. 2nd employee certainly cannot argue for that like you can. Might as well. At the very least take 5% since that is what a bunch of early executives will want and they will be likely building less of the actual tech stack than you.

[segmondy]

0%-99.9% There's no magic number. If you're getting paid fair or more than fair wage why should you get anything? Let's imagine the going range at your location is $50/hr for a developer. You're getting paid $60 or $75/hr why should you get any equity? On the other hand, if you're getting paid $10/hr when it's $50/hr or even asked to work for free. Well, could be from 0%-99.9% How much can you negotiate for?

[sloaken]

great point. The details he left out was how much salary is he currently receiving. If the others are not pulling a salary because there is no money coming in, or have not pulled a salary from this for 5 months, but he has, then he is an employee.

[hangryhippo]

Hello, my current salary is way below market rate for this type of a job - market rate would be 6k+, I drew 3.3k for the last 5 months

[sloaken]

IMHO I think your best next step is to make your resume current and look for another job. There is nothing like seeing an employee being desired by another company to motivate your current employer to treat you better. In todays economy that should be easy to do. Be sure you have well defined what would make you stay or go. Make it quantifiable numbers, like in a spreadsheet.

[jiveturkey]

Suggestions of 10% here are ludicrous. You won't get that. And you're not a founder.

> I worked extensively over the last 5 months and contributed significantly to major milestones, through which we gained significant traction with client/ VC interest.

Key word: interest.

In other words, you're still pre-revenue and in fact don't even yet have an MVP. And the company is operating on bank of mom.

This is a very, very high risk position to be in. You should ask for 6% and do not take less than 4% plus an executive title. It's not just a title for title's sake, you need to have a seat at the table.

Do your best to negotiate in the abstract, ie don't let familiarity or even friendship with the founders muddy the waters. Use your leverage as "extensive" contributor up to this point. Once you start this negotiation you have to set a time limit (2 weeks?) to complete it and be nice about it but be clear you will not be making further contribution under the old terms. It's 6% or nothing, not 6% or continue for a while longer as you have been doing.

There's no math behind the number. Any math that is out there is just rationalization.

[mattmanser]

Suggesting anything more than 1% is ludicrous.

It's clear this company is being bankrolled by an existing company, and as far as we can tell he's a recent grad, junior programmer who did an architect degree first. They had the idea, 1.5 years of work done already and money before he came.

They're not in a high risk position and that they're offering him anything at all is actually surprising.

[jiveturkey]

Correct on the last point: they are not in a high risk position.

Coming in as first employee into a pre-seed company is high risk. That is not a 1% position. You can only go by what he is saying: that he is well and uniquely qualified for the position. If the job (at this stage of the company) truly needs his fairly unique skillset and experience, he needs to come in as not just "first employee" but "first executive". Which is a 5% position.

[hangryhippo]

Hi Matt, the product they developed over 1.5 years is a proof of concept and far from MvP. Further, they did not work on it full time over the last 1.5 years, they had their other jobs.

[Reebz]

I feel you’re closer to “somewhat co-founder” status if you’ve contributed to major milestones over 5 months, especially without pay and no major investment.

Assuming you’re negotiating pre-money and you’ll get a non-competitive salary; id like to see at least 10%. Consider you will be diluted very soon.

[hangryhippo]

Thanks! Technically I did get paid form my original company, but was working for the upcoming sister firm. I was assigned to do so during office hours and the startup has to pay back my original company my salary over the last few months

[toss1]

Knowing that profile, and nothing else, you look like a rather critical part of the enterprise, and have demonstrated your value at a founder level. Yet you have also dramatically reduced your leverage. I'd value you 10-20% (subject to a vesting schedule). But with your reduced leverage at this point, it may go well under 10%. I certainly would strongly avoid settling for the normalish 1-2% for the first half-dozen employees, since you've already contributed substantially. If you accept such a low amount, be sure that you get a very good current pay package and treat the stock as a lottery ticket.

[richardknop]

I would suggest finding a job at a medium/big tech company with market rate salary as compared to this if you will only get 1%. You are risking quite a lot and you should get much higher equity.

[streetcat1]

The question is how much they need you to get to first revenue or cash flow positive (or get first investment). Nothing else matter - not your skill set, work ethics etc.

Everything can be found given a price.

Why did you waited so long to ask for equity? I.e. why did you not ask for it before the 5 months?.

So, if the product can stand on its own (I.e. can get paid customers month over month) I am afraid that you do not have leverage, and hence you are treated as any other employee. If not, than you have leverage.

[hangryhippo]

The product is still in very nascent stage and needs a ton of development. I know that I can ask for more, but I do not have a basis/ math to show how much is proportionate. And I couldn't find a hard and fast way of doing so.

As for asking equity at this point - this is a sister company I helped out with and it has only been incorporated and gained traction recently, hence I am formalizing things now.

[streetcat1]

So lets look at de risking the company offering.

If the company is derisked from the product side (even tough there is ton of work left) than you are like any other employee . If, on the other hand, you have some sort of a proprietary knowledge that is still needed for de risking to occur, than you have leverage.

When I read between the lines, I see that the CTO already derisked the product in the two years prior, and its looks like the CEO is derisking from the market side (i.e. have traction).

[hangryhippo]

Thanks Streetcat1! What would you consider as derisking? I think the product is still at conceptual stage with most major functionaility not yet developed. Would that be considered derisked?

[streetcat1]

So I am not sure what is your domain and what are your core uses cases. Derisking from the technical side for a typical web app is :

1) Is the API defined (if any) and implemented. Do you understand the domain entities. Do you need any outside knowledge to understand it.

2) Is the basic architecture standing? For example, division to micro services, GRPC interface between micro services.

3) Are the core 1-2 use cases implemented end to end ("tracing bullet"). I.e. from some sort of UI up to record in a database.

4) If you have any propriety algorithm, is it implemented.

5) If you have any propriety data (e.g. real estate listing), do you have the data and understand how to get it.

So if the functionality left is trivial (e.g. CRUD) than they can do it without you, hence they have the leverage.

[amirathi]

Go for either,

A. Best possible salary you can fetch anywhere with low equity (around ~1%)

B. Just enough salary to get by with high equity (around ~4%)

Don't get stuck in the middle, avg salary with 1% equity.

Given your status (recent graduate) and company's status (pre-seed), option A wouldn't be ideal for both the parties but less so to the company. You can use that as a negotiating strategy to get to option B which would be best for both.

Also, keep in mind, the CTO has built the platform for 2 years so she might also have some background in architecture. If true, your negotiating position is less strong.

You are in the best position to know how the business is doing or going to do in the next couple of years. I would adjust the numbers depending on the risk in the business.

Finally, if there are too many unknowns on the business side, then I would only stick to option A. It's a personal decision but my risk appetite as an employee is very low.

[hangryhippo]

My market salary would be 5-6k per month, and I am ready to take ~3.5, going for option B. Could I still ask for ~4% equity? The main argument I hear from the founders is that I am drawing a salary, so my equity will be limited to around 1%.

[mars4rp]

if I get that much pay cut, I would ask for at least 5%! yes, you are drawing salary but not market rate, so think about it this way, if you don't take salary, do they make you co-founder with 33% equity?

[skypanther]

I got 1.125% which in retrospect was too low. But perhaps the bigger point is to find out or negotiate what it will take to get additional grants. Executives and the founders will likely get additional equity, particularly during funding rounds, the hiring of key roles, etc. You should have a path to getting additional stake too.

[gt2]

Can anyone say what those typical paths are? Contractual I would assume? I've wondered about that myself since I've heard much about dilution.

[hangryhippo]

As in I ask in the contract to grant me additional equity when we get funding/meet KPIs? Also, how does it affect the vesting schedule?

[smush]

You vest as fast as the founders since you've been here from the very beginning and 'deserve' to be taken care of just as much as the founders do. You've had nearly equal risk in terms of company stabilization vs implosion, therefore logically you should have nearly equal reward in the early stages.

[throwaway413]

Without more detailed context, I'd say you are looking at a range between this comment:

> According to [1] 1-2% is common but IMO too low. Ask for 5%, settle for 3+%

and this comment:

> I feel you’re closer to “somewhat co-founder” status if you’ve contributed to major milestones over 5 months, especially without pay and no major investment. Assuming you’re negotiating pre-money and you’ll get a non-competitive salary; id like to see at least 10%. Consider you will be diluted very soon.

Anywhere from 3% - 10% I'd say is a reasonable number, pretty much depending on who's the better negotiator.

[hightower]

Hi, cto of a fintech. 1.2 m in sales. I own 4%. Other members of mgmt team have about 4% also. Main founder has about 35, investors and option pool own the rest. You should look for about 8% and be part of mgmt team. Anything less and you won’t go the distance even if company is successful. It’s extremely early and extremely risky and you need to be rewarded and motivated accordingly. You will become resentful when others join later and negotiate themselves onto cap table if u don’t get about 8 now. Expect to be diluted. Apart from stock it’s critical you get experience seeing a company scaling.

[ReD_CoDE]

I think there's no rule, it depends on the startup, its market, and the potentials ahead

Imagine you be the first employee in a startup that has the potential to become next Uber?

Or a startup that can't be big enough, which the majority of startups are here, in this zone

You should find even 0.5% of Uber is better? Or 40% of an average startup which finally will have a value between $10-$100 million

[hangryhippo]

I just want something proportional to my contributions. If I contribute 10% and receive 0.5, isn't it a shit deal even if it is in millions?

[ReD_CoDE]

Does your startup has a Pitch Deck and Executive Summary? Take a look at the Total Addressable Market - TAM, Market Segment, and predictions. Find do you work in which kind of startup? Then can calculate 1% means how much money 5-10 years later

[Ididntdothis]

If they offer you 1% it means they are viewing you just as an employee and not as important part of the founding team. With dilution I would expect your share to quickly go to basically nothing. Maybe that's OK with you but at a minimum you should then get a competitive salary.

[hangryhippo]

Some details I missed out:

My current salary is way below market rate for this type of a job - market rate would be 6k+, I drew 3.3k for the last 5 months

[codegladiator]

3-5%

[chovy]

12%

[simplecomplex]

1% you are being fucked. You’re building the product that is used to raise money, pre-investment.

You’re really a founder. Ask for 10-30%.

[jboles]

10-30% doesn't even seem excessive if there is no product today.

There are so many startups that post on this board with an open-ended title similar to "Looking for an engineer to build our product", then you go to their website and they're offering 0.5% equity. It's almost insulting.

[hangryhippo]

Yeah, I was told 5%+ is what senior execs get post series B~. Isn't that like claiming the nanny to be more important that the amniotic fluid lol