[BayAreaSmayArea]

So thats part of my dilemma, I don't think theres much risk at all and I'm a bit confused by talk of risk in the startup world for software guys. The market is hot and I have little doubt I could walk out tomorrow and get a 110-120k job, and maybe a bit more, so the risk is only that I'm gambling the lower wages for the chances of bigger payout.

Seems pretty minor on the risk side for me and I'm not sure how I can effectively argue for more.

[brudgers]

So let's say you take the job for 80-90k for a salary of 30k below market. In exchange you get 2% equity.

Suppose there's a 5% chance of a $50 million dollar exit after five years and there's a 2:1 dilution risk of 50% and a bad-will at liquidation risk of 20%.

The 2% of a $50 million exit is $1 million. The 2:1 dilution risk at 50% reduces that to $750k. The bad-will at liquidation risk reduces the value to $660k. The 5% chance of such a payout makes the value of the equity $33k.

So on those optimistic assumptions, there's $3k of upside in taking the deal. Continual reassessment is necessary to make sure that continuing with the company is a good investment. Odds are that the odds of a big exit will go down over time and that dilution and bad-will will go up.

Finally, if you're arguing for more do you really want to work somewhere that requires constantly convincing people of your worth? Investing in the current opportunity limits your ability to invest energy in something better (in fairness it also limits your ability to invest in something worse).

If you're already willing to walk out the door for another job, why fool around with something that offers very marginal return? Go into business with people who share some of your interest in your getting rich.

[seekingcharlie]

You have to understand that a payout (which is very, VERY rare to be worth anything to you) is likely to be years off.

Is it worth being below-market for 5 years for that supposed payout?

[BayAreaSmayArea]

Do people normally lock in that low forever?

We're talking about triggers for going up to an agreed upon market++ salary with next fundraising round, or some significant sales for our product, etc.

[seekingcharlie]

Obviously not forever, but you just have to take into account that a funding round is also likely to be a while off.

It's in your favour that the founders have had startups/exits before (fundraising will be easier) but funding still takes months to close and you still need to ship a product before you even get to that point.

I imagine you'll be hiring other employees too which increases the strain.