Ask HN: Should I join startup for less-than-expected equity?

[cuca_de_chumbo]

- startup is SF-based company

- pre-series-A

- significant traction already with customers you'd recognize

- likely to raise good series-A round

- about 8 engineers, 18 to 20 employees in all

- me -- 20+ years significant SW dev experience

- me -- would work remotely most of time

- offer: $130K range, 0.2% equity (seems low-ball to me, or inexperience on part of founders ... or lack of respect for the position or me)

[rgbrgb]

First off, it's probably not lack of respect. If you really think that and you can't get it out of your head, then don't join the company. To me, that seems like a market salary. For better or worse, experience doesn't count for that much in the market for software engineers.

You could probably trade some salary for equity. It's all about your personal situation and how much cash you need. For me, 130k would be a bit overkill and at this point I'd try to trade 30k for an extra half point or so (I'm betting they'd cap the equity at .5% total or something though).

That said, if they're hiring a 20th employee at 130k and you're confident that there's enough money in the bank + revenue that doing so makes sense (that's something to check), then the risk factor is a lot lower than a 4 person startup burning through seed capital who will offer you the 1-2% you're after. There are a lot of those in SF that you can join. You probably won't have a nice office or free meals but you'll make a bigger dent at a smaller scale and therefore get a bigger piece of a smaller pie.

In short, from the info you gave, I don't think they're necessarily low-balling you. But if you do, don't join. If you're good, there are at least 50 other companies in the bay who will give you an offer like that tomorrow.

[dchichkov]

A 30k of 'salary per year' trade for equity should really get the same deal as the investors get. Assume that you take that salary and then invest 30k into the company.

Note, when you are investing money into company you are not getting any ridiculous vesting cliffs, you are getting a multiplier as a valuation cap and usually your invest in convertible debt, not stocks.

(as a side note, if you are a professional who can contribute from the first day at work with virtually zero effort spent on you to get you up to speed, you really should try to negotiate for monthly vesting with no cliff for all your equity.)

[rgbrgb]

Sure, in theory I agree with you but I don't think it's possible to calculate like that. We're talking about trading somebody's time and creativity for salary and equity paid out monthly.

As you point out, the deal structure is very different from a deal that would be made with an investor. I'm guessing the company wouldn't take a 30k check from an investor right now or agree to take 5 * 30k from a single investor allocated monthly over the next 5 years. Also, him having more equity will probably make him a more valuable/devoted employee so that needs to be factored in.

[dchichkov]

You are right, and yet, when the salary had been established it should be possible to talk about trading somebody's salary (money) for equity. And compare that deal with the deal that the investors investing money get. As it is possible to take that 30k/year salary and invest is elsewhere, on the terms that investors investing money get (convertible debt, valuation cap, etc).

Thinking about it as money allows one to make a prudent investment decision.

I'm actually surprised that YC people haven't streamlined that process of trading early-employee salaries for convertible debt. Current situation with early-employees equity really screws up a lot of early employees and in my opinion poisons the startup atmosphere in the Bay Area quite a bit.

[habosa]

I've never worked at an early-stage company, so I have more questions than answers. Isn't 0.2% basically nothing? Even if GoogleSoftBook buys the company right now for $100M, you get (at best) $200k. And that's not going to happen. Probably more money will be raised, your 0.2% will be diluted, and a $100M exit is rare. So you'll end up with less than 1yr of salary for all that risk and lost salary/benefits in the meantime.

I know it's not all about the money, but in this conversation we are only talking about money.

[garry]

I was employee #10 at Palantir and received and accepted an offer in this ballpark. I'm pretty happy with it at this point. Frankly it was absolutely life changing, both from a learning perspective and a compensation perspective. Of course that's an outlier — but this is why you should treat what company you join the way investors think about investments. Only they get to diversify and your choice is even more important — you only get one shot at any given point.

rgbrgb's point is also well taken. You should be able to swap equity for salary, since for a pre Series A company that's a chunk of coin.

[habosa]

Very true, although Palantir is probably one of the top 10 most valuable and technologically interesting startups of the last 10 years so you made a great choice.

$130k is a lot of money and, like you said, being in the first few employees is a great opportunity for personal development. I just feel like you have to consider the 0.2% to be a lottery ticket because most of the time it will end up being worth nothing or very little.

[aetherson]

So here's the deal from my perspective:

A venture-backed startup is typically looking at a $1B valuation goal, with $300-$600M being "successful," and $100M is, at best, a consolation prize. From the perspective of outsiders, it's tempting to only consider orders of magnitude, but note that the difference between a $80M acquisition and a $150M acquisition -- which if you're just reading about it in the press are probably both compressed to "around $100M," is an almost 2x payout difference for investors.

0.2% isn't almost nothing. $200k from a consolation prize is not almost nothing. $600k-$1M from a basically successful but non-unicorn monetization is definitely not nothing!

0.2% in a pre-series-A company is also just the very start of a long conversation, not the end of it. You are of course correct that there is likely to be dilution. There are also going to be more stock grants long before any monetization event. If you stick out a job that starts with a 0.2% grant for long enough for that grant to fully vest, much less for long enough for it to monetize, it would not be, in my experience, unlikely to have another 0.2% (of the original size share-pool) coming.

My experience is also that if there is a lot of dilution, the company will at least mitigate that dilution for employees with new grants. Maybe not totally counteract it, and maybe not mitigate it at all if the dilution is, like 20%, but if your grants are halved by dilution, I would expect the company to bring you back up to 80%+.

I think that a lot of people fixate on the initial grant. That makes sense if you're a founder or, like, a really really early employee who took basically no salary and instead got 1%+. Maybe those people never see significantly more stock after their initial grant. My experience from having taken a few offers in the 0.1-0.5% range is that you will see materially more stock in new grants as time goes on. Of course, that's only a few companies, and maybe I've just dealt with unusually reasonable companies.

[dchichkov]

'a really really early employee who took basically no salary' -- this is a description of a founder.

'and instead got 1%+.' -- this is a description of somebody who had decided to work for free for some reason.

[aetherson]

Well, really, it doesn't matter how much salary they did or didn't give up for these purposes. The point is, if your initial grant is, say, 1.5%, then maybe your later grants will be pretty insignificant in comparison. But if your initial grant is 0.2%, there's no reason why you can't get significantly more stock through later grants.

[cuca_de_chumbo]

Also, I'd be leaving a job I really don't like at a Silicon Valley spinoff. $150K salary, 0.75% equity, shiny CEO with regular Fox-Business-News appearances, rising company notoriety, selling into a hot market. The company will never raise more "venture" funding, the parent will structure future injections as debt (at a reasonable interest rate, likely, but probably less onerous than VC).

This current company has a highly dysfunctional development culture, no automated testing, poor choice of deployment vehicle, a VP high on the DK spectrum. I can't bear it.

The place has a very high likelihood of acquisition in the next 2 years. It's a question of how long product dev can go on before the product implodes vs how quickly the shiny CEO can attract a good buyer for the polished turd. I lose a bit of my soul every day.

[Domenic_S]

Are you there for the money or for the love? If money, stay and suck it up. If work represents a large portion of your happiness, bail.

2 years is not really a long time to live in suck-it-up mode, although your perspective will depend on which side of 30 you're on.

[cuca_de_chumbo]

On the way-later side of 30!

The current company is legacy-land as far as development tools goes (though they're reliable and in the right hands do very well). The prospective startup would involve new tools I need to "keep up-to-date".

I did a short (paid) project for them involving some popular scripting significantly-hipper-than-Perl language and delivered it in serviceable, idiomatic form that I know they were very happy with, using all the right libraries. I picked it up the tool/language quickly enough. I feel I need that experience and exposure to maintain my longevity in the SW market. Sticking with the current company is 2 more years I become more of a dinosaur.

[hluska]

Honest (but uncomfortable) question. You wrote:

I feel I need that experience and exposure to maintain my longevity in the SW market. Sticking with the current company is 2 more years I become more of a dinosaur.

Is the new company aware that you feel like this, both about their tools and about your career?? If so, I wonder if they're compensating you as a more junior developer, simply because it sounds like you think that you need them!

[aetherson]

Are you able to get the payout for that equity if you leave that job? That is, are you vested and can you exercise the options without significant pain?

[crcastle]

Exercise != payout

Exercising options generally gives you shares in the company, not a payout. A payout would require selling the shares. Normally you can exercise vested options at any time very easily. Selling those shares you received from the exercise for cash is not as easy.

[aetherson]

I understand all that. But typically you must exercise incentive stock options within three months of leaving a job, or lose them.

If the OP can exercise his options right now for an amount of money he considers not terribly significant, then he could quit his job now, and if the old company monetized in the next couple of years (which he stipulates is reasonably likely), then he can still get the payout for it.

If on the other hand his options are not vested, or he can't afford to exercise them speculatively, then if he changes jobs now, he throws away significant equity that he thinks has a good chance of monetizing.

[_b]

The offer isn't generous but it is reasonable.

Sam Altman estimated that employees 10 through 30 combined should get at least 5% of the equity, That implies an average of 0.25%, which is fairly close to 0.2%.

http://blog.samaltman.com/employee-equity

If you want to work for the company, equity is important to you, and you think the offer is below was your contribution to the company will be, then negotiate for the right amount of equity.

[aetherson]

What do you think you could get in terms of salary at the best-paying company that you could be happy working at?

EDIT: Actually, let me expand.

1. That does seem like lower-than-expected equity for a senior employee at a small start-up that's pre-series-A.

2. But on some level, I don't think that should be the controlling factor. I'm assuming here that this is a pretty run-of-the-mill seemingly doing-well pre-series-A startup. That is, it'll be at least five years, and probably more like ten, before it monetizes, and the chance of it monetizing is sub-10%. And your options would vest over the course of 4 years with a 1 year cliff.

3. So that said, if you're going to be there 4 years, and the company is going to do well enough over those 4 years for us to care what your equity is, then I would assume that 4 years from now, you'll be a critical member of the leadership team. The company will have had to grow a lot, you're senior already, so... right? There's plenty of chance to, in that case, have your equity position "right-size" with the company. To, in other words, re-grant stock based on whatever inflation happens and based on how you work out as a member of the inner team of the company.

4. And given how far off any equity payout is, and how uncertain it is, I'd think that your decision to go with the company should be based on salary, what you expect the salary to do in the next year or two, and whether you believe that you can become a member of the leadership team of the company and whether you would enjoy all of that.

5. If, on the other hand, this company has some kind of special sauce that means that equity payout is more likely or more near-term, then, well, maybe that justifies the lower equity award.

[sharkweek]

I've received equity in three companies in my 10 year career thus far and have seen exactly zero dollars from any of it.

Maybe I'm jaded, but I'm not sure I would ever again consider the equity portion of a job offer unless it's a stock option at a publicly traded company.

[webwright]

That is low, but that's a big headcount for pre-A-- did they raise a huge seed?

That aside, you earn equity with risk, so my question to you would be: "What are you risking?" Certainly there's an opportunity cost (you're risking not working somewhere else). If you think your work-remotely-market-rate for a non-startup (i.e. no stock) is X, then you are risking X - 130k per year for 0.2%/4 (vesting over four years). So if X is $150k, you're buying those shares for $80k (4 years of salary difference). Is that a good bet in your eyes? It'd only be a good bet in mine if I had fairly heroic belief in the startups shot at "unicorn" status or if I was really excited about the work/team.

However, if you think $130k is a reasonable salary for remote work and the contribution you'll be making (it could well be), then the stock is a high-risk bonus.

Regardless, you should certainly negotiate for more salary OR equity (whichever you care about more) every time.

[smt88]

Equity is worth nothing, especially when it's that low. Don't even consider the equity when you make this decision.

Honestly, a healthy company that really believes in a strong exit in the future should be willing to match your previous salary. You should ask for $150k and skip the equity. If you work there for 5 years, an extra $20k/year is worth more than 0.2% in a $50M exit.

[wheaties]

Assuming a $100M exit, no dilution, $150k/yr elsewhere, no gains from investing the salary difference, same salary raises per year, no additional equity.

after 5 years, you net even. Anything longer than that you lose out. Anything shorter, you make more (sans taxes.)

Seems like a risky bet to me.

[ctide]

And no dilution is not realistic given that they haven't even raised a Series A yet.

[mauricemir]

I agree you need a decent multiplier for the given up salery 5-10 minimum.

[mbesto]

Two key considerations:

- Does the company (and it's investors/accelerators) have some sort of prestige that many people outside of the company would recognize? (i.e. if you put it on your resume will it look good later)

- Ignore equity at this point (as the chances of it really paying off massive dividends are unrealistically low). Is $130k range in line with what you expect to earn?

(note - $130k is comfortably livable in pretty much anywhere in the SF Bay area)

[Domenic_S]

> (note - $130k is comfortably livable in pretty much anywhere in the SF Bay area)

That depends on a ton of things.

[mbesto]

Care to elaborate?

[Domenic_S]

Sure.

People have wildly differing opinions of what "comfortably livable" means.

To me, sharing an apartment without a dishwasher is not comfortably livable. A decent apartment anywhere between SF & SJ will run ~$3k or more, and $130k is ~$6k/mo after tax (this is assuming single, no mortgage, no kids). Minus another probably $1k for student loans, another $1k for retirement or home purchase savings, that leaves $1k/month to live on.

The numbers are rough, but my point is you can either "live comfortably" and spend everything, or live like a spartan and save money.

To someone without attachments (no spouse, no kids, young) this probably is living comfortably and it's a boatload of money. To someone else paying for childcare for a couple kids and trying to get into a good school district, it's not so comfortable.

There are certainly ways to hack the system, most notably to live somewhere outside the RBA (Morgan Hill, Petaluma, Concord/Antioch/etc). The Bay Area can be your oyster at $130k, but only if you have no monthly obligations but your own breath.

[btilly]

Here is an example.

Do you have children and an ex-wife?

[cj]

$130k is well above average for a pre-funded startup in SF - Where are they getting the cash to pay you? Are they profitable?

0.2% sounds a bit low.

IMO it's not a bad starting point for a negotiation. If you're expecting something significantly higher, it might makes sense to look at later stage companies (or a company like Google or Facebook if you want to maximize your earning potential)

[brudgers]

It doesn't sound like it's your dream job. It might or might not be good enough for now.

I wouldn't take the low equity offer personally, at 8 engineers, you're not their first hire, and the position is more or less "need another engineer" at this point. On the other hand, it does mean that hiring you in particular is not the priority.

It's ok to be ok with that and its implications for the way your role will be perceived in the workplace over the short term. It's ok not to be ok with that. Working remotely may or may not be worth it.

In the end, I suspect that top pay and wow! equity aren't going to attach themselves to many advertised remote positions. It's when remote work is how a company gets the specific individual they want that those are more likely.

Good luck.

[lojack]

The first thing I'd do is look up their funding on AngelList. This can be an indicator of what the equity is worth -- without knowing the terms it's only an indicator though. These numbers are also useful for determining how stable the company is. If they have 8 engineers and 10-12 other employees but only had a $500k seed round, it's a very risky job -- if its closer to $2m, its a bit safer.

As far as actual numbers go, that's entirely dependent on what you think you're worth, and what you think that equity is worth. You're the 21st employee, and they are raising money, so it isn't exactly a red flag to me. Treat the equity as a bonus that may never come to fruition.

[gyardley]

Almost twenty employees, working remotely so you're probably not management, significant traction already, likely access to additional capital - okay, the equity seems a little low for 2015 but not obscenely so. There's more equity out there, but for riskier situations - earlier employees at companies with no prospects of further funding at their current level of traction.

Since your equity has a relatively small chance of being worth anything anyway, 'significant traction' or not, I'd focus on the things that'll definitely be a factor in your life - things like the work, the people, your salary, and so on.

[omgitstom]

Talk to them about it.

Are you excited to join the company? Do you believe in their vision? Do you find excitement in the problems that they are helping their customer's solve? Do you feel good cohesion with the founders and the engineering team?

Answering those questions are far more valuable in deciding to join a startup vs compensation. The compensation piece, if you feel is low, research and negotiate for it. If you can't find a common ground on compensation that would make you happy to work there, then don't join them.

[cuca_de_chumbo]

Their vision is great. They don't do rocket-science and they're not involved in social. Their market is positively boring, and it's something everyone needs, and nobody seems to have updated software addressing this market. Their approach requires a good core and also a lot of reliable peripheral development. I don't think there are any technical misgivings on their part toward me (I've proven my ability, programming-, vision-, and communication-wise), and I like working with them. I'm not sure we can settle on anything after the lowball though ... it betrays their lack of respect for the position or else for engineers.

[Domenic_S]

They were right to give you the offer they did looking at your reaction.

$130k is not lowball. 0.2% is not lowball. Both are on the mid-to-low side of appropriate if we take you at your word for skill and fit.

More than that, respect has nothing to do with it. Just rm -rf that whole train of thought from your head. Compensation negotiations are negotiations, which means this is a conversation. Conversations go two ways. If you're not happy with the offer, counter.

[lawnchair_larry]

Lowball is a strong word, but it's below market. If startups can't compete on total comp, they have to pad it with equity. OP is getting worst of both worlds. 0.2% of a pre-VC company is absolutely nothing, and there are several engineers ahead of him for seniority, so he won't even get title inflation in the end.

It's not that it's an insulting offer, it's just that they can't afford you. For a fresh grad, it would be a pretty sweet deal.

[Domenic_S]

$130k cash is very strong from a seed-funded startup. I agree completely with your final sentence.

[Bahamut]

0.2% is way too low IMO - it's possible to get that type of equity from a post-series A startup.

That salary is also low for SF based on what I've seen too.

[toomuchtodo]

What would be a "fair" amount for the first 10-15 engineers of an early-stage startup?

[frozenstorm]

Ultimately it needs to sit well with YOU, right?

Negotiate for more equity and weigh

- the final offer vs. what you think you could get in the rest of the market

- how much happier you'd be at the new gig vs. waiting around for another gig

I know nothing of how much equity is 'fair' for early hires but ultimately it's about where you'll be happiest, money / equity aside. Do what makes you happy and you won't have regrets.

[benwerd]

It's probably inexperience. I'd try and talk them up a bit.

But other commenters are right: pay attention to the salary, the benefits and the position itself. The equity is a lottery ticket. I do believe they should correct the amount to make you feel valued, but that's the only reason.

[heimatau]

I'd ask for either more money or more equity. Don't short change yourself. If your overall goals are just looking for more experience then go for it if you think it would be fun.

Corporations assert their power all the time. There is nothing wrong with you asserting your worth. Good luck!

[meritt]

The salary is low and the equity is hella low too. You'd do better to negotiate some sort of bonus structure instead of equity.

What do you want outside of financial incentive? Is it something you're excited about?

What's your background? A lot of us are hiring.

[garry]

For a seed funded startup, that's a nontrivially high salary. It's common for Series A companies to pay market, but a little unusual this early in the company's life.

Bonus structures are great for cash generating businesses, but have limited upside for startups that have the potential to grow 100X to 1000X.

[copsarebastards]

0.2% equity isn't worth considering. At best it's maybe a years' pay 5 years from now, and the best is not likely to happen. A $20K increase in salary would make you that with much more certainty in 6 years.

I'd look at salaries for your skillset and location on GlassDoor, compare that to the $130K, and make your decision based on that.

In any case, I'd go back to them with a counteroffer. If you want more equity, I'd ask for 2% and hope for something like 1.2%. But unless you're very confident in the direction of the company, I'd choose salary over equity any day.

[iuyoiuyy]

Been there done that. The answer is: No! Think of a start-up founder like a con-man trying to sell you snake oil.

[cuca_de_chumbo]

Thing is, three previous startups turned out not-so-bad (net positive) for me. Not home runs, but they made a material difference. I also like the small-company environment and challenges -- but perhaps that's only because I have worked only in startups. I look at "HN Who's Hiring" posts by outfits like Walmart Labs and wonder what the difference would be.

[Domenic_S]

Your grievances about your current company:

> This current company has a highly dysfunctional development culture, no automated testing, poor choice of deployment vehicle, a VP high on the DK spectrum.

That sounds EXACTLY like Silicon Valley Generic BigCo to me.