Ask HN: How much equity should I ask for?

7 points by heri0n 14 years ago | 6 comments

Hi guys. I will be joining a startup that has received some funding already. There are 2 co-founders so, I will be the third employee and the first technical one/programmer. This is my first time working for a startup so I'm not how much equity I should receive/ask for. I will be compensated in a combination of stock and salary. What do you think would be fair?

chrismoos 14 years ago |

Here are a few things you need to think about:

1) How much do the founders need you? This will be helpful in negotiations. 2) How will your role in the company effect its success? 3) How important is salary to you?

All the above will give you an idea of how much equity you can get (or are worth). Use the answers to these questions to help you negotiate.

If salary is really important to you then expect less equity. If you really believe in the company and are willing to work to make it successful then maybe you should go towards more equity and take less salary. This will pay off (much more) in the long run.

I would recommend that you let them make you an offer first. This will give you a baseline on what their expectations are. They might say.. 60K/year and 20,000 options. You need to ask them about the options:

1) What percentage of the company is the employee options pool? This might be 10 or 20%. 2) How many shares are in the option pool, or...what percentage of the option pool is 20,000 options. This will help you determine what actual percentage of the company you may be entitled to. 3) What is the vesting schedule?

Remember one thing when negotiating: You need to ask or you will not receive :).

Good luck!

carbocation 14 years ago |

The point that fishcakes raises is one important element. Make sure to understand the picture fully (not just the % of common shares currently outstanding, but the % of the company if all preferred shares were fully converted to common stock, etc).

There is something of a red flag in how you've phrased your question. It's curious that you say that you will be joining the company, but then your post is all about the fact that you haven't yet negotiated the equity you will be receiving. This makes the most sense when you only are considering joining the company. If you already have an agreement to join, then this agreement most likely stipulates what equity you are owed, and on what schedule it will vest.

Part of the overall package that is required to convince you to work for this company should include a specific % of the company's equity. Surely your bargaining position would be stronger if you hadn't already agreed to work for the company when making an ask for equity.

Retric 14 years ago |

As a non founder think of it in terms of what your (worth to the market - what they actually pay you) * risk your willing to take. So if you can get a job at Microsoft for 110k + 25k in benefits, and the start wants you for 70k + 15k in benefits then your giving up 50K in salary per year and you need to get enough shares (which are probably worthless) to make up for that * the number of years it takes you to vest.

As a yardstick I would aim for 1.5x the rate of whatever the last round of investment was. AKA if they got 5 million and your giving up 50k then look for 10% of whatever the investor got vested over 3 years. (Also, the further from your market rate the shorter your vesting schedule needs to be.)

PS: Don't forget the idea is paying you in stock needs to be more expensive than paying you in cash or they are going to want to pay you in as much worthless stock as possible.

fishcakes 14 years ago |

Key thing is to ensure you understand the equity in terms of its percentage of company. Ie not just how many shares, but also how many shares are outstanding. I have seem lots of very talented engineers make this mistake.

launchplus 14 years ago | |

I just made this mistake last year when I joined a startup that offered me a below-market-rate salary + % shares to "cover" for the lowered salary.

Sounded like a good deal as I was naive and this is my first time joining a startup and having to deal with all these equity thingy. Turns out after converting all preferred shares to common stock, there's virtually nothing much left.

legoman05 14 years ago |

You're actually employee number 1 - as in theory, the co-founders are only taking home enough money to keep a roof over their heads.

You're also the first technical member, which means that you'll be building the entire product. You are responsible for the execution, which means you are critical to the success of the company.

Start negotiating at 20%.