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Ask YC: What is a reasonable equity stake for a summer internship?

3 points by natrius ↗ HN
Here's a hypothetical situation: Let's say I'm an MBA-type and a few of my business school friends and I are starting a web startup. We have a technical guy who has been doing all of the coding so far, but we'd like to get a bit more cheap manpower so we can put out a beta by the end of the summer, so we're trying to hire one or two summer interns. We can't offer the same kind of pay the interns could get at an established company, but since they're only going to be working for us for a few months (unless we still exist when they graduate), that kind of complicates the equity calculation. What kind of equity stake do you think is reasonable for a summer intern if we pay them ~80% market value?

12 comments

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goofygrin
0% for interns. You wouldn't give ownership to some offshore worker or a contractor. Treat them as such.

I've done a couple coding internships (gosh, it was 10 years ago this year!) and they paid me $10/hr. I shudder to think about the crap I wrote too.

epi0Bauqu
0, or something really small. If you are paying 80% market value, the difference should be made up in the excitement of working on your exciting startup. Say you end up selling for $20M and they end up with 1% at acquisition. You would be rewarding them with $200K for a few months work when you already paid them salary.
SwellJoe
"Market value" for an intern isn't very high. Pay the extra three bucks an hour so it is market value and forget this whole giving equity to interns idea.

The ones who are willing to take internships are folks who don't have a lot of real world experience yet, and won't produce fantastic code (and that's OK--you're paying them pennies on the dollar and experience is part of the equation). You'll want to recognize that there are wide-ranging levels of coders at all ages.

I've never hired "interns", but I've hired college kids who kicked ass, but I paid them whatever they wanted me to pay them--regular consulting rates, if on the low end of the scale $25-50/hour usually. But I could tell they kicked ass because I'd seen their code in Open Source projects--I'd be hesitant to hire someone who has no projects I can look at. But those generally aren't the folks you're going to get through internship programs (usually, though one of the smartest developers I've ever met interned at both Google and Microsoft while in school...I doubt either of those companies really took advantage of the opportunity they had in this kid and he went to work for neither after school).

Anyway, interns and contractors don't get equity. If you want another partner, bring on another partner. Maybe even a cheap one (e.g. 1-5% stake), if it's a kid that is working part time while going to school (if we knew where to find just the right person, we'd be willing to do this, even though we can afford to pay market rates for the work we need done--the right person is always worth equity). And maybe you even pay him something. But "intern" means "here and gone before he/she becomes really valuable to the organization". Scaling the learning curve in a codebase of reasonable size will take an inexperienced developer a month or more.

Tichy
Free sandwiches should do the trick.
wehriam
If they were normal early stage employees I expect they'd get about a 3% stake vesting over four years.

3 / 48 * .03 = 0.001875.

So, a 0.1875% stake in the company would be reasonable over three months. If you make a ten million dollar exit, that's a respectable $18,750.

wehriam
That said, I'd hire one good intern and pay him 120% of market value. One person who feels valuable and respected will do twice the work of a team who think they should be paid more.
asdf333
So we did not offer equity stakes when we had interns working for us. We offered them a chance to be a significant part of a small team, trying to pull off the impossible.

As a student--especially from the top schools--I think you are more interested in a good summer experience where you learn alot. Not lots of pay or potential for options.

If you can convince them that they will learn alot more in a life-or-death struggle w/ you guys and create software used by thousands of ppl the next day rather than sitting bored in a windowless cubicle writing some code no one will ever use....you are all set.

If they need cash, they should do other stuff. If they want to test their limits, they should throw their lot in with you. :)

Be careful tho. Unless you get stellar interns, they are usually more work than they are worth. By the time they ramp up, they are about to quit and go back to school. Just think about what you did during your summer internship and you'll see what I mean. Most ppl do jack, so don't expect them to increase velocity too quickly. (unless you've carefully chosen some superstars)

attack
What is market value of interns in your area? I always have wondered this because this seems to vary widely. Where I've lived it's been between $9 - $15.
babul
0% equity as 80% salary is good enough considering for summer jobs other places may pay 100%~120% salary (assuming market rates do not fluctuate) but many will also pay ~<80% as it is established that interns will also gain experience, CV value, and some mentoring too.
richesh
we are two technical co-founders who have just hired an intern to help us for the summer. We've decided to pay him going hourly rate based on the market. But we have also told him that based on his "impact" on the product he is eligible for equity.

If you are going to get great contribution from them then it doesn't matter if they are an intern. And just like any other contributors to your product they deserve equity.

IMO, they are going to be helping your "technical guy" bring YOUR idea to life, which it seems you are not capable of doing yourself. Doesn't that deserve equity?

If they are smart and contribute then the possibility of equity makes them take ownership of your product which is something an offshore team or "hacker for hire" might not do.