How much equity should I get as the first employee?
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!
43 comments
[ 2.9 ms ] story [ 87.9 ms ] thread[1] https://news.ycombinator.com/item?id=973060
Make sure you are reasonably happy with deal.
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.
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.
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).
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.
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.
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?
> 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.
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.
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.
You’re really a founder. Ask for 10-30%.
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.
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
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.
> 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.
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