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Ask HN: Negotiating equity. Is 10% enough?

2 points by MaxwellM ↗ HN
I plan on quitting my engineering job to join a 2 person startup. Currently the startup doesnt make product - it generates $100,000 per year in software consulting and is growing at a rate of 15%. Eventually we hope to package and ship products from our consulting ventures.I will be quitting a 9 to 5 to work days/nights/weekends (basically full time, all the time), loosing dental/health insurance and 401k benefits.

Since I do not expect to get paid more than $33K per year, I need to figure out what equity compensation is reasonable. How should I go about figuring out what equity to negotiate?

I could estimate stock value using price to earnings, 10% equity for year one would then correspond to an additional $10,000 if my shares were to be bought out.Is this how I should go about thinking about this?

12 comments

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timaelliott
Why do you think you'd only get paid $33k? If that's the case, that's suggesting the compensation and ownership is:

  Co-Founder: $33k Salary, 45% Equity
  Co-Founder: $33k Salary, 45% Equity
         You: $33k Salary, 10% Equity
I'm hoping the problem is self-evident.
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patio11
You seem to think you're the first employee. If you're not making market and going home at 5/6 PM, you should be the third co-founder.
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mechanical_fish
Visit this page (nothing special, just the first search result for "software engineer salary"):

http://www.payscale.com/research/US/Job=Software_Engineer_/_...

And ask yourself this question: If these two people can't make more than $50k per year per capita in software consulting, in this market, in their product's alleged target market - and they can't figure out how to grow that number more than 15% per year, via simple recipes that are orders of magnitude less risky than developing and shipping a product - why on earth are you quitting a job to partner with them?

Look for partners who can find a market worth finding. In the meantime, don't give up your day job, no matter how much equity you're offered.

wikwocket
Not to mention that they're making $50k a head working "days/nights/weekends" - a bit extreme!

For comparison, doing software consulting at only $50/hour, you can make $50k working just 19 hours a week...

MaxwellM
We are all 2 or 3 years out of college. So while I admit we could be charging our clients a lot more, I don't think that 100K per year in revenue out of consulting ventures is a bad start.
MaxwellM
http://answers.onstartups.com/questions/6949/forming-a-new-s...

According to this I would count as the first employee as the company has existed for a year and is making money. Thereby ascribing 10% to me, their first layer of employees. However as this layer grows my value may gets diluted. Moreover it assumes that I am getting paid market wage. As part designer, part developer and part project manager - im not sure what that number is but lets say its at least what im getting paid now $70K per year.

Since I am not getting paid market wage I feel like it should be reasonable to ask for sufficient equity compensation. This is one of the main reasons join a startup right? Not the pay but the <em> potential <em> reward.

All this being said, its a young company the founders are my friends and I feel strongly that the company has potential and that I have a strong opportunity to grow.