Ask HN: What is “significant” equity?
They're self funding, offering competitive, but reduced from my current, salary of 100k and 2% grant. My risk is essentially nil with how good the job market is, and my upside will be nice if we're successful. The position is first employee and lead architect. It seems like a favorable offer and it seems like the numbers line up fairly well for what I see for post series A startups.
Theres always talk here about not working yourself to death for minimal equity and not getting blinded by it, but being new to the startup side of things I don't really have a clue about what "significant equity" means and the self funded nature of the business makes things more confusing. I don't expect to get rich from it, but I think we've got a good plan and history of executing well so we've got a good shot at turning time into a good payoff.
So, HN, at what point in the ownership percentage do you go "all in" on? 2%, 5%, 10%, 25+?
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[ 0.29 ms ] story [ 53.0 ms ] threadLooking at the wealthfront equity map, https://www.wealthfront.com/tools/startup-salary-equity-comp..., it seems like nobody in funded startups has more than about a percentage. Is that tool off, are expectations too low?
Ideas are very cheap - worthless actually, if you can't execute them into a product, let alone a product that users will actually pay for.
I don't know your current salary, but it should be a hell of a lot more than $100k in SF. So yes, 2% is low, especially given that it doesn't sound like there is an MVP or demo product existing - i.e. you would be building this as your role. Whether they like it or not, you're technically a cofounder, however as you're receiving some salary, you're not taking anywhere near as much risk and shouldn't receive as much equity as them - assuming they're not paying themselves.
I've had friends tried to recruit me in other parts of the country and gotten asked if I'm "king of my town" with what I'm making.
Agreed on the cofoundery-ness of it for the most part. They've been working on the idea and getting things fleshed out of the last 9 months and aren't taking a salary. I'd certainly like to make my way closer to the double digit mark, but honestly its tough to put forward much of an argument when the startup world is so capital centric.
In post series A startups, there is already some 'proof' of success (generally in the terms of growth), so salary offerings gets high and stock options get low than a pre-series A startup.
Stock options/grants are tricky because of dilution and preferences. The 2% can mean many things. How much the company plans to raise in the future? Even if it's not planned, circumstances can change overnight, and company may need to raise.
It seems you have a connection with founders, so it probably won't hurt to talk to them about this issues.
In the end, it all comes to how much risk you are taking, and the compensation you are getting for it.
Seems pretty minor on the risk side for me and I'm not sure how I can effectively argue for more.
Is it worth being below-market for 5 years for that supposed payout?
We're talking about triggers for going up to an agreed upon market++ salary with next fundraising round, or some significant sales for our product, etc.
It's in your favour that the founders have had startups/exits before (fundraising will be easier) but funding still takes months to close and you still need to ship a product before you even get to that point.
I imagine you'll be hiring other employees too which increases the strain.
Suppose there's a 5% chance of a $50 million dollar exit after five years and there's a 2:1 dilution risk of 50% and a bad-will at liquidation risk of 20%.
The 2% of a $50 million exit is $1 million. The 2:1 dilution risk at 50% reduces that to $750k. The bad-will at liquidation risk reduces the value to $660k. The 5% chance of such a payout makes the value of the equity $33k.
So on those optimistic assumptions, there's $3k of upside in taking the deal. Continual reassessment is necessary to make sure that continuing with the company is a good investment. Odds are that the odds of a big exit will go down over time and that dilution and bad-will will go up.
Finally, if you're arguing for more do you really want to work somewhere that requires constantly convincing people of your worth? Investing in the current opportunity limits your ability to invest energy in something better (in fairness it also limits your ability to invest in something worse).
If you're already willing to walk out the door for another job, why fool around with something that offers very marginal return? Go into business with people who share some of your interest in your getting rich.
It's not the $100,000 in salary over three years you didn't get in exchange for taking equity after a deal which made the founders rich if not wealthy. Significant equity aligns your outcomes and interests and gives you a seat at the table when liquidity events are going down.
Significance is more of a sliding ratio. 0.5% is significant if the founders each have 6%. 10% is significant if they have about 25%. There should be only one qualitative step between stakes, and that step should reflect the size of the company.
A final tell on significance is if the ownership structure is relevant to the discussion. Significant equity alters it in a...wait for it...significant way. It signifies that the offer is about more than a hiring decision. If the next programmer passing the interview process would get the same offer next week then the equity isn't significant. Gates and Allen wanted Ballmer, nobody else was going to get 6% with an option to 8 because there was nobody else.
Good luck.
I would say significant stock is at least an amount that doesn't make someone think twice about the package. If the founders are holding 80%, then everyone else is pretty much an employee not an owner.
There's nothing wrong with being an employee. There's nothing wrong with working below market rate in exchange for some equity. Just be clear that it's a job and the only way you'll achieve market rate compensation or above is with a significant exit, limited dilution, and good-will toward you on behalf of the major shareholders.
Completely understand that, but my question was about significant from an employee perspective as I mentioned in the OP.
Is the value of 2% of a startup meaningful compensation? Probably not. See my valuation elsewhere in this discussion.