First employee at Y Combinator funded company


11

I may have the chance to be the first employee of a startup going to the YC summer 2011 program.

The thing is I think they are planning to cover my expenses but not to actually pay me or offer any equity [at least during the YC program].

My first thought was "I'm an experienced developer not an intern". But then I thought actually going thru the YC program would be fairly cool maybe I'm being unreasonable here.

What are your thoughts? Should employees in the YC program be paid or offered equity or is going to YC enough 'payment' in itself?

Equity Payments Employees

asked May 16 '11 at 00:23
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Andy Boot
228 points
  • If you are a company - dont make this kind of offer - it upsets YC – Andy Boot 8 years ago

7 Answers


13

I've been in similar situations.

Situation 1: I had an offer to join YCombinator company. I got the offer shortly after they were accepted to YCominator, but before they had a product, customers, or any other funding. I negotiated the offer to ~23% of the company (which was an equal share as the founders) and zero salary (not even living expenses).

Situation 2: I had an offer to join a brand new company founded by veteran, very successful entrepreneurs. They had $450k in funding, but no product or customers. I negotiated the package to 60% market salary plus 4% equity share.

Receiving subsistence wages and zero equity should be completely unacceptable. If they have no product and no customers, then the starting point for negotiations should be co-founder status - 30% equity share (with normal vesting of course). Don't be afraid to be a tough negotiator, just argue in good faith and back your arguments with reason.

Startups are usually a great learning experience. But they demand enormous amounts of work and stress. Life is short, and you only have so many shots. Thus with each startup you undertake, you must maximize the chance that it can be the hit that changes your life. Joining a startup without taking a share in the upside is completely insane.

Finally, you have to settle this ASAP, not at the end of the summer. If the company continues to exist, the shares will rise in price. If you wait until later to negotiate stock, the equity will be more valuable, and you'll get less of a share than you would at the moment. Thus by working now but negotiating later, you'll be assuming all the risks of joining a startup at the beginning, but only getting equity based on a later valuation that assumes less risk. That's a raw deal for you.

answered May 16 '11 at 11:51
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Startupper
146 points
  • plus one -- having made the same mistake many times, heed this guys advice and DO NOT WAIT to get your equity. Get the agreement ON PAPER before showing up on day one. The value of the company rises when they hire employees, and you should take your cut BEFORE increasing the value of their company. Once, i took a partnership for 50-50 and salary, then lost my 50pct equity in a webapp i personally built singlehandedly because i waited 4 weeks (and my "partner" decided i had "already been paid for the work"). – Linkedlinked 8 years ago

11

cover my expenses but not to actually pay me or offer any equity

What's that -- they pay you a salary which, after tax, just matches your minimum living expenses?

Well, it doesn't matter, this deal is IMHO still broken beyond repair. Either you are

  • a co-founder, in which case foregoing salary can be reasonable (because you get major equity)
  • or your are an employee in which case you should get a near-market-rate salary and a options package.

BTW, they may apply to Y Combinator, but that's not the same as saying that they're going. Y Combinator has a huge name now, and gets loads of applications from smart(er) startups. And AFAIK, as an employee you would not be invited to the Y Combinator dinners etc? Those events are a big part of why Y Combinator is such a great learning experience.

answered May 16 '11 at 02:04
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Jesper Mortensen
15,292 points
  • I have the same reservations about whether YC will allow "just" an employee into the program. – Tim J 8 years ago

7

There has been some confusion between myself, YC and the company.

The upshot is: Companies should not make this kind of offer. [They didn't btw. My worries were the result of a late night conversation in a bar not a formal interview :-) ]. It is not how the YC program is supposed to work.

answered May 16 '11 at 18:52
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Andy Boot
228 points

2

If you are going through the YC program with them, you are not an employee. You are an early stage, (possibly limited) partner.

It sounds like you need to get equity, and a very small salary. I think they get salary of 2k per month or something like that.

answered May 16 '11 at 05:12
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Genadinik
1,821 points

2

You have an opportunity.

Now, you need to decide the value of that opportunity, and how you would like to (or need to) extract some payment for it.

Money is certainly the most common way to receive compensation for your efforts at an employer. But, the experience may have immense value. The people you meet may offer you opportunities to expand your career far beyond what a short term payout of $x,xxx would yield over the long term.

I disagree with some of the posts above. You are not a "co-founder", though you may negotiate to be. You are not "owed" a certain amount of equity, though that may happen.

You are just a guy with an opportunity in front of you. Determine what it's worth to you, what you're worth to them, and then let them know what you're thinking.

answered May 16 '11 at 11:05
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Brian Karas
3,407 points

2

I think I need a little more information about the scenario. What do you get for attending the program with them? What expectations do they have from you? Are you looking to be brought on the team as a cofounder or are you going through the Summer term as an evaluation?

If both parties are unsure whether or not you would be a good fit, then you should have a trial period, which could be the YC term. For example, agree upon an equity percentage (salary, combination of both, ect) and specific milestone goals that would be achievable in a 3 month period. If at the end you are a successful employee, then you get you get your equity and they get their new all star engineer. Your equity would be vested over a certain period of time.

If it wasn't a good fit then you got your expenses covered, expanded your network, and hopefully used your time to grow your abilities.

answered May 16 '11 at 13:10
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Flignats
37 points

1

I wonder if YC's policy is specific about this. you should try to find out. I absolutely think that the experience is worth the investment of time. If you look at it from a purely mercenary point of view - you get to spend a few months in the company of people with a lot of experience, money and passion - and a depth of contacts that is quite impressive.

You should be up front though with the founders and be clear that since you are not getting money or equity that you feel no obligation to them and that you are going just to experience YC. Both parties might confirm and make larger investments in each other after the program or not - and if not then there should be no hard feelings if they choose to go separate ways.

If you DON'T have that understanding going in, then if you do split ways you might be viewed in a bad light by the rest of the community.

If you have the time and can afford to be paid nothing for a few months and if you think the chances for pay/equity are pretty good, then go for it.

You should talk to them about what they think are possible options and what the expectations are for AFTER YC. For example - would you receive shares if you get funded? What would be your pay if the company turns profitable in a year, etc.

Good luck - keep us posted!

answered May 16 '11 at 01:33
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Tim J
8,346 points
  • +1 for discussing the expectations _after_ YC. – Zuly Gonzalez 8 years ago
  • I've learnt that YC do not agree with this kind of thing at all. – Andy Boot 8 years ago
  • @Andy - I figured as much. Thanks for letting us know. – Tim J 8 years ago

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