I hold equity in a tech startup. Should I ask for compensation? And if so, how much?


1

I'm a tech/product guy at a seed-stage startup in New York City and have been working there for 2 years (about Sept '11). At first, I started by taking a signficantly reduced market rate and 5% equity in the form of vesting stock options. Since April of '13, partially as a favor to the company, I stopped any cash compensation and worked solely for a small amount of equity. This brought me up to 10%.

Just recently we finally secured a little bit of funding ($125,000). The person who funded received 12% of the company and in addition, is willing to work for free over the next 6 months, as well as being subject to a 4-year vesting plan.

What I'm wondering is whether I should ask for any compensation in addition to the equity I already hold? And if so, how much? Market rate, below market rate, way below market-rate?

And a little about the company... we pull in about 25,000 unique visitors/month and growing, have a decent social media following (about 5,000 each on Facebook/Twitter), and pull in about $1,000/month in revenue with potential for a lot more.

Equity

asked Sep 19 '13 at 01:49
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Joe
6 points

2 Answers


4

I'll give you some tools to answer this question yourself. Let's do some math. You own 10% of a company that was valued at 1.04M when the external funding was secured (125k / 12% = 1.04M). In the past 6 months, you've earned 5% which equals ~50k.

You didn't mention if the company is in the financial position to give more compensation. You should share the details of your equity agreement.

You also didn't mention if you have a primary source of income, that would also influence your decision.

What you ask for is ultimately up to you. However, on this site and also the up and coming freelance answer site, you will read answers that tell you to 'rate what your worth'. If you have a number: How much you need to live + what benefits cost if they don't provide them, extra for vacation time, etc. basically what you need to be comfortable (not filthy rich).

You also have to weigh in where you see the company going in the next several years. Time is money, it's a commodity you can't get back. So, by sticking around you are taking a financial risk (your time could be spent elsewhere actually making -now - money). You have to know whether you can afford to take the risk (can you fulfill your financial responsibilities with a nickel from them at the moment?) If you see them tanking, you may want to sell your shares first chance you get. If you see the direction the company is taking, and agree with it, then sticking around probably isn't a bad idea.

answered Sep 19 '13 at 04:07
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Md Moore313
290 points
  • Thanks MDMoore. I actually did run the valuation math you mentioned. And although the new investor purchased at a valuation of 1.04M, I think this was ultra-generous. I'd put it closer to 100K-200k. The signficance of this is I see my equity as far less valuable than the new investor. But financially, I do have savings built up so I don't need money to pay my bills. It's just more about trying to get fair value. Thanks again for the insight. – Joe 6 years ago
  • @Joe no problem, but don't forget that his purchase @ that price has significantly raised the value of your equity, and there should be some documentation to reflect that. – Md Moore313 6 years ago

0

I'd find another job. Your total compensation is way, way, way below what even other startups that are doing fine would pay.

answered Sep 23 '13 at 10:14
Blank
City Entrepreneur
42 points

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