Prefunded startup employee compensation


1

I'm going to be working for a startup that is prefunding. They have received a grant for housing and a bit more. I was wondering what I should negotiate in terms of salary and equity.

I don't want to be taken advantage of but I believe this company has viability. They have talked about something in the 10-15 range per hour (seems a bit low) for compensation as well as equity. What should I aim for? I am a developer/CTO role with two non-technical founders. The founders have invested a sum of money, not sure how much.

Looking for a salary and equity I should negotiate for! I would be their first hire.

Thanks!

Getting Started Hiring Equity Compensation

asked Aug 25 '13 at 08:43
Blank
Sean Fisher
108 points

2 Answers


4

Sean, looking at your profile it says you are 18. I might suspect your age has something to do with the low offer. Its unfortunate, but a lot of reverse age discrimination takes place when recruiting young talent. I know a guy who was engineering software at the age of 11. By 21 he still had a rough time being taken seriously although his depth of knowledge was higher than many seasoned SV CTO types.

10-15 is extremely low for a salary. I would take it as a warning that the company you are interested in is either short on funding to pay for talent, or extremely cheap. You really have to take a hard look ad determine if your tech talents will have long term value for them. What I am trying to say is : dont work for 15$ per hour for 6 months, deliver them a money maker, and then be replaced for someone either cheaper or different.

The general rule is when taking a cut in salary expect equity. For example say your regular hourly rate is $35 per hour, but then can only pay you $25. You are taking a 10 haircut. Multiply $10 x 1732 and you should be getting $1732 worth of equity for each month of work. But it goes beyond that, because a bird in the hand is worth 10x in the bush when talking about startups.

So back to my $10 haircut example. Say you need to invest 12 months of work and take a reduced $10 salary of $25 versus your usual $35. At the end of the year, you would have earned $20,700 less. You want to make sure whatever equity you are getting is at least 2x that, and ideally closer to 10x that. It sounds a bit greedy, but its a win win.

For your employer, they are offering less money so they have more working capital towards their startup. For you, although you take the $10 loss (and cannot use that for other investments), you can win more than you would have put in.

A different cleaner approach is for your employer to pay your full rate of $35 per hour, but then you use $10 of your salary each month to buy shares of the company. That might keep a cleaner accounting of things. At the end of it, it all depends on the company, how much potential it has, and the other candidates who might qualify to do the work for less.

BOL

answered Aug 25 '13 at 09:43
Blank
Frank
2,079 points

1

For starters, look closely at the business model - how is the startup going to create value for customers, how (and when) will this translate into revenues, how straightforward is it for prospective customers to stumble upon this value and decide if it's for them?

Second, look closely at the risk model - in order to deliver the promise, where does the company need access to resources it doesn't have, what's the balance between the key resource categories of knowledge, labor and funding, and how does that balance change between idea and first markets, between first markets and traction, and between traction and scaling?

Third, look closely at what your arrival would mean - what's the balance between doing a job already mapped out, adding in experience that will flesh out important details and enable smart decisions, and architecting the business as it moves forward?

Last, look closely at what you want to get out of this opportunity - certain cash, experience and credentials for a future venture, a shot at a big payday, a role for the next ten years?

Now you're armed with the critical details. You're being sold an investment package: your time is the currency. So now you can see what value you'll create, and you can decide what level of risk you're happy to take on, and how you want to profit from your investment. So now, and only now, you are ready to negotiate.

From this point on, you need to find if there's a possible meeting point with how the founders are thinking. Do they see the value you will create as you do? Will they share that value with you in a way that works for you?

If the deal is as a commodity coder, you need to find a salary-driven formula that means you are comfortable you are being offered market rate - that what you're forgoing short-term is being recognized, accounted for and will be paid back to you in every success case. (That can literally be keeping tabs on a salary sacrifice amount and agreeing how it's to get paid back or canceled.)

If the deal is as an "all in" CTO sharing in risk and reward, you need to find an equity-driven formula that gives you a fair stake in the business going forward. In this case, the salary you want is just whatever you need right now to survive, and a note that says when and why you will (all) plan to move from "starvation rations" to "fair market rates."

Good luck. It's exciting to be in at the ground. And it's worth being ready to walk away unless there's a deal that's right for you.

answered Aug 25 '13 at 16:08
Blank
Jeremy Parsons
5,197 points

Your Answer

  • Bold
  • Italic
  • • Bullets
  • 1. Numbers
  • Quote
Not the answer you're looking for? Ask your own question or browse other questions in these topics:

Getting Started Hiring Equity Compensation