Review offer for being employee #1


6

I've just been offered a developer job at a startup in the current situation.
- Pre-Series A.
- Current seed funding gives them a valuation of $5 mil.
- 4 founders, no employees, 1 founder is a developer.

Offer consists of pay that is 50% of market value, and ownership based on the schedule found here http://venturehacks.com/articles/option-pool-shuffle#market (in the 0.33-0.66 range), 4 year vesting, 1 year cliff.

Note: I believe that schedule is based on post series A funding.

At current valuation (I hope I have this correct), 0.66% would be $33,000. Given only 1/4 would vest after 1 year, my gross take would be 50% of market value + 8250 (market value about $100k).

Would it be reasonable to request pay + equity where after 1 year I should have grossed my market value consisting of salary received plus vested options? Ideally more, as anything below market value is effectively my risk.

Equity Stock Options

asked Jan 31 '13 at 14:36
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User23797
31 points
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  • Should note that I'm not junior. I have 10 years development experience, most of it being applicable to the job in question. – User23797 9 years ago
  • I agree with you, the equity should at least cover the missing 50% of the market value for the salary. If not more, to take into the account the risk of losing it all if the start-up fails. – Littleadv 9 years ago
  • I would vote for more. The valuation is likely biased in the founders' favor. Further, redeeming shares of a closely held concern is not straightforward. You might receive less than what you thought was fair-value. I think it would be reasonable to ask for equity more than the missing 50% of your missing salary. – Yorick 9 years ago

1 Answer


1

While your reasoning is logical (make sure you accounted for the strike price), I'm not a fan of attaching a strict dollar value to options, particularly in a seed stage startup, where uncertainty is huge, and future dilution certain.

Considering the specifics of your role (first employee and core developer) there is margin to ask for more equity. How much? I like Paul Graham's "equity equation" a lot. Basically you have to ask the founders: how much value do you think I will add to the company?

If i is the average outcome for the company with the addition of some new person, then they're worth n such that i = 1/(1 - n). Which means n = (i - 1)/i. For example, suppose you're just two founders and you want to hire an additional hacker who's so good you feel he'll increase the average outcome of the whole company by 20%. n = (1.2 - 1)/1.2 = .167. So you'll break even if you trade 16.7% of the company for him.

I think you can make a good case. I recommend reading this post, that covers every possible way to approach/negotiate startup compensation.

As a general rule, always try to negotiate your job offer.

answered Feb 6 '13 at 06:21
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Veronica
829 points

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Equity Stock Options