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I am considering an offer from an early stage startup. Salary is being dragged down ~40% under market due to stock options. The role is being a 'first key engin

I am considering an offer from an early stage startup. Salary is being dragged down ~40% under market due to stock options. The role is being a 'first key engineer' hire after the three co-founders. What kind of common-stock equity offer is 'average' in this case? 1%? 2%? 5%?

ap22213 11y ago
Are they offering options for stock, or stock? Make sure it's real equity. If it was me, I would start at 5-6% and negotiate from there. Assuming that this opportunity could turn into something huge, I highly recommend taking some negotiating training, if you have the time. Back when I was an executive, I was given a week-long negotiating training session. It was seriously the best, most useful training that I'd ever had in my career.
- mettamage 11y ago
  What kind of training was this, can I look it up? Or perhaps the training isn't available, but it's derived from somekind of methodology. In that case, what methodology was it?
  - ap22213 11y ago
    I tried to look up the team that they brought in to give the training, but I couldn't find them. It was several years ago, but I remember that the main guy was one of the more popular authors. He had a series of books written that ranged from basic to advanced skills. I wish I could remember his name. The books are probably useful (there are a ton of them), but the live sessions are likely much more effective because you get to practice the techniques, see the subtleties, and experience the results directly. For me, seeing the results really helped train my brain. Honestly, I went into the training dragging my feet and expecting the worst, but it's given me a huge edge. The results have been amazing - especially when negotiating with unskilled negotiators. I've gone into negotiations expecting X and consistently getting 2X, sometimes even 10X.
ryanSrich 11y ago
In my experience it's never a good idea to take a pay cut in lue of equity. Taking a pay cut because you like the product, the role, etc. are infinity better reasons than equity. In my opinion a 40% pay cut and being one of the first 5 engineers warrants co-founder status.
- jlas 11y ago
  Can anyone justify the down-voting here?
- deleted 11y ago
  [deleted]
- Ixiaus 11y ago
  It does not warrant cofounder status at all. So much more goes into being a cofounder than simply being one of the first x employees.
  - dmitrygr 11y ago
    Then find yourself another key engineer. :) Or perhaps you do not know what "key" means? It is rude to lie to people about the value of their options to hire them. ("Your options are 0.866% of the company"). But to try to defend that practice in public is just hilarious. Heh, at least now we know what it does take to be a cofounder :)
    - Ixiaus 11y ago
      Sarcasm is a crude tool for communicating your point, it also causes me to have less empathy for you. > It is rude to lie to people about the value of their options to hire them. ("Your options are 0.866% of the company"). But to try to defend that practice in public is just hilarious. I never once stated that one should lie to employees about the value of their options. Those conversations are always highly specific to the situation, the negotiated contract with the person, and how fluid the actual current "valuation" is. It's very difficult to pin-point a true value for a set of options in a private company - sometimes you can come close, particularly once major funding events and milestones have been hit, but it is still difficult. I usually do my best to have a candid conversation with prospectives or currents about that value. A lot of founders do. If all you care about is the financial upside in joining a startup, then I will always say that you should not join one. The risk is very high and it takes an enormous amount of cooperative collaboration from numerous people that are willing to be "in it together" - it also takes many years before you have something valuable enough to make those early options worth it. If you get in before the Series A and you really give it your all and it's a good product that people want and you're surrounded by peers who are the top of their game and you've got excellent leadership: Hang on because it will be a rocket ride. If not, then it might not be worth it. The other reasons to join a small startup are numerous. In the early stages it's mostly intangible and the later stages are usually very tangible. The "option" for a financial upside is there and should factor into how much risk you're taking as an early employee, but unless that is all you care about then it should not be the only factor in your censure of an organization. Figure out what's important to you and act accordingly. > Heh, at least now we know what it does take to be a cofounder :) Become one. You'll find out. I've been unable to accurately convey it to people it seems; most think it's glamorous. It is not. Most think they're entitled to it. They most likely are not. Most think founders have the upper-hand. Very few ever do (hint: the board and the investors control the strings more than most think).
brianwawok 11y ago
First step, put on your negative nancy glasses and deep dig. What is the chance of success? Are they shipping? Profitable? Do they have a bunch of big competitors to try and overcome? A kind of stupid idea that probably won't work? The founders will sell you on the dream, you need to dig into the other side. For me - I would cofound for 40% less pay(and say get 10-30% of the company), but not be engineer #1 for <5%. At the end of the day, a job is a job, why work for less than you are worth?
LoSboccacc 11y ago
40% is a _dramatic_ cut. You are not gonna see raises no money ifor years till options vest. Say three years. Now stack 40% of your gross yearly rate times 3 and ask yourself: what are the chanches those options will be worth that much?
harryh 11y ago
In order to answer your question there are a couple of important data points that need answering: 1) Are any of the three co-founders engineers? Or are you expected to run engineering? 2) How senior are you? Will you be expected to take on a leadership role or, after they hire a couple more folks, will you just be one of the team? 3) What is the fundraising situation for the company? 4) Has the company released a product to the market? If so, how much traction is there? The first two questions go towards answering how important you might be to the organization. Obviously more important -> more equity. The last two questions go towards evaluating how much success has been achieved already. More success -> less equity. Though less isn't necessarily a bad thing here as you'll be joining a company with a greater chance of success.
morgante 11y ago
> The role is being a 'first key engineer' hire after the three co-founders. I've been in that role for two different companies. First of all, you should never accept a ~40% under market pay cut (at least if your "market" is mid-to-senior developer). A 10% cut is reasonable, but you should absolutely never accept less than ex. $130k in SF. In terms of the equity grant, you can find some average here: https://angel.co/salaries https://angel.co/salaries It should absolutely be at least 1%, but the specific percentage is going to vary a lot based on your perception of the company's value. Put yourself in the shoes of an angel investor and try to imagine what valuation you would invest at. This can include factors like (a) what did other investors invest at, (b) founder history/background, (c) market potential/size. Then take whatever annual salary you're giving up, multiply by 8, and ask for that percentage.
vellum 11y ago
Think of it from another perspective. If you were just an investor, would you take pay 40% of your salary, per year, for those options?

ap22213 11y ago

Are they offering options for stock, or stock? Make sure it's real equity. If it was me, I would start at 5-6% and negotiate from there. Assuming that this opportunity could turn into something huge, I highly recommend taking some negotiating training, if you have the time. Back when I was an executive, I was given a week-long negotiating training session. It was seriously the best, most useful training that I'd ever had in my career.

mettamage 11y ago
What kind of training was this, can I look it up? Or perhaps the training isn't available, but it's derived from somekind of methodology. In that case, what methodology was it?
- ap22213 11y ago
  I tried to look up the team that they brought in to give the training, but I couldn't find them. It was several years ago, but I remember that the main guy was one of the more popular authors. He had a series of books written that ranged from basic to advanced skills. I wish I could remember his name. The books are probably useful (there are a ton of them), but the live sessions are likely much more effective because you get to practice the techniques, see the subtleties, and experience the results directly. For me, seeing the results really helped train my brain. Honestly, I went into the training dragging my feet and expecting the worst, but it's given me a huge edge. The results have been amazing - especially when negotiating with unskilled negotiators. I've gone into negotiations expecting X and consistently getting 2X, sometimes even 10X.

ryanSrich 11y ago

In my experience it's never a good idea to take a pay cut in lue of equity. Taking a pay cut because you like the product, the role, etc. are infinity better reasons than equity. In my opinion a 40% pay cut and being one of the first 5 engineers warrants co-founder status.

jlas 11y ago
Can anyone justify the down-voting here?
deleted 11y ago
[deleted]
Ixiaus 11y ago
It does not warrant cofounder status at all. So much more goes into being a cofounder than simply being one of the first x employees.
- dmitrygr 11y ago
  Then find yourself another key engineer. :) Or perhaps you do not know what "key" means? It is rude to lie to people about the value of their options to hire them. ("Your options are 0.866% of the company"). But to try to defend that practice in public is just hilarious. Heh, at least now we know what it does take to be a cofounder :)
  - Ixiaus 11y ago
    Sarcasm is a crude tool for communicating your point, it also causes me to have less empathy for you. > It is rude to lie to people about the value of their options to hire them. ("Your options are 0.866% of the company"). But to try to defend that practice in public is just hilarious. I never once stated that one should lie to employees about the value of their options. Those conversations are always highly specific to the situation, the negotiated contract with the person, and how fluid the actual current "valuation" is. It's very difficult to pin-point a true value for a set of options in a private company - sometimes you can come close, particularly once major funding events and milestones have been hit, but it is still difficult. I usually do my best to have a candid conversation with prospectives or currents about that value. A lot of founders do. If all you care about is the financial upside in joining a startup, then I will always say that you should not join one. The risk is very high and it takes an enormous amount of cooperative collaboration from numerous people that are willing to be "in it together" - it also takes many years before you have something valuable enough to make those early options worth it. If you get in before the Series A and you really give it your all and it's a good product that people want and you're surrounded by peers who are the top of their game and you've got excellent leadership: Hang on because it will be a rocket ride. If not, then it might not be worth it. The other reasons to join a small startup are numerous. In the early stages it's mostly intangible and the later stages are usually very tangible. The "option" for a financial upside is there and should factor into how much risk you're taking as an early employee, but unless that is all you care about then it should not be the only factor in your censure of an organization. Figure out what's important to you and act accordingly. > Heh, at least now we know what it does take to be a cofounder :) Become one. You'll find out. I've been unable to accurately convey it to people it seems; most think it's glamorous. It is not. Most think they're entitled to it. They most likely are not. Most think founders have the upper-hand. Very few ever do (hint: the board and the investors control the strings more than most think).

brianwawok 11y ago

First step, put on your negative nancy glasses and deep dig. What is the chance of success? Are they shipping? Profitable? Do they have a bunch of big competitors to try and overcome? A kind of stupid idea that probably won't work? The founders will sell you on the dream, you need to dig into the other side. For me - I would cofound for 40% less pay(and say get 10-30% of the company), but not be engineer #1 for <5%. At the end of the day, a job is a job, why work for less than you are worth?

LoSboccacc 11y ago

40% is a _dramatic_ cut. You are not gonna see raises no money ifor years till options vest. Say three years. Now stack 40% of your gross yearly rate times 3 and ask yourself: what are the chanches those options will be worth that much?

harryh 11y ago

In order to answer your question there are a couple of important data points that need answering: 1) Are any of the three co-founders engineers? Or are you expected to run engineering? 2) How senior are you? Will you be expected to take on a leadership role or, after they hire a couple more folks, will you just be one of the team? 3) What is the fundraising situation for the company? 4) Has the company released a product to the market? If so, how much traction is there? The first two questions go towards answering how important you might be to the organization. Obviously more important -> more equity. The last two questions go towards evaluating how much success has been achieved already. More success -> less equity. Though less isn't necessarily a bad thing here as you'll be joining a company with a greater chance of success.

morgante 11y ago

> The role is being a 'first key engineer' hire after the three co-founders. I've been in that role for two different companies. First of all, you should never accept a ~40% under market pay cut (at least if your "market" is mid-to-senior developer). A 10% cut is reasonable, but you should absolutely never accept less than ex. $130k in SF. In terms of the equity grant, you can find some average here: https://angel.co/salaries https://angel.co/salaries It should absolutely be at least 1%, but the specific percentage is going to vary a lot based on your perception of the company's value. Put yourself in the shoes of an angel investor and try to imagine what valuation you would invest at. This can include factors like (a) what did other investors invest at, (b) founder history/background, (c) market potential/size. Then take whatever annual salary you're giving up, multiply by 8, and ask for that percentage.

vellum 11y ago

Think of it from another perspective. If you were just an investor, would you take pay 40% of your salary, per year, for those options?