5 ms·

Ask HN: My first startup offer

19 points by startup_noob 15y ago

Hello Hackers, I'm on the edge of taking the plunge into the startup scene. I've received the deets of the offer, now I have to decide. I'm hoping someone can help me run the numbers and figure out if it's a fair offer... There's 3 co-founders. They're a smashing team of folks but none of which will be technical. One has a technical background (and some successful iPhone apps and such), but they're staying on the business end. Those are the only employees right now. There's no product. This is definitely the 'ground floor'. They're raising 750k on a 7M valuation doing capped convertible notes (at a 7M cap). To that end, they've been running small events and have people that have been attending them. Nothing huge but it's a slight glimmer of some market validation. They're recruiting 3 technical engineers to develop v1 of the product. Myself as a backend developer, a PM + UX developer, and another backend developer to work with me. They're planning a 12 month runway with an officially solicited 18 month burn rate. Their tentative plan is to raise a series A round right at 1 year and growing out of the Bay Area after 1 year. The plan is to keep 3 engineers for 18 months before hiring. That said, they want to bring me on as one of the backend engineers to build v1 of the product. I'm 23, a year out of college with an impressive resume (Apple, Google, Microsoft). I'm currently making $85-90k at one of those three. They're keeping 20% of the company for an employee options pool (with a decreasing amount of options being offered, as they bring more people on). My offer has been: $80k salary -> 1.25% of 20% options pool $70k salary -> 2.5% of 20% options pool $60k salary -> 4% of 20% options pool Keep in mind, those percentages are of 20%. Therefore, 4% of 20% is equivalent to 0.8% of the overall company. ($80k->.25%, $70k->.5%,$60k->.8% overall company equity) And they want to work out of San Francisco, where I'd have to live. With that whole picture... what are your feelings on their offer? Fair? Unfair? Things I should argue or watch out for?

mindcrime 15y ago
Things I should argue or watch out for? Nowhere in anything you just said did you mention anything about talking to customers. I presume that's what the 3 co-founders will be doing, while the 3 engineers are building this "v1," but that a point I'd want clarified if I were in your shoes. If they aren't committed to getting out and getting in front of the customers (of if they haven't already done so, which seems to be the case) I'd be very worried.
- startup_noob 15y ago
  They are highly committed to getting out and getting in front of customers. They love doing so. And yes, that's their job (they're hustling about town as we speak raising money). Like I said, they've already put on many unofficial events with future customers to rave reviews and demands for a full fledged product developed around it. As the engineers, we'll be primarily engaged on the backend but all of us will be part of the experience (so I'll be at events, them too). :) Any thoughts on the compensation portion of the deal?
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pg 15y ago
Smells bad. The neatness of their future plans is in itself suspicious, and the percentage of the company you're being offered is low.
- startup_noob 15y ago
  This is all looking forward. Of course, things look neater when it's all on paper... What would you throw out as a reasonable amount of equity expect, given the situation?
  - pg 15y ago
    Hard to say without knowing more details, but on the whole I don't think I'd take the job at all.
    - startup_noob 15y ago
      Maybe you could suggest beyond 'neatness' what seems so fishy about it? I'm a wide open mind.
      - pg 15y ago
        3 founders, none who can code, and who propose to give the people who are going to build the product so little of the company. These situations do not turn out well unless the founders are Bezos.
        startup_noob 15y ago
        Thanks Paul.
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abbasmehdi 15y ago
At the $80k level the money seems ok, not great, not bad. A 1y runway means your job is secure. Ask are they worth investing in? (You are investing 10k per yr per step above as you come down that ladder to get more equity). This depends if they will succeed or not. A good way to judge their capability of succeeding is to look at who the investors are (750k). If they have a history of investing in similar companies that have been successful then know what they are doing, therefore it is likely these guys will succeed and you should go for a higher share in the company. Also, for about $10k/yr you are buying $17.5k worth of the company at the current valuation going from $80k/y to $70k/y. I say, if you believe in the idea and the team, plus the investors are solid, and you're not dying for cash, it might be worth going for a higher stake. Another thing, if I were you, I'd negotiate the equity too (pay me $70k but give me stake like $60k). If you don't believe in them or are suspicious, then just take the $80k and go for a 1 yr startup ride.
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- abbasmehdi 15y ago
  That's not the trade-off (his own start-up), the trade-off is staying at Appl/MS/GOOG vs these guys. Also, if the only good investment was in a billion dollar company then there would be no YC and definitely no Yuri Milner with his no cap, no discount convertible broadside loan of 150k.
  - startup_noob 15y ago
    Exactly what abbasmehdi suggested. I could have a fruitful or, at least, profitable career for a few years at one of those companies. This wouldn't be a billion dollar company. I give it a $30-40M exit.
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  - dstein 15y ago
    Oops I missed that part. Argument retracted. Yeah this isn't a good enough deal given his situation. I'd ask for a lot more equity or walk.
    - startup_noob 15y ago
      Any ideas on numbers? I'm pretty clueless when it comes to this and I'm afraid making too large of an ask will blow negotiations. Honestly, I'd be a happy developer at $85k and 2% overall. But that's a huge step up from their offer.
      - abbasmehdi 15y ago
        Ask them "What if in 2 yrs I become so vital that if I leave the company falls apart?" Let 'em know that early back-end engineers have an enormous impact, and you walking could cost them the company, and why wouldn't you, you'd just be an employee with pennies in stake. Then suggest you're open to being a 30% equity stakeholder (co-founder). ;)
jhchen 15y ago
In general the offer seems low compared to offers I have seen though perhaps they are expecting you to counter. Good engineers are incredibly scarce in the valley and if you are good, you will almost certainly get a strictly better deal from other startups. One publicly accessible data point is RethinkDB: http://web.archive.org/web/20100410043940/http://rethinkdb.com/jobs/#systemsEngineer http://web.archive.org/web/20100410043940/http://rethinkdb.c.... They are working on a very sexy systems problem (my concentration in CS is Systems and have no affiliation with RethinkDB) and they have a great team of investors (YCombinator, Andreessen-Horowitz). Make sure the one founder is actually technical and didn't just build a bunch of simple iPhone apps. Ask yourself would you consider this guy/girl an equal on technical ability? 3 non-technical founders is a huge red flag unless they are in a very unique market. Also presenting the equity as a percentage of the options pool versus the entire company is fishy. What you care about is the latter and this makes it seem like they are trying to sell you rather than help you figure out what's best for you. If you want to plunge into startups, absolutely apply to others. At the very least you'll have some negotiating leverage but I think you might find there are much better offers out there.
auganov 15y ago
Salary is relatively high for a start-up and you get very little equity. More of a regular job with extra options as a bonus if you ask me. Just think about what makes you want it? Are you in for the potential payout? Then I would aggressively bargain. Well you if you're important to the success and value yourself highly you should do that anyways, they won't get angry, in fact should appreciate somebody like that more (if not I'd doubt if it's worth working for those people). Most likely they have no idea how "fair" their offer is as much as you don't. Also if other people will be getting a similar deal I　would be slightly worried about motivational issues. I can easily imagine them hiring somebody for 80k that didn't make that much before or had a very similar salary. Add to that the rather longish runway of 12 months. Will there still be that atmosphere of pushing yourselves to the limit? I have no idea, we know too little about the company, but please ask yourself those questions.
smallegan 15y ago
Based on the 7M valuation you are only taking about 56K, I guess you have to ask yourself, is it going to be a 7M company or a 70M company when it is all said and done, because you could most likely get at least 116K (every year) in the corporate world without the worry of failure.
petervandijck 15y ago
Let's say things go well, you stay for 4 years, loosing about 20*4=80K in salary. The company is then sold for $30m, of which you get 75K-ish (check my math though). Your risk-taking, lock-in and not taking other opportunities has not won you anything. If you want the job, counter with $80K salary and 5% of the company (not of the options pool, of the company). INSIST to talk about your percentage in terms of percentage of the company. Let them make really offended faces, and let them get back to you.
- startup_noob 15y ago
  Made this exact counteroffer last night. Thanks for validating my thoughts.
rms 15y ago
Maybe if you could get $90-100k per year... As others have said, those options you're being offered have a really low expected value, so I would only recommend working for this company if you can make it up on salary and really want some startup experience. Also, this might be a good time to remember that if you're staying at where you are working now, you can use offers from other companies as an excuse to ask for a raise.
iamelgringo 15y ago
Ping me: jonathan@hackersandfounders.com. I have a hunch I may know a bit more of the story around this through Hackers & Founders. If it's the group that I'm thinking about I might be able to help.

19 points by startup_noob 15y ago

mindcrime 15y ago

Things I should argue or watch out for? Nowhere in anything you just said did you mention anything about talking to customers. I presume that's what the 3 co-founders will be doing, while the 3 engineers are building this "v1," but that a point I'd want clarified if I were in your shoes. If they aren't committed to getting out and getting in front of the customers (of if they haven't already done so, which seems to be the case) I'd be very worried.

startup_noob 15y ago
They are highly committed to getting out and getting in front of customers. They love doing so. And yes, that's their job (they're hustling about town as we speak raising money). Like I said, they've already put on many unofficial events with future customers to rave reviews and demands for a full fledged product developed around it. As the engineers, we'll be primarily engaged on the backend but all of us will be part of the experience (so I'll be at events, them too). :) Any thoughts on the compensation portion of the deal?
- deleted 15y ago
  [deleted]

pg 15y ago

Smells bad. The neatness of their future plans is in itself suspicious, and the percentage of the company you're being offered is low.

startup_noob 15y ago
This is all looking forward. Of course, things look neater when it's all on paper... What would you throw out as a reasonable amount of equity expect, given the situation?
- pg 15y ago
  Hard to say without knowing more details, but on the whole I don't think I'd take the job at all.
  - startup_noob 15y ago
    Maybe you could suggest beyond 'neatness' what seems so fishy about it? I'm a wide open mind.
    - pg 15y ago
      3 founders, none who can code, and who propose to give the people who are going to build the product so little of the company. These situations do not turn out well unless the founders are Bezos.
      - startup_noob 15y ago
        Thanks Paul.

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abbasmehdi 15y ago

At the $80k level the money seems ok, not great, not bad. A 1y runway means your job is secure. Ask are they worth investing in? (You are investing 10k per yr per step above as you come down that ladder to get more equity). This depends if they will succeed or not. A good way to judge their capability of succeeding is to look at who the investors are (750k). If they have a history of investing in similar companies that have been successful then know what they are doing, therefore it is likely these guys will succeed and you should go for a higher share in the company. Also, for about $10k/yr you are buying $17.5k worth of the company at the current valuation going from $80k/y to $70k/y. I say, if you believe in the idea and the team, plus the investors are solid, and you're not dying for cash, it might be worth going for a higher stake. Another thing, if I were you, I'd negotiate the equity too (pay me $70k but give me stake like $60k). If you don't believe in them or are suspicious, then just take the $80k and go for a 1 yr startup ride.

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abbasmehdi 15y ago
That's not the trade-off (his own start-up), the trade-off is staying at Appl/MS/GOOG vs these guys. Also, if the only good investment was in a billion dollar company then there would be no YC and definitely no Yuri Milner with his no cap, no discount convertible broadside loan of 150k.
- startup_noob 15y ago
  Exactly what abbasmehdi suggested. I could have a fruitful or, at least, profitable career for a few years at one of those companies. This wouldn't be a billion dollar company. I give it a $30-40M exit.
  - deleted 15y ago
    [deleted]
- dstein 15y ago
  Oops I missed that part. Argument retracted. Yeah this isn't a good enough deal given his situation. I'd ask for a lot more equity or walk.
  - startup_noob 15y ago
    Any ideas on numbers? I'm pretty clueless when it comes to this and I'm afraid making too large of an ask will blow negotiations. Honestly, I'd be a happy developer at $85k and 2% overall. But that's a huge step up from their offer.
    - abbasmehdi 15y ago
      Ask them "What if in 2 yrs I become so vital that if I leave the company falls apart?" Let 'em know that early back-end engineers have an enormous impact, and you walking could cost them the company, and why wouldn't you, you'd just be an employee with pennies in stake. Then suggest you're open to being a 30% equity stakeholder (co-founder). ;)

jhchen 15y ago

In general the offer seems low compared to offers I have seen though perhaps they are expecting you to counter. Good engineers are incredibly scarce in the valley and if you are good, you will almost certainly get a strictly better deal from other startups. One publicly accessible data point is RethinkDB: http://web.archive.org/web/20100410043940/http://rethinkdb.com/jobs/#systemsEngineer http://web.archive.org/web/20100410043940/http://rethinkdb.c.... They are working on a very sexy systems problem (my concentration in CS is Systems and have no affiliation with RethinkDB) and they have a great team of investors (YCombinator, Andreessen-Horowitz). Make sure the one founder is actually technical and didn't just build a bunch of simple iPhone apps. Ask yourself would you consider this guy/girl an equal on technical ability? 3 non-technical founders is a huge red flag unless they are in a very unique market. Also presenting the equity as a percentage of the options pool versus the entire company is fishy. What you care about is the latter and this makes it seem like they are trying to sell you rather than help you figure out what's best for you. If you want to plunge into startups, absolutely apply to others. At the very least you'll have some negotiating leverage but I think you might find there are much better offers out there.

auganov 15y ago

Salary is relatively high for a start-up and you get very little equity. More of a regular job with extra options as a bonus if you ask me. Just think about what makes you want it? Are you in for the potential payout? Then I would aggressively bargain. Well you if you're important to the success and value yourself highly you should do that anyways, they won't get angry, in fact should appreciate somebody like that more (if not I'd doubt if it's worth working for those people). Most likely they have no idea how "fair" their offer is as much as you don't. Also if other people will be getting a similar deal I　would be slightly worried about motivational issues. I can easily imagine them hiring somebody for 80k that didn't make that much before or had a very similar salary. Add to that the rather longish runway of 12 months. Will there still be that atmosphere of pushing yourselves to the limit? I have no idea, we know too little about the company, but please ask yourself those questions.

smallegan 15y ago

Based on the 7M valuation you are only taking about 56K, I guess you have to ask yourself, is it going to be a 7M company or a 70M company when it is all said and done, because you could most likely get at least 116K (every year) in the corporate world without the worry of failure.

petervandijck 15y ago

Let's say things go well, you stay for 4 years, loosing about 20*4=80K in salary. The company is then sold for $30m, of which you get 75K-ish (check my math though). Your risk-taking, lock-in and not taking other opportunities has not won you anything. If you want the job, counter with $80K salary and 5% of the company (not of the options pool, of the company). INSIST to talk about your percentage in terms of percentage of the company. Let them make really offended faces, and let them get back to you.

startup_noob 15y ago
Made this exact counteroffer last night. Thanks for validating my thoughts.

rms 15y ago

Maybe if you could get $90-100k per year... As others have said, those options you're being offered have a really low expected value, so I would only recommend working for this company if you can make it up on salary and really want some startup experience. Also, this might be a good time to remember that if you're staying at where you are working now, you can use offers from other companies as an excuse to ask for a raise.

iamelgringo 15y ago

Ping me: jonathan@hackersandfounders.com. I have a hunch I may know a bit more of the story around this through Hackers & Founders. If it's the group that I'm thinking about I might be able to help.