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Ask HN: Negotiating equity. Is 10% enough?
I plan on quitting my engineering job to join a 2 person startup. Currently the startup doesnt make product - it generates $100,000 per year in software consulting and is growing at a rate of 15%. Eventually we hope to package and ship products from our consulting ventures.I will be quitting a 9 to 5 to work days/nights/weekends (basically full time, all the time), loosing dental/health insurance and 401k benefits.
Since I do not expect to get paid more than $33K per year, I need to figure out what equity compensation is reasonable. How should I go about figuring out what equity to negotiate?
I could estimate stock value using price to earnings, 10% equity for year one would then correspond to an additional $10,000 if my shares were to be bought out.Is this how I should go about thinking about this?
- timaelliott 14y agoWhy do you think you'd only get paid $33k? If that's the case, that's suggesting the compensation and ownership is: Co-Founder: $33k Salary, 45% Equity Co-Founder: $33k Salary, 45% Equity You: $33k Salary, 10% Equity I'm hoping the problem is self-evident.
- deleted 14y ago[deleted]
- tjtrapp 14y agojoel spolsky answered a similar question on quora here, http://answers.onstartups.com/questions/6949/forming-a-new-software-startup-how-do-i-allocate-ownership-fairly/23326#23326 http://answers.onstartups.com/questions/6949/forming-a-new-s...
- timaelliott 14y agoAwesome response from Spolsky but that's not Quora. You can tell because it has users and content :)
- tjtrapp 14y agoya ur right... whoops. def my bad there. still, hope it helped :)
- MaxwellM 14y agoThank you for that. Awesome share.
- patio11 14y agoYou seem to think you're the first employee. If you're not making market and going home at 5/6 PM, you should be the third co-founder.
- deleted 14y ago[deleted]
- mechanical_fish 14y agoVisit this page (nothing special, just the first search result for "software engineer salary"): http://www.payscale.com/research/US/Job=Software_Engineer_/_Developer_/_Programmer/Salary http://www.payscale.com/research/US/Job=Software_Engineer_/_... And ask yourself this question: If these two people can't make more than $50k per year per capita in software consulting, in this market, in their product's alleged target market - and they can't figure out how to grow that number more than 15% per year, via simple recipes that are orders of magnitude less risky than developing and shipping a product - why on earth are you quitting a job to partner with them? Look for partners who can find a market worth finding. In the meantime, don't give up your day job, no matter how much equity you're offered.
- wikwocket 14y agoNot to mention that they're making $50k a head working "days/nights/weekends" - a bit extreme! For comparison, doing software consulting at only $50/hour, you can make $50k working just 19 hours a week...
- MaxwellM 14y agoWe are all 2 or 3 years out of college. So while I admit we could be charging our clients a lot more, I don't think that 100K per year in revenue out of consulting ventures is a bad start.
- MaxwellM 14y agohttp://answers.onstartups.com/questions/6949/forming-a-new-software-startup-how-do-i-allocate-ownership-fairly/23326#23326 http://answers.onstartups.com/questions/6949/forming-a-new-s... According to this I would count as the first employee as the company has existed for a year and is making money. Thereby ascribing 10% to me, their first layer of employees. However as this layer grows my value may gets diluted. Moreover it assumes that I am getting paid market wage. As part designer, part developer and part project manager - im not sure what that number is but lets say its at least what im getting paid now $70K per year. Since I am not getting paid market wage I feel like it should be reasonable to ask for sufficient equity compensation. This is one of the main reasons join a startup right? Not the pay but the <em> potential <em> reward. All this being said, its a young company the founders are my friends and I feel strongly that the company has potential and that I have a strong opportunity to grow.