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I think everyone is giving you really good advise here so I am going to take a different tact which is to look at this from the owner's perspective (i.e., the f

I think everyone is giving you really good advise here so I am going to take a different tact which is to look at this from the owner's perspective (i.e., the founder). My guess is that he believes that he/she has invested quite a bit already and that this is his/her company and not yours. He needs you as an employee and he is treating you as such. But he is not willing to pay you market value so he is deducting $2K from your pay in exchange for a small piece of the company at an inflated price that at the moment only he can justify. What makes this one a brain-dead offer is that he is asking you to pay tax on your monthly generous gift.

tptacek 17y ago
I agree with your skepticism about the deal, but not because of taxes. Handling the taxes in a situation like this is a pain in the ass. The odds of any startup succeeding in any business climate (let alone ours) is low. As employee #1 in the company, you'd want that $2k to be getting a founder's multiple. I don't know what that number is, but my mind jumps to 5-10x. So each time you're getting $2k worth of stock, you want it backed with a story that in 2 years makes you $10-$20k. The question in this post doesn't contain any numbers (revenue, projections, go-to-market, funding plans), which makes me think that conversation hasn't happened yet with the founder. So what I think is, taking this deal is basically shoveling $2k/mo into a black hole. I've been in this exact situation twice. I accepted the deal both times. The first time I came out about $20k behind where I would have been with straight salary. The second time, my "investment" made a little better than 25x, which set me up for my own first startup. So it's not like I think this is a rip-off; I just think you're leaving too much up to chance. Finally, I don't like how Denny is wording this response. $60k/yr is a healthy pre-revenue startup paycheck. It's not rockstar comp, but it's not a rip-off either. If you're getting solid W2 wages, I think it's hard to say that the business "owes" you anything outside of what you can negotiate.
- dennykmiu 17y ago
  But he is not getting $60K. He is getting $36K, or $18 an hour if he works just 40 hours a week. I suspect he works at least twice that which basically says that he will be working below minimum wage. My point is that he is being treated as an employee and as an employee, he is being cheated.
  - tptacek 17y ago
    He's getting $36k if he takes the deal. We agree, he shouldn't take the deal. We disagree that he's being cheated; right now, it just looks like a poor deal.
    - dennykmiu 17y ago
      I think it is a poor deal not because of the money or the tax consequence. I think it is a poor deal because he is being treated as an employee and not as a co-founder. Entrepreneurs often preceive their net worth based on how much effort they have put in and not on how much more it will take to get to the end goal. So it is not the details that made this such a bad deal but the assumption.
      - tptacek 17y ago
        He's not a cofounder. He makes 60k a year (or 36k, if he accepts a bad deal). I'm pretty sure both of us have been bona fide cofounders with employees, and that we both know the difference; we don't talk about our monthly paycheck, because we eat last.
        dennykmiu 17y ago
        joshhart: If you are still reading the comments, you need to decide if you are a co-founder or an employee. If you believe you are an employee, then structure a better deal that is more fair which basically says that you are getting paid at market value ($3K now and $2K as deferred compensation which is essentially a senior loan to the company that the owner needs to pay you back in the future). Then at the same time, negotiate a stock plan which you can purchase upfront for just a few hundred dollars which the owner can buy back if you do not perform. However, my own advise is that being employee #1, you are essentially a co-founder (because of the current down market, there isn't going to be much upsides for a long long time).
        joshhart 17y ago
        Hi Denny, I appreciate the advice. Honestly, I believe myself to be an employee. I'll be making a pretty decent salary and getting a few percent of equity upfront. The founder has worked very hard on the produce for about 15 months or so. I probably didn't give enough information earlier but I'm not sure exactly what I can or can't say legally. I also don't think I really understood how ESPPs worked before. We'd revalue the company and I'd be able to purchase at a reduced rate. I don't think that's a bad deal, especially for a product and monetization model I really believe in.

tptacek 17y ago

I agree with your skepticism about the deal, but not because of taxes. Handling the taxes in a situation like this is a pain in the ass. The odds of any startup succeeding in any business climate (let alone ours) is low. As employee #1 in the company, you'd want that $2k to be getting a founder's multiple. I don't know what that number is, but my mind jumps to 5-10x. So each time you're getting $2k worth of stock, you want it backed with a story that in 2 years makes you $10-$20k. The question in this post doesn't contain any numbers (revenue, projections, go-to-market, funding plans), which makes me think that conversation hasn't happened yet with the founder. So what I think is, taking this deal is basically shoveling $2k/mo into a black hole. I've been in this exact situation twice. I accepted the deal both times. The first time I came out about $20k behind where I would have been with straight salary. The second time, my "investment" made a little better than 25x, which set me up for my own first startup. So it's not like I think this is a rip-off; I just think you're leaving too much up to chance. Finally, I don't like how Denny is wording this response. $60k/yr is a healthy pre-revenue startup paycheck. It's not rockstar comp, but it's not a rip-off either. If you're getting solid W2 wages, I think it's hard to say that the business "owes" you anything outside of what you can negotiate.

dennykmiu 17y ago
But he is not getting $60K. He is getting $36K, or $18 an hour if he works just 40 hours a week. I suspect he works at least twice that which basically says that he will be working below minimum wage. My point is that he is being treated as an employee and as an employee, he is being cheated.
- tptacek 17y ago
  He's getting $36k if he takes the deal. We agree, he shouldn't take the deal. We disagree that he's being cheated; right now, it just looks like a poor deal.
  - dennykmiu 17y ago
    I think it is a poor deal not because of the money or the tax consequence. I think it is a poor deal because he is being treated as an employee and not as a co-founder. Entrepreneurs often preceive their net worth based on how much effort they have put in and not on how much more it will take to get to the end goal. So it is not the details that made this such a bad deal but the assumption.
    - tptacek 17y ago
      He's not a cofounder. He makes 60k a year (or 36k, if he accepts a bad deal). I'm pretty sure both of us have been bona fide cofounders with employees, and that we both know the difference; we don't talk about our monthly paycheck, because we eat last.
      - dennykmiu 17y ago
        joshhart: If you are still reading the comments, you need to decide if you are a co-founder or an employee. If you believe you are an employee, then structure a better deal that is more fair which basically says that you are getting paid at market value ($3K now and $2K as deferred compensation which is essentially a senior loan to the company that the owner needs to pay you back in the future). Then at the same time, negotiate a stock plan which you can purchase upfront for just a few hundred dollars which the owner can buy back if you do not perform. However, my own advise is that being employee #1, you are essentially a co-founder (because of the current down market, there isn't going to be much upsides for a long long time).
        joshhart 17y ago
        Hi Denny, I appreciate the advice. Honestly, I believe myself to be an employee. I'll be making a pretty decent salary and getting a few percent of equity upfront. The founder has worked very hard on the produce for about 15 months or so. I probably didn't give enough information earlier but I'm not sure exactly what I can or can't say legally. I also don't think I really understood how ESPPs worked before. We'd revalue the company and I'd be able to purchase at a reduced rate. I don't think that's a bad deal, especially for a product and monetization model I really believe in.