4 ms·

Ask HN: What is the right amount of equity to give?

• sylvainkalache 13y ago
  What do you mean by "new"? Do they have a MVP? Or just the idea and you need to code everything?
  • _RPM 13y ago
    They have a completed product ready for beta. My first task would be setting up the servers.
    • sylvainkalache 13y ago
      Then it sounds like a really good deal to me, assuming you also get a financial compensation(even low).
      • _RPM 13y ago
        There would be no salary. The deal is only equity until it starts making money, then there will salary negotiations.
        • sylvainkalache 13y ago
          Well then I would think about it twice. Depend how the company is promising, are the people you would working with smart and if you are excited about the project? 10% is a good number for a company that has a beta version and seed funding. Also do you have a cliff and progressively get your 10% or you get it right away?
          • _RPM 13y ago
            The seed funding paid for the development of the application. No one has a salary at the moment. I haven't seen the contract yet, but was told that my ownership of the company would become permanent after a period of time. To prevent me from taking ownership and leaving.
• onion2k 13y ago
  Equity is essentially taking a risk on deferred earnings - you're betting that the company will be a success (otherwise equity is worthless), and that the equity will be worth more than you could earn taking a paid gig instead. For example; Let's say you take the job and get 10%, and your average salary over the next 5 years is $30,000. You get $150,000 + 10% if the company survives. REMEMBER: Most startups fail. Or… If you're a capable developer you could be earning $150,000/year in a soulless job working for a boring financial institution. Over 5 years that's $600,000 in cold hard cash guaranteed. Consequently, for that 10% to be financially worthwhile the company would need to exit and give you the $450,000 you've given up + a bit more - so a $4.5m deal. How likely is that? That's a hellishly over simplified example. All sorts of things make it more complicated. In reality your stake is very likely to be diluted over subsequent rounds. Every round roughly halves what you own. So after a couple of rounds you're down to 2.5% (the good news is that each round should raise enough to stick another 0 on the end of the valuation of course). You might be able to buy in at some point in a future round too. And so on. And, of course, this ignores the fact that startup life is fun and interesting, which makes up for a lot more money than you might imagine. Ultimately, what you really ought to do is disregard the equity and take the job if it sounds like something you want to do all day, like something that will get you out of bed in the morning, and you can afford to live without an income for a while. Even if it all fails you'll have had fun.
• mattwritescode 13y ago
  Dont forget dilution! That 10% could and be less 10% if more funding is found.
• brudgers 13y ago
  Basically, 10% equity when someone holds 51% boils down to being entirely dependent upon the majority owner's goodwill in so far as the value of that equity is concerned. A majority owner can sell the entire company or some of its assets on whatever terms they choose, whenever they choose, to whomever they choose...including themselves for a song before a profitable resale. Or they can redirect its cashflow to their own pockets via rental agreements, leasing arrangements, consultant fees, or well you name it. And absent a well negotiated contract on the part of the 10%, even lawyering up won't do much beyond draining your pocket book. Now I mention this because the arrangement described sounds a bit like an offer to come onboard as the hired help. But just a bit since there's not much hiring going on when there isn't a paycheck. With 51% the Owner remains an owner, and is not someone who is looking for a partner or a collaborator. The value they place on technical ability is reflected in their decision to outsource development. The lack of revenue and runway suggests their level of financial savvy. That they would even seek four people to work without pay and control? Well, draw your own conclusions. Good luck.
• staunch 13y ago
  No salary, no revenue, no real funding, out sourced product to work from? I'd say 10% is crap. The company is nearly at ground zero and you're probably the most important contributor this early on. You should have an equal share with your co-founder, whatever is left after the investor takes a cut. Both of you should vest.
  • wikwocket 13y ago
    I agree. This seems like essentially volunteer work for a company with no part of their business model validated, and no real working software. Treat it like any other volunteer work: go for it only if it's something you believe in and are passionate about, and think you can make a difference.