4 ms·

When I joined a startup a couple years ago as a very early employee. The equity they offered was some tiny percentage, like 0.1%. I did the math and said, "you

When I joined a startup a couple years ago as a very early employee. The equity they offered was some tiny percentage, like 0.1%. I did the math and said, "you know, we would need to exit for a billion dollars for me to receive a million?" The founder seemed surprised at that. Nevertheless, I joined the startup. What I don't understand is if the company does sell, and I only get my 0.1%, I should be upset or call the founder "greedy" if he doesn't give me more money than what was in my contract? If I'm going to take less than what I believe to be the "market rate" for my services in lieu of some equity and my motivation is to make money, then I'm going to do the math and weigh the probabilities of my equity and the lower-than-market salary being more lucrative than taking a job with no equity and a market rate salary. I just don't see how founders who honor contracts that employees sign as being greedy. Arguments that the founders take more risk or work harder or whatever seems to me to be beside the point. If the employee doesn't think the percentage of equity is good, then they shouldn't sign the contract. That's how I see it. And maybe if more of us took that stance we wouldn't have to hope that founders would just give us money out of the goodness of their hearts and instead have satisfactory agreements already in writing.

chermanowicz 12y ago
I agree here to some extent, but there are a lot of ways companies can exit with employees receiving less than their equitable share of the company's acquisition price/value. Ex. Salary & retention package for founders & certain execs while common stock purchase price is drastically reduced. (just one example)
timr 12y ago
"you know, we would need to exit for a billion dollars for me to receive a million?" It's worse than that. By the time you factor in preferred shares and other investment dilution, your 0.1% will be more like 0.00001%[+]. Few people think about that, and unless someone is actively looking out for your interests (e.g. someone giving retention grants -- or you demanding them), it's difficult to make a lot of money as an early startup employee. You can easily find yourself in a situation where you vest your grant, leave the company, and later find out that a new hire is making an order of magnitude more money than you in an exit. That's startup life. The game here is predicting the expected value of an extremely improbable future event, and sacrificing present day money in favor of that event. There's no "fair" way to do it, so if a founder is asking that kind of commitment of you, they should be looking out for your interests over the long term as well. [+] edit: I overstated my case here. You can probably expect 1-2 orders of magnitude dilution, but it doesn't really change the argument.
- emmett 12y ago
  That's a gross exaggeration. If you own 0.1% of the company, you're likely to be diluted to around 0.02% at the very worst, and most likely 0.04% or so assuming 3 rounds of funding. That's assuming a positive outcome that clears preferences of course - if the company goes in a fire sale you're not going to make anything at all. But assuming a billion dollar exit means you're assuming not a fire sale.
  - deleted 12y ago
    [deleted]
  - porter 12y ago
    Is 0.1% realistic (or average) for an employee? What are typical equity ranges for employees?
    - rdl 12y ago
      It depends on when you get hired. Early engineering key hires, pre series A, are often 0.5-3%, but is probably around 50% of market salary ($80k on $160k, say). Employee 100 in the same role in a highly successful company could be as low as 0.01%, but is nearly at market salary ($140k?). There might be 2-4 years in between the two hires.
  - JohnTHaller 12y ago
    So, if we take the above poster at their word that it would have to be a billion dollar exit to be worth their while (and net them a million dollars for X years at below market salary) and assume your dilution numbers are accurate, they'd only get 200 to 400k. There would have to be a 2.5 to 5 billion dollar exit for their diluted tenth of a percent to net them a million.
    - nedwin 12y ago
      You're assuming all startups pay below market.

chermanowicz 12y ago

I agree here to some extent, but there are a lot of ways companies can exit with employees receiving less than their equitable share of the company's acquisition price/value. Ex. Salary & retention package for founders & certain execs while common stock purchase price is drastically reduced. (just one example)

timr 12y ago

"you know, we would need to exit for a billion dollars for me to receive a million?" It's worse than that. By the time you factor in preferred shares and other investment dilution, your 0.1% will be more like 0.00001%[+]. Few people think about that, and unless someone is actively looking out for your interests (e.g. someone giving retention grants -- or you demanding them), it's difficult to make a lot of money as an early startup employee. You can easily find yourself in a situation where you vest your grant, leave the company, and later find out that a new hire is making an order of magnitude more money than you in an exit. That's startup life. The game here is predicting the expected value of an extremely improbable future event, and sacrificing present day money in favor of that event. There's no "fair" way to do it, so if a founder is asking that kind of commitment of you, they should be looking out for your interests over the long term as well. [+] edit: I overstated my case here. You can probably expect 1-2 orders of magnitude dilution, but it doesn't really change the argument.

emmett 12y ago
That's a gross exaggeration. If you own 0.1% of the company, you're likely to be diluted to around 0.02% at the very worst, and most likely 0.04% or so assuming 3 rounds of funding. That's assuming a positive outcome that clears preferences of course - if the company goes in a fire sale you're not going to make anything at all. But assuming a billion dollar exit means you're assuming not a fire sale.
- deleted 12y ago
  [deleted]
- porter 12y ago
  Is 0.1% realistic (or average) for an employee? What are typical equity ranges for employees?
  - rdl 12y ago
    It depends on when you get hired. Early engineering key hires, pre series A, are often 0.5-3%, but is probably around 50% of market salary ($80k on $160k, say). Employee 100 in the same role in a highly successful company could be as low as 0.01%, but is nearly at market salary ($140k?). There might be 2-4 years in between the two hires.
- JohnTHaller 12y ago
  So, if we take the above poster at their word that it would have to be a billion dollar exit to be worth their while (and net them a million dollars for X years at below market salary) and assume your dilution numbers are accurate, they'd only get 200 to 400k. There would have to be a 2.5 to 5 billion dollar exit for their diluted tenth of a percent to net them a million.
  - nedwin 12y ago
    You're assuming all startups pay below market.