6 ms·

As a recent graduate about to go into his first ever salary negotiation, I'm really grateful for the perspective this provides. My dad was a taxi driver (now dr

As a recent graduate about to go into his first ever salary negotiation, I'm really grateful for the perspective this provides. My dad was a taxi driver (now drives for Uber) and my mother a stay-at-home mom. I was raised with the notion of earning enough to support myself. Anything beyond that is something I'm expected to figure out myself. Posts such as these are very helpful. A question though: 1. If I've had conversations in quarterly reviews that involved numbers but nothing was ever formalized, are those numbers open to renegotiation in a formal conversation? 2. How do I ask for equity and how much should I ask for as the first hire (technical employee of a non-technical founder)? Edit: I'm aware the user who posted this is not the author, but I'm hoping patio11 or someone else comfortable offering negotiation advice will stop by the comments section.

benmanns 11y ago
For 2, if a reasonable salary is $X, and the company offers you $X-$Y, you're essentially investing $Y per year into the company (at worse terms than actual investors). How much equity do/did investors want for $Y?
- codingdave 11y ago
  It isn't that simple - investments and their returns have risks built in, and people expect more return for more risk. If you are an employee, you are not risking your own money, you are just losing some opportunities for cash. This lost opportunity does work into the equation, but not at the same risk level as an investor because if the company tanks, the investors lose every dime... But the employee still got paid the whole time. I do agree that for negotiation purposes, considering pay below market value is a good point for discussion. But don't get offended if it is not weighted as heavily as people who actually wrote checks.
  - rfrey 11y ago
    > if the company tanks, the investors lose every dime If you choose a $90k job + equity over a $130k job, and the company tanks 2 years later, you've lost every dime of that 80k. It's a bit different since your "investment" consists of 24 tranches, but that's more than balanced by the vesting schedule which gives you nothing for a year (despite accepting your investment immediately), and takes it all away if you stop investing.
  - thedufer 11y ago
    > are not risking your own money, you are just losing some opportunities for cash Those are exactly the same thing. Pretending otherwise is asking startups to rob you.
  - tomp 11y ago
    Actually, as an employee, you're actually risking more, as your total wealth is (most likely) significantly less than an investor's, so according to the economic theory of diminishing marginal utility of income, $10k/year is a significantly greater loss for an employee.
  - MagicWishMonkey 11y ago
    Opportunity cost, how does it work? http://en.wikipedia.org/wiki/Opportunity_cost http://en.wikipedia.org/wiki/Opportunity_cost
saryant 11y ago
Re 2), you should make sure your salary is at market-level and more or less ignore equity. Chances are you'll be let go or the company will collapse before it's worth anything. If you have a reasonable salary, equity is just a cherry on top, but if an employer tries to get you to trade cash today for a startup lottery ticket, say no. This is especially important early in your career given the time value of money. An extra $10k/year in the first five years of your career, properly saved, could add north of $600k to your retirement when you get to that stage in life. That's an almost-certain payoff against a roll of the dice on a sliver of ever-diluted equity.
- L_Rahman 11y ago
  Excellent point and I will heed your advice. I'm well aware that: a. Startup equity is a lottery b. As an early employee and the accompanying biases, I'm especially ill equipped to judge it's value. With that in mind, I'm negotiating salary first. Equity with a vesting schedule is something I would treat purely as an incentive for continuing to stay with the company and not as a replacement for salary.
  - thruflo 11y ago
    This sounds very sensible. I would note though that equity % points are much easier to negotiate early on. If you have an opportunity to secure options at a low valuation now, even with a great big cliff / vesting term, take them in case the company is a success and use the cliff / vesting to persuade the current owners that it's a win win.
- yitchelle 11y ago
  > That's an almost-certain payoff against a roll of the dice on a sliver of ever-diluted equity. This is excellent advice. Cold hard cash is much, much better than a bet of the startup you are working for will take off.
- IkmoIkmo 11y ago
  Great insights, can definitely recommend not taking big equity gambles in your earlier years. Although perhaps north of $600k is a bit too optimistic, you'd need a solid 6.4% inflation & fee free ROI on that. In any case it's important to look at it in 'today's dollars'. For example, the S&P 500 did 20x in the past 40 years (roughly the length of a solid full-time professional career), so $10k could have turned into $400k if following that index. But in the 80s inflation went up to 15% causing devaluation, that 1975 dollar is worth about $4.5 today, meaning that $10k turned into perhaps 9x more purchasing power. Of course that's before all the fees get involved. Even if you'd get $600k by your retirement age, it likely will be the equivalent of less than $200k today. But yeah 6% per year isn't crazy. If you manage to scrape together $50k in your fund by age 25 and work until 65, 500k is very doable, north of 600k perhaps optimistic but who knows what we can expect. Perhaps we'll see gigantic returns once we get 4 billion people on cheap mobile computing, free wifi in the sky, access to modern education, 3d printers, drone deliveries, digital money and a graphene industry haha. But historically speaking $600k is tricky! Either way, doesn't change the fact this is great advise.
davidw 11y ago
> How do I ask for equity and how much should I ask for as the first hire (technical employee of a non-technical founder)? That may not be a bad deal, but there are some warning flags that it raises: * What does the non-tech guy bring to the table? Do they have hard evidence of their ability to make a company successful? * This is well worth your time to read: http://jacquesmattheij.com/first-employee-or-cofounder http://jacquesmattheij.com/first-employee-or-cofounder
evanmoran 11y ago
Also remember that the first non-founder employee is the least desirable position to be in. Usually you have very similar risk to the founders with _significantly_ less equity. Don't take the job unless you get market rates or significant equity (10%+). If they already have funding the former is much more likely, if not then latter makes sense considering the stage -- you're effectively a founder, even if you're not leadership.

benmanns 11y ago

For 2, if a reasonable salary is $X, and the company offers you $X-$Y, you're essentially investing $Y per year into the company (at worse terms than actual investors). How much equity do/did investors want for $Y?

codingdave 11y ago
It isn't that simple - investments and their returns have risks built in, and people expect more return for more risk. If you are an employee, you are not risking your own money, you are just losing some opportunities for cash. This lost opportunity does work into the equation, but not at the same risk level as an investor because if the company tanks, the investors lose every dime... But the employee still got paid the whole time. I do agree that for negotiation purposes, considering pay below market value is a good point for discussion. But don't get offended if it is not weighted as heavily as people who actually wrote checks.
- rfrey 11y ago
  > if the company tanks, the investors lose every dime If you choose a $90k job + equity over a $130k job, and the company tanks 2 years later, you've lost every dime of that 80k. It's a bit different since your "investment" consists of 24 tranches, but that's more than balanced by the vesting schedule which gives you nothing for a year (despite accepting your investment immediately), and takes it all away if you stop investing.
- thedufer 11y ago
  > are not risking your own money, you are just losing some opportunities for cash Those are exactly the same thing. Pretending otherwise is asking startups to rob you.
- tomp 11y ago
  Actually, as an employee, you're actually risking more, as your total wealth is (most likely) significantly less than an investor's, so according to the economic theory of diminishing marginal utility of income, $10k/year is a significantly greater loss for an employee.
- MagicWishMonkey 11y ago
  Opportunity cost, how does it work? http://en.wikipedia.org/wiki/Opportunity_cost http://en.wikipedia.org/wiki/Opportunity_cost

saryant 11y ago

Re 2), you should make sure your salary is at market-level and more or less ignore equity. Chances are you'll be let go or the company will collapse before it's worth anything. If you have a reasonable salary, equity is just a cherry on top, but if an employer tries to get you to trade cash today for a startup lottery ticket, say no. This is especially important early in your career given the time value of money. An extra $10k/year in the first five years of your career, properly saved, could add north of $600k to your retirement when you get to that stage in life. That's an almost-certain payoff against a roll of the dice on a sliver of ever-diluted equity.

L_Rahman 11y ago
Excellent point and I will heed your advice. I'm well aware that: a. Startup equity is a lottery b. As an early employee and the accompanying biases, I'm especially ill equipped to judge it's value. With that in mind, I'm negotiating salary first. Equity with a vesting schedule is something I would treat purely as an incentive for continuing to stay with the company and not as a replacement for salary.
- thruflo 11y ago
  This sounds very sensible. I would note though that equity % points are much easier to negotiate early on. If you have an opportunity to secure options at a low valuation now, even with a great big cliff / vesting term, take them in case the company is a success and use the cliff / vesting to persuade the current owners that it's a win win.
yitchelle 11y ago
> That's an almost-certain payoff against a roll of the dice on a sliver of ever-diluted equity. This is excellent advice. Cold hard cash is much, much better than a bet of the startup you are working for will take off.
IkmoIkmo 11y ago
Great insights, can definitely recommend not taking big equity gambles in your earlier years. Although perhaps north of $600k is a bit too optimistic, you'd need a solid 6.4% inflation & fee free ROI on that. In any case it's important to look at it in 'today's dollars'. For example, the S&P 500 did 20x in the past 40 years (roughly the length of a solid full-time professional career), so $10k could have turned into $400k if following that index. But in the 80s inflation went up to 15% causing devaluation, that 1975 dollar is worth about $4.5 today, meaning that $10k turned into perhaps 9x more purchasing power. Of course that's before all the fees get involved. Even if you'd get $600k by your retirement age, it likely will be the equivalent of less than $200k today. But yeah 6% per year isn't crazy. If you manage to scrape together $50k in your fund by age 25 and work until 65, 500k is very doable, north of 600k perhaps optimistic but who knows what we can expect. Perhaps we'll see gigantic returns once we get 4 billion people on cheap mobile computing, free wifi in the sky, access to modern education, 3d printers, drone deliveries, digital money and a graphene industry haha. But historically speaking $600k is tricky! Either way, doesn't change the fact this is great advise.

davidw 11y ago

> How do I ask for equity and how much should I ask for as the first hire (technical employee of a non-technical founder)? That may not be a bad deal, but there are some warning flags that it raises: * What does the non-tech guy bring to the table? Do they have hard evidence of their ability to make a company successful? * This is well worth your time to read: http://jacquesmattheij.com/first-employee-or-cofounder http://jacquesmattheij.com/first-employee-or-cofounder

evanmoran 11y ago

Also remember that the first non-founder employee is the least desirable position to be in. Usually you have very similar risk to the founders with _significantly_ less equity. Don't take the job unless you get market rates or significant equity (10%+). If they already have funding the former is much more likely, if not then latter makes sense considering the stage -- you're effectively a founder, even if you're not leadership.