Ask HN: Offer to join a startup. Is this deal good? | Hacker News Reader

Ask HN: Offer to join a startup. Is this deal good?

11 pointspittip20 comments

Hi,

I am a regular HNer and this is a temporary account I made for this question.

I was recently approached by a guy who is starting up. His company has got funding to the tune of 1 mil with a valuation of close to 6 mil. I will be the first hire and will lead the tech efforts. The company is pretty much tech oriented, and when I join, the focus will be 100% on building the product (a web application).

The offer made to me is that of options worth 120k at a nominal price (i.e. Upon vesting, I can buy stocks which are worth 120k today for say 6k at the time of vesting), along with salary to cover my expenses of lodging and food plus some.

Please help me decide.

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Don't measure the stock in money, but in percent. Sounds like you're being offered 2%. That's lowish but not terrible.

The real question is whether you want to join this company. Is it founded by a single, nonhacker founder? I would steer clear of those. Empirically they don't do well.

Its in fact a single, non-hacker founder. The investors seem to be bullish though.

Are you hearing about their bullishness from him or them? And are they prominent investors, or noobs?

From him. Yes they are prominent.

The company isn't a YC company. But the investors ar quite prominent people.

Are they profitable? Or do they have tons of users? Founders that learn to hack and create something people want are quite formidable people. Even if they take a step back into financing, hiring, and other CEO functions after more experienced hackers come in.

Doesn't sound like much of a deal to me. And the reason I say so is because my theory is this: There's no reason to join a startup except to get rich, or to change the world (or both.) If you wanted a "competitive salary" you could go work for Oracle or IBM or Cisco or somebody and get that. So why join the startup at all, unless you're going to make big bank, or unless you just really, really believe in their idea? So, that said, you're looking at options, and not an outright stock grant? As the first hire? IMO, f!@# that... If I were joining an early stage startup, I'd be thinking "forgo all salary except enough to eat Ramen noodles, and give me x% of stock up front (allowing for vesting periods, etc.)" Otherwise, it's just another job, with the possibility of a nice little bonus thrown in. But a "nice little bonus" isn't "FU Money" which is what I'd be looking for, if I were to join a startup.

But that's just me.... if your motivations are different, it may be more appealing to you.

I am sorry about that mistake, its not competitve, rather enough to cover my expenses (not as harsh as eating Ramen noodles though). So it would be, in my opinion, substantially less than what an IBM or and Oracle will offer me.

What is this x% which will make the deal sweet?

10%?

The thing is like, you're talking a profit of like 114K on the stock options and you're going to be doing like, insane amounts of work. 100K is fairly typical, normal developer salary, right? Unless I misread the deal, I'd never do this, you could go for a 120K job and not be gambling on options at all and start having a good lifestyle right now or you could take a regular developer job and some contract on the weekends and probably work less hours in either case...

It depends on your goals and on how big you believe the company will ultimately be, and how likely you think it is to succeed, among other things.

Let's say your goal is to have "FU money." And let's say that, for you, "FU money" is, say, $4 million USD. If you believe the company will eventually be a $400 million dollar company, then 1% equity achieves your goal if the dream materializes as planned. If you only see the company as a $4 million company, then, well, the math doesn't really work out.

And note that I'm intentionally generalizing here and ignoring taxes and other factors. I'm also talking about an outright stock grant, not an option scenario. Options aren't necessarily bad, but I'd think that as the first hire and - if I understand correctly - the person who will be responsible for building (all|most) of the initial product, you should be getting some equity outright.

The part you left out for joining a startup that is also important is the learning experience. Besides getting rich and changing the world, the experience itself is valuable. You can go on to find riches and change the world later. I wouldn't come into a startup expecting either/or.

Fair enough. If I were younger, I'd probably be looking at it more from that perspective. :-)

You say that you are the first hire. How many people are there besides you and the founder? If it's just the two of you, 2% is on the low side, but I wouldn't necessarily walk away from it. If there are others who were there pre-funding, then 2% sounds about right.

Other things to consider:

- What do you think of the product you're building? Are there others like it? What is unique about this one? Would you use it? Is there a voice in the back of your head telling you saying that this is great, or that this is dumb, or that it has fatal problems? Listen to it and think about what it's telling you.

- Similarly, what is your instinctual reaction to the founder? Is he focused, or does he have shiny object syndrome? What value does he bring to the venture, other than having convinced someone to fund it? Does his background and track record suggest that he can make this work? Or that he's worth betting on?

Good luck.

I will be the first hire in absolute terms. Nobody before me i.e. pre-funding

If it's just you and the original founder, sounds like you're almost taking the role of a co-founder or cto. If that's the case, 2% does you absolutely no justice. But again, that entirely depends on what skills you have and what your primary workload is.

Another factor to consider is where you're located geographically. If this is in Kentucky and you don't want to relocate elsewhere, 2% is a much better offer than if you were in the Valley. Simple demand/supply.

Personally I would expect to get a salary much closer to market-rate than "lodging and food plus some" from a company with $1m funding - especially if I was to be the lead developer and first employee.

I would then consider 1-2% equity to be a not-unexpected bonus/incentive above-and-beyond.

Difficult to be sure without knowing the full circumstances, but it sounds like a poor deal from what you've said.

I'm a startup recruiter in San Francisco. My two cents is that it sounds like a good deal if you like the company's mission and you want to be an employee.

Even considering the fact that I will be the first employee, leading the tech efforts, and probably making most of the product all by myself.

I do like the idea but its too early for me to be attached to it.

If he has funding of $1,000,000 seems like he could afford to pay you an actual salary. Maybe somewhat less than market - but not way below market.

Stock options are lottery tickets.

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