Ask HN: What's fair equity for early employees? | Hacker News Reader

Ask HN: What's fair equity for early employees?

8 pointsmikepurvis4 comments

Dear HN,

I'm in a position of negotiating compensation with a startup, and I'm curious what kinds of formulas people use to figure this stuff out, both from a founder's and employee's point of view. I feel ill-equipped to even judge the fairness of a given offer without more information about how such things are done elsewhere.

I've looked at ackwire.com, and that is helpful, but I'd still be interested in commentary directly on method. Under what circumstances is someone offered 0.1%? What about 1%? 2%? 5%?

As I see it, an offer of equity in the form of options vesting over time is essentially going to be some function of the following inputs:

- Salary: How much less than market rate has this person agreed to be paid?

- Benefits: Are there any? If not, is there a timeline in place for when there will be?

- Hire date: What was the value of the business at time of hire?

How much do you weight each of them? What kinds of scale factors apply to each? Are there other factors I'm not considering here?

Thanks very much!

Important things to consider:

Vesting Schedule. Do you plan to be there long enough to get the whole allotment? If not, figure how much you'll really get.

Tax Consequences. There are very real situations in which you can wind up with a tax bill and a bunch of illiquid stock. If you get a significant equity or options grant, run it by a tax accountant so you can avoid gotachas that may be coming in the future. The strike price can be a significant amount of money - make sure there's a way to handle that. This is especially troublesome for contractors (as opposed to employees).

Salary. The more you want, the less you'll get in equity. Note that it is not automatically bad to ask for money. Equity is often worth more to founders than to employees.

Transparency. How open is the company about their cap table, bank account, and income statement?. The less info you have, the less you'll be able evaluate your equity, which makes it less valuable to you.

Investment. Who has invested and what are the goals? Long term cash flow? Flip? IPO? This has a big impact on liquidity, its timing, and the form it might take.

But the real answer to your question is "get as much as you can, and make sure you cross the t's and dot the i's" there is no magic formula.

It obviously should be a term both parties should be happy with regardless of what that may look like. If neither party are happy, it won't matter. Do you believe in the company and founders?

Having said that, more details would actually help people here give better feedback. How early is early, aka employee number 1, 10, 20? Has the company raise funding? Profitable? How long has the company been around? What position. These factors and others, can influence a lot.

Generally speaking, depending on what stage of funding and how early a startup employee you are, it can vary between 0.5 pt to 5 pts. Of course there are ranges outside of this as well. Salary can vary a lot too. I've seen engineers do as low as $24k/yr to at least $50k/yr.

I think the difficulty is that I don't really know if I'm happy. I think I am, but I feel like I have insufficient information to really know, hence the post.

Is the $50k number you're citing the upperbound of what an early-hire should expect to be paid? Looking at ackwire, I see the vast majority of the engineering lead positions are for cash compensation amounts much higher than that. (viz. http://www.ackwire.com/level/lead )

It varies significantly depending on the info I mentioned above including your experience as well. Re-read what I wrote carefully, I said AT LEAST $50k. It depends on where you're located as well. Too many unknown factors to give you any valid advice at this point.

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