Ask HN: I've been offered some equity for work as Employee #1 | Hacker News Reader

Ask HN: I've been offered some equity for work as Employee #1

5 pointsccitizen8 comments

Hi HN,

This is a throwaway account as I'm pretty sure the people who know me knows my user account here.

I'm kinda in a weird situation right now. I'm actually a freelance Rails developer who have been taking on projects from startups.

I've recently been approached by a local startup to help with their Rails development and I have been heading down to their office to do some pro-bono work for them (I don't often do this but I found myself having some kind of rapport with the founders).

The startup is still in its pre-seed stage and I'm currently advising them on the technical aspect of their startup.

They have two founders, 1 a Business/CEO guy who has 17 years of experience and a technical guy who has no working experience.

During my short time working with them, I found myself teaching/mentoring the technical guy most of the time.

The guys recently approached me to offer me to work with them.

I would be working:

4 days a week and I can take 1 day off to work remotely from now till the start of Jan.

From Jan to Mar, I'll be working about 14 hours+ a week as I have an existing commitment with another project.

In return, I'll be given 10% of the equity at the end of the 4th month, USD$933 (converted from my local currency) for working in December and USD$465/month from Jan - Mar.

The project I'm working on from Jan - Mar would give me about USD$3.1k/month. Normally, I'd earn on average of USD$27/hour for my freelance work.

I obviously earn much much less than I normally would if I were to take on freelance projects.

I kinda like the team but I feel that the amount of compensation doesn't make sense. I have some faith though that the CEO guy would be able to secure some form of funding and probably maybe even attract angels.

Does it still make sense to take the risk of equity over cash compensation or how should I renegotiate?

Looking over the 7 comments so far on this, I suggest you trust your instincts that this isn't a tremendously well-conceived business. Find someone else whose Rails skills you find are roughly comparable to yours, and say you are too booked to commit to sling the code for them, but you would be happy to serve in a technical advisory / oversight capacity as a board member, and here's this other Rails coder who should be able to serve your needs almost as well. Typical board member time commitment is no more than 16 hours a month for a director who is conscientious, with no chair commitments on a board, but one who preps for the board meetings, is available for ad-hoc and committee meetings, etc. Typical compensation is entirely equity, around 2% at the pre-seed stage for each director. Read up on what board of directors do in a startup if you take this advice and use it, before you approach them; don't go overboard, an evening spent Googling around is sufficient at your stage with these guys, you just need to get a feel for the boundary between guidance / advice and operations.

This delivers several objectives:

* Puts out the message: your professional time is outbidding their bid in the market. * Retain the relationship for a more manageable time commitment. * Allows them to get strategic-level technical advice from you "for free" (for now), and implement in the trenches as they see fit. * Gives them a starting point for another in the trenches implementer.

Expertise matters a lot. Execution matters more.

It can cost very little to offer general board-level guidance (making sure they are asking the right questions) using your expertise if like in your situation you are favorably disposed to the parties. It should cost very dear for you to use your expertise to execute.

I have to second gallerytungsten's comment.

I've been approached a dozen times by business people offering me equity for my development time. I committed to and completed three projects and nothing ever came of them. Thankfully it only amounted to ~1000 hours among the three projects, but it's still time I wasn't paid for.

A technical co-founder with no work experience doesn't sound like much of a "technical" co-founder. Has he worked on any sort of open source projects, done research at a university, or anything that could be considered experience? If not, then it's not a good sign.

If you can afford to spare the time, then by all means take the opportunity, but I'd ask for 33% and wouldn't settle for less than 25%. Just state that you feel you'd be playing an important role in the product's creation and expect a more equitable share. You're allowed to put any price you want on your time. If they're confident the venture will succeed, then they should relinquish some of their share, otherwise they're being a bit greedy.

It sounds like you'd be more or less a co-founder. Why are you only getting 10% and not 1/3? Do you really think their "idea" is worth that much? Ask for 1/3 and align your interests with the other co-founders if you really want to do this.

This generally depends on your personal needs.

1. Do you have another job? 2. Can you afford to work for the amount they are willing to pay you? 3. A general rule of thumb is that you always renegotiate. Once you reach salary negotiation you're pretty much going to be hired, and the worst they can do is say no.

You need to figure out if you can work for equity over cash. How viable is the company?

I'm a freelance developer.

The amount of money that they offered will not last me more than a week.

The company is in the space of business intelligence and their customers would mostly be corporate/startup owners.

I'm not crazy over the idea, but it does sound viable but then again there's so many competitors in this field.

The only saving grace is that I find that the CEO guy with his previous experience managing a medium-sized company may be able to use his connections to get customers.

And the startup environment where I am in (Singapore) may be advantageous to him where angels and government grant givers take previous working experience before giving out cash.

BI is a pretty crowded space. Even with the connections of the CEO, he's going to be competing against established companies with significant teams of developers ranging from smallish, but quickly growing (e.g. Tableau) to monstrous (e.g. Microsoft).

I'd be very reluctant to take almost nothing but equity in a BI company unless the CEO can make a very clear and convincing case for the product over the legions of competitors you'll face.

I am not totally convinced that he knows the space well myself.

I find myself trying to justify sticking with them, maybe negotiate a lower working time/commitment for the same pay (provided that they cannot afford to increase the pay) in exchange of losing this friendship and potential network.

Although I still think I'd be shortchanged.

Another worrying trend I feel is that while I'm probably 'employee #1', I find myself doing more architecture/design work than the technical co-founder as he is a relatively new programmer.

What would be a good way to ensure that I do not burn bridges while negotiating and/or rejecting?

I'd just tell them that your current financial situation doesn't enable you to work for just equity. And if you feel like you're doing more of the technical work than the technical co-founder, it's probably not a good situation overall.

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