What is the 2023 advice, should I get 1x, 2x, 3x, 5x, 10x or any other amount?
Yes I've taken risk into account and I have a multiple in mind, but I want to hear from others that have does the same, what do you think?
To be clear, each of these is a quite ordinary business condition with justified business reasons. There would be no intention to harm you, as your employee share is too tiny for anyone to bother over.
But such complications can result in you getting little, even in a big successful exit.
Turns out that the company sold 2 yrs later (yay!), then I did the maths, and turned out that money-wise it would still have been better more salary and less equity. I still didn't care, though. I chose that job in first place driven by other factors - money in software is always good; but a healthy workplace is not always there.
I know this won't help you much with making a decision but it is my experience nevertheless.
So (just my 2c), equity is a pretty big gamble and won't give you a massive return unless maybe you are one of the first employees of the next unicorn, which is basically impossible to predict. In the end salary (or equity) negotiations boil down to leverage. If you have it, use it.
Good luck!
Edit, see also: https://www.holloway.com/g/equity-compensation
The chances of a successful exit are vanishingly small, but like winning the lottery, you still hear about them, sometimes!!
You'll get commenters here on HN that say "I had a successful exit..." but there are orders of magnitude more people who have signed completely worthless contracts.
Even if you do have a successful exit, your payout should not be just a few times your missing salary. You won't get that money for years, and if you do, it comes with a whole host of headaches.
The VCs are well diversified. They can take a risk over multiple years across multiple companies knowing that only 1 out of 10 succeed. They also get first preference during any exit event.
I am totally dependent on the success of one company’s over multiple years if I take equity instead of cash.
If a company goes out of business and I’m paid market rate and given equity (bern they’re done that), I shrug my shoulders and look for another job.
I can save enough cash if given proper cash compensation to weather a gap in unemployment, I can’t save “equity”.
In a public company, I can (and do) diversify my risk every six months when my RSU’s vest.
But even then, seeing that I work for the “frugal FAANG” that until recently has a low cap on cash compensation and the rest was in RSUs, I made sure that I could live off of the cash portion.
I wasn’t able to qualify for my second home/investment property using a normal mortgage because my income was based partially on the signing bonus/RSUs even though the four year payout was documented. I had to take a no income verification loan.
Cash is king.
Are you founder / co-founder?
Are you employee #1-5?
If answer is "NO" on all questions, then by reducing your salary, you're purely losing money.
You won't see a penny for your "equity" even if company is sold for trillion $.
Trying to translate 1-10x your salary to equity depends on too many factors.
Talking it over in terms of percentage you'll probably get a bigger piece of the pie.
Keep in mind you're buying a lottery ticket with your reduction in salary.
Think about things like your equity vesting quarterly and over what time period.
Also at what point would your salary go back up to market rate.
Usually equity is to compensate early employees for taking less salary initially, extra effort and expertise, and risking that the startup will fail.
There should be a plan to get you back up to market rate when you are profitable or more profitable.
Also, how liquid are these shares? If you can sell at IPO, cool. If you have to hold them for a year watching to see if the share price holds or (somewhat likely) collapses, not so good.
I'd take the salary and buy stock in public companies with it.
Not that I'm advising you to speculate on the market... I just buy ETFs lol
Look at the last 12 months. Multiple sub-sectors of public equities down >80%. Do you think people saw that coming? If they believed it enough to bet on it, the opportunity to profit was huge. That's to say nothing of private valuations.
And yet every startup with some traction and a proof of concept PMF seems confident an exit is on the horizon. Maybe for parts of the last decade this was true, but now...
I guess it would help to know the current share price and what the same share would be worth at IPO. Usually you can "guesstemate" at that by:
* knowing the current revenue and costs
* guessing how that will grow over the next 4 years
* decide what the market's prevailing P/E ratio will be in 2-4 years assuming for the sector and country you are in to get to share price
* work out how diluted you think you will get
* applying some risk discount to all this
It's not a bad exercise to do to be honest. But every one of those numbers have a big range of uncertainty around them. You may end up with a range of share prices from 10-1000USD per share. Then you have to decide how many to buy but it's like lottery tickets after that...