Ask HN: What do you think of this first employee offer? | Hacker News Reader

Ask HN: What do you think of this first employee offer?

A UK hardware company is keen to hire employee #1 (software engineer) at ~£1.4k/month and 2% (4 year vest, 1 year cliff).

The company consists of the founder with hardware experience and a co-founder with marketing experience. It recently finished an accelerator (at $50k for 6%) and has raised ~$150k via crowd funding.

The company estimates they're worth $3-4m, but haven't yet had a formal valuation.

It hopes to raise a further ~$500k by the end of the year. If they receive funding, the company promises to raise the salary to ~£44k/year.

The employee is an intermediate-senior level developer and would be tasked with building a significant part of the product. There currently exists a rough prototype and design docs.

How would you rate this offer? Is it fair for the employee?

Edit: the position will be remote work (the company does not (yet) have an office).

Edit 2: to clarify, I am asking as the potential employee, not the company.

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I know its usual for people to take a salary hit when joining a startup but £16,800 a year is nothing. You're asking for someone to have either a lot of passion and belief in what you're doing or a lot of naivete. If they have the passion, belief, experience and willing to take that kind of salary, they'll most likely be looking for third co-founder, not first employee and thus a MUCH higher percentage.

Decent developers will get co-founder offers all the time, i'm an at best, average developer (i have other skills), but i have a good portfolio and experience, and i get at least 1 company a month asking me to become involved with their company on an equity basis.

I'd say the company should be looking for their last co-founder, not their first employee. If its an employee they're looking for, the wage should be in-line with market wages and the 2% is great, but lets face it, might be worth nothing.

This advice (and much of the advice in the thread) pooh-poohs what they've done and says that you should be a cofounder. I think that the offer does not fairly reflect your value, but this advice also doesn't fairly reflect what they've brought to the table.

If the company has created a prototype that's received $150,000 in crowdfunding support, that's a tremendous accomplishment. The existing founders have conceived of a product, prototyped it, and validated it in the most significant way possible - with customers who are willing to not just pay for it, but pay for it far in advance.

Let me put this in perspective: on Kickstarter, raising $100,000 puts a company in the top 0.2% of successful campaigns [1]. If you include all campaigns, they're rarer than 1-in-a-thousand. Due to selection bias, we hear about these >$100k campaigns preferentially, but the company is breathing rarified air. That indicates there's real value that's already been created by the founders.

That said, 2% and a smidge over minimum wage isn't right either. The compensation hit you're taking is so significant that the equity position should be larger. I would be looking for something in the 5-10% range. The question I would ask them is this: the accelerator put in $50k. You're forgoing much more money than that. The accelerator got 6%. Do they expect you to provide more or less value over the next four years than the accelerator did in 3 months?

Also, while verbal promises are legally binding (in the US and I believe in the UK as well), they're hard to prove. The suggestions to get the "salary after funding" agreement in writing is a good one.

[1] https://www.kickstarter.com/help/stats

£1,400 per month is £16,800 per year.

16800 / 52 (weeks per year) / 40 (hours per week) is £8.08 per hour.

Current minimum wage is £6.31 per hour. That would be £13,124.80 per year.

I would want:

1) Rock solid in-writing offer of the 44k

2) excellent working conditions

I'd also want to know what happens if they don't get the funding.

EDIT: Remote work: are they paying for the Internet connection? Or electricity used? Or helping guide you through the tax / insurance complications? (See, eg, http://www.voa.gov.uk/corporate/Publications/workingFromHome... )

EDIT2: Not that this means much, but £16,800 is $28520. The figure is probably gross, before tax and national insurance.

EDIT3: After tax, maybe £14,378.72 per year, £1,198.23 per month, £276.51 per week. From http://www.listentotaxman.com/index.php

The London Living wage is £8.80 they are offering less than a office cleaner for a local council would be getting.

Breaking it down by the numbers was useful. Thanks. This offer is indeed before tax, etc.

What would you expect in terms of "excellent working conditions"? As this is remote work, the value of a "startup atmosphere" doesn't exist. IMO, the problem being solved is more on the coordination, perhaps infrastructure spectrum, than a specific hard technical problem.

WRT remote work expenses, this hasn't been mentioned, but certainly something to bring up!

Remote working is a point in the working conditions' favour (not least because you don't have to live on <£17k gross per annum in London, and might even be quite comfortably off on that income in other parts of the EU). But other things to be wary of are tight deadlines that require you to put lots of hours in, founders thinking you're "on call" to fix technical issues in the middle of the night, or should be ready to travel at short notice every time they think a meeting is necessary. That might be tolerable if they were treating you as a cofounder or paying big bucks, but not with the little you're being offered. (Indeed the fact they apparently don't consider it necessary to offer an above-market equity grant to compensate for the below-market salary is not a point in favour of their expectations from employees being reasonable in other respects.) On the flip side, if they're quite happy for you to balance your work for them with side projects, study or generous leisure time it starts to look a lot more attractive.

Similarly, the hypothetical post-funding £44k offer might end up being contingent upon being willing to relocate and work from an office, which may or may not be something you're happy to do.

And above all you should be very interested in solving the particular infrastructure problem to even consider this, because the alternative of spending 4-6 months earning £17k in a job paying a market rate and the rest of the year doing exactly what you want has it's potential upsides too...

That's an absolutely disgusting amount of pay, I'm just under £20,000 and I think that's too low.

So they're paying

1.4 * 12 = £16.8k a year

Minimum wage for the 21+ group at seven hours a week 365 is

6.31 * 7 * 365 = £16,122.05 a year

They're not quite paying the minimum they can legally get away with paying you, and holidays will further slant that disparity. But it's close, it's damned close, to the same they'd have to pay a cleaner or a receptionist.

That's not skilled labour rates.

As for the equity... Hah! Equity is what happens when it's easier to get the money out of an employee's potential wages than it is to convince the investors to give you the money to hire someone with a decent wage up front. It's a way of transferring risk onto someone who doesn't have the same information, experience and risk management means as investors do. As an employee, you should take the fact that investors won't stump up more money for your wages as some evidence of how they've assessed the company. I'd disregard the equity unless you know their industry very well and have some reason to believe they're a really good bet.

I wouldn't take the offer, not unless there are other points that you really want and can negotiate for. In monetary terms, it's terrible.

Of course, it depends if the 1.4k a month is NET or GROSS pay.

Might sound strange to some - but my salary is currently paid NET (i.e. what it says on my contract is what I actually get in my bank account), which is why I bring it up.

(Honestly, it took me a while to figure out a lot of these comments - for a moment I thought I was horrifically underpaid, or everyone else was overpaid.. until I realised that it was probably a gross salary rather than a net one)

In the UK have seen a gang leader for groundworkers post advertised at £35k - that's what used to be called a navvy.

As a potential employee (that you're asking as) I'd say you turn and walk (and not look back).

The total salary your getting is 8.08 per hour. Which is less then a janitor makes in the city. Even if they throw in 2-4% equity (which as the company is currently worthless, I.E.: No profit, No product, no anything) is worth little unless you really believe in the company.

Lastly these two lines are very telling.

>hire employee #1 (software engineer) at ~£1.4k/month

>The employee is an intermediate-senior level developer and would be tasked with building a significant part of the product. There currently exists a rough prototype and design docs.

Basically your getting paid a janitors wage to write their entire business from scratch, this is a horrible idea.

2% of 4 million is 80k, or 20k/year for the four years of vesting.

You need rock-solid faith that this company will grow quickly to a large multiple of its current (possibly quite inflated) valuation to even break even.

I'd take it as a red flag that they're being stingy, those 2% is nothing when they can't pay a full market salary plus benefits from day one. They're not going to build a high growth company if they're being penny wise and pound foolish.

If you really believe in the company, demand co-founder equity, 15-20%. If they're unwilling to part with that, how much do they really want the company to succeed, and how crucial is the software software engineer to that success?

For information BT's 5 year share save that matures in a month or so is returning 80k tax free.

So employee no 1 who by definition is an experienced role your not paying much more than the minimum wage and in fact the London living wage (ie what cleaners are supposed to make) is about what your offering.

I would pass on this role.

Out of interest why the down vote on explaining what a stable FSTE 100 company offers in terms of share options.

First, don't sweat a single downvote. That happens.

Second, while I can't speak for the downvoter (being the parent of your comment, I couldn't downvote you if I wanted to), your comment is jumbled, has poor grammar and is frankly borderline incomprehensible. Also, your reference to the BT share save program like an item of common knowledge is confusing - I had to Google to find out what it's about.

This is a discussion about a UK based role so I assumed familiarity with how share options work - just as the others did when mentioning all the various UK's minimum wages.

If you have poor English comprehension that's not really my problem - this isn't a flipping university essay its a short and to the point comment in a discussion forum.

Uhm, you do get that I didn't downvote you, but tried to give an honest analysis of why someone might have? It's not exactly constructive to get defensive in response.

And FWIW, you used the word "your" where you seem to have meant "they're" - twice. The sentence simply doesn't make sense as it stands, and yes that is your problem, university essay or not. I was able to comprehend it, because I made an effort to deduce what you meant, thus it was only borderline incomprehensible, but I do also think that we should aspire to a higher level of discourse.

I'm assuming that you are a potential candidate for the position. A few thoughts:

- Evaluate an opportunity or offer by comparing it to the other opportunities you have or could generate

- There is always room for negotiation (http://www.kalzumeus.com/2012/01/23/salary-negotiation/)

- If I'm offering to pay you in my company's shares, instead of cash, then don't take my word for the value of those shares. Do your own valuation, and factor in any lack of liquidity. If you can't define a minimum value for those shares, then you can consider them as being worth zero.

- An oral agreement isn't worth the paper it's written on

- If you will be co-founder #3, then make sure you know what co-founders #1 and #2 are bringing to the table. Otherwise, why are you giving them 92% of the company? (100%-6%-2%)

Based on the information you have provided, I can't see a compelling case to even consider the offer. If you said you were excited about some aspect of the product, or the people, or something else, then that could go some way toward mitigating the otherwise poor economics of the deal.

Why are you assuming that? I think it's the company asking.

Because the OP referred to 'the company' in the third person:

"The company estimates they're worth $3-4m"

OP is referring to the employee in third person as well.

No.

Firstly, ignore the 44k. Promises like this are useful for you to get an idea of abstract expectations of the company, but its not real money :)

Secondly, at this stage you're trading wage for equity, and 2% is essentially nothing. Let's say there is a 25% chance of the company existing in 4 years with a valuation of 500k. That's .25 * 0.02 * 500k = £2500 over 4 years. sadface

Don't forget they they're asking you to build it, so you should be looking at massive equity (>=25%) or a competitive wage... probably even more so since you can expect a higher than average expectation of your time.

It does not sound like an offer which will attract an outstanding talent if that is what is desired and the $3 million dollar estimated valuation is meaningless. With no product or assets, it would liquidate for less or nothing.

Is ~£1.4k/month before or after taxes? I would say it is very low in either case, even for the UK (I've heard about a lot stories of poor salaries in the UK, especially in games).

Plus take into account most startups don't work out in the end, so the 2% is unlikely to amount to anything.

Good luck anyway.

EDIT: I only saw the 44k thing after posting. That would get to a basic livable salary, so that's good. As someone else suggests, get it in writing and also consider requiring it in less than 12 months or so. You may be looking at 2 yrs work before significant funding can be found (and they're unlikely to pay 44k salary to you if they only raise 150k in the short term).

In the UK I'd be very surprised if they got a valuation of that size, UK market is very conservative when it comes to valuation - the only way I see them getting a valuation like that is if investors were taking debt and equity - in which case the "valuation" is much harder to quantify as they will be paying with both debt and equity got the investment.

Either way, that's a pretty low starting salary. £44k is good but get it in writing before you accept the job or I can see that offer evaporating.

That's an interesting angle I hadn't considered. Thanks.

The company is UK-based, but are focusing on the US-market (I believe). Would $3-4m sound reasonable for the US market?

I read the $3-4m as what they're hoping the idea might be worth, one day. I.e. wishful thinking, and irrelevant.

Likewise the $500k. Does that depend on a successful funding round? Because if it does, it's a long way from being a sure thing.

You're being low-balled on salary and on equity. This doesn't set a good precedent for your future relationship.

A competent, trustworthy founder team would do neither.

I'd either pass or suggest they pay the market rate for the same level of equity. If they can't afford the market rate - or can't afford it yet - that's Not Your Problem.

Of course there's the risk they have something really special. But I'd guess if it's really special, funding will be easier to find and there should be no need to make you take on a financial risk just to work there.

Don't forget the Joel Spolsky Company Operating system. He has a solid string of successes, and I don't think he'd operate like this.

Hmmmm, only if the investors were US based and potential acquirers were US based. If investment is from UK investors then they are selling parts of their company (shares/equity) in the UK - even if the consumer market (ie where they sell they product) is US based the value of the company is still routed in the UK market.

One thing I've learnt over the past few years is that valuations between the US and UK investors seems very different, even in software and so especially in hardware since the product and companies are not as scalable.

I'd push for co founder status as others are suggesting with 10-15% stake and 16.8k salary rising to 35-40k, OR 26k rising to 44k with 2% stake, can you get a shorter lock in for the equity? Also, make sure they are aware of the new pension regulations coming in - many start up founders are trying to ignore that.

the new pension regs are more about what you can do with your pensions I think the mandatory employer contributions haven't changed much.

In my experience, hardware companies are incredibly hard to pull off, but they're also incredibly fun. On the software side, the problems that need to be solved can be wickedly complex, interesting, and far different than creating another CRUD app. Lots of unsolved problems on the software side of the hardware/IoT space.

As for the offer, per another post (https://news.ycombinator.com/item?id=8071330) I always try to decide if it's a co-founder role or a hired-gun role.

>The times I've been in this situation it really came down to figuring out if I was a true co-founder or just the hired gun. True co-founder roles meant I was confident in the founder(s) ability to execute, was confident we'd work well together (takes time), and was stoked about the industry/product/role. We paid ourselves the same salary, I received founders shares (not options), and off we went.

>When I didn't have time to properly date first I just assumed I was the hired gun. In these situations the cash component was high and any equity vesting immediate.

Their offer suggests you're the hired gun, and at (far) below market.

Don't pay to much for significant part of your product and your business.

I think you find the right programmer in Pakistan, they will be really excited to work for you and make so much money ;-)

Sorry, but for this conditions your really think you find a "good" developer for mission critical things? (yes they exists, but thats a needle in a haystack)

Be blunt with the company, negotiate something better, or join later, after the raise, if you really like them.

If they can only pay this price, they should get a junior intern, not an employee. I don't know which incubator they went through, but no mentor I know would have told them this is a good offer to give to a developer. 1.4k a month is what you'd give to your best friend helping you with your startup because you can't afford more, not your #1 employee.

I can totally imagine how it feels like on the other side, and it's hard, and they probably do a lot of very nice things, and may be very nice people, but giving such a low salary is not a good move, and they should know it.

I didn't mention equity so far, because, well, as @MehdiEG said, it's only icing on the cake, nothing more.

Good luck!

I was on the other side of this equation a couple of years ago - co-founder of a London-based tech startup that had just finished an accelerator and raised a £100k round of seed funding (we didn't make it in the end in case you're wondering). Here are a few tips from what we learned.

1) The valuation is completely and utterly meaningless at this stage of the company. Unless the company is already generating a profit, it's currently worth exactly $0. So forget about the valuation when making this decision.

In addition, as you mentioned in your description, this valuation is literally a completely random number they pulled out of thin air.

Just for your reference, London-based startups that raise a seed round after having completed an accelerator are typically valued in the region of £1m. They would have to be quite exceptional to be valued at $3-4m (and maybe they are - up to you to find out).

2) I'm no expert on what's a reasonably equity share for a first employee. 2% sounds OK. But in any case, those 2% are worth exactly nothing right now. And at the stage they're at, their chances of success are close to non-existant (just like every other startup at this stage). So those 2% will most likely never be worth anything. Take those 2% as the icing on the cake, not as a main decision factor.

3) The £1.4k / month salary figure is a bit odd. Salaries in the UK are usually expressed as a gross annual figure, not as a monthly figure (or at least that how I've always seen them expressed). So do they mean a salary of £16.8k gross or £20.3k gross?

In any case, since it's a remote position, you're the only one who knows whether this is a reasonable offer or not. In the UK, that would be far, far too low for an intermediate-senior level developer. Even in the parts of the UK that have the lowest salaries (e.g. Northern Ireland), £17k would be borderline taking the piss for a graduate-level position, let alone senior.

But then again, only you knows what you could expect to earn where you live.

4) What accelerator did they go through? The purpose of an accelerator is mainly to "get the badge", i.e. get the credibility associated with the accelerator and get accepted into the "inner circle" of entrepreneurs and investors in the region. This is what makes a huge difference to the startup's ability to raise future funding and get the right introductions.

As a result, the only accelerators that are worth going through and provide real value are the top-ones, namely: YC, 500 Startups and TechStars. So are they part of the inner circle or did they just go through a small, fairly unknown local accelerator?

5) Since they haven't yet raised seed round, they probably don't yet have a formal board of directors. So failing this, who are their "official" advisors? Do they have any high-profile, successful entrepreneur helping them out (i.e. someone who's been there before)? Ask to have a chat with one of them. If their advisors are really willing to help them and are not just advisors on paper, they'll be very happy to have a chat with a prospective employee #1. Be blunt with them - ask them what they think of the company, of the founders and of their future prospects.

6) Finally, I realise that the above might come across as quite negative but this isn't my intention. There's plenty of upside with being employee #1 at a tech startup, even when the salary is questionable.

- It's common in early stage startups to be very relaxed and flexible when it comes to working hours, days off, etc. especially given the very low salary they're offering. Have a honest chat with them about this.

- If you're genuinely interested in startups, there's not better way to learn the ropes than to be employee #1 at a tech startups. You'll learn almost as much as you would being a founder and you'll be paid for it!

- Although your 2% will probably never be worth anything, there is a good chance that the company will grow enough to see its team reach a sizeable size. As employee #1, you'll be first in line to move up the chain of command and to be given a lot of responsibilities. You'll probably learn more in two years in a startup than you would have in 10 years at a large corporation. That certainly won't hurt your CV.

All of the above however is conditional on the founders being completely open and honest with you and on you having an excellent relationship with them. So up to you to see whether you and the founders "clicked" and whether they're going to be open with you or keep you at arm's length.

A quick google shows you'd be making less than legal minimum wage. For skilled labor. You're not going to be flipping burgers here.

Equity? Hah! During a goldrush sell shovels. Don't go looking for gold yourself.

UK rates for National Minimum Wage: https://www.gov.uk/national-minimum-wage-rates

    Year 2013 (current rate

    21 and over £6.31
	
    18 to 20    £5.03	

    Under 18    £3.72	

    Apprentice* £2.68

£6.31 * 40 (hours per week) = £252.40

£252.40 * 52 (weeks per year) = £13124.80

So OP would be making a little bit over minimum wage rates.

If he only works 40 hours per week.

and not considering holidays

Working more than 40 hours a week means he earns less money. The max is 48 hours (with limited exceptions) so £6.31 * 48 is £302.88 per week, or £15,749 per year. Thus, still less than OP is earning.

But then the UK has 5.6 weeks of holiday for most workers. Since 28 days of paid holiday applies to OP and to people on minimum wage it cancels out.

The offer is terrible. Wouldn't take it unless you're a kid with no prior experience looking to break into the industry.

Is the salary enough to live comfortably on in the area whee the employee lives? Do the co-founders seem like they'd be good people to work with? Does the product/work sound appealing to work on for 2+ years? Is there an opportunity to learn a lot?

I think these are the things that will matter day to day more than any 'fairness'.

What would your salary be if you just got a normal software engineering job with an established company?

I'd imagine somewhere in the region of ~£40k. A quick browse through http://www.glassdoor.com supports this figure.

In that case, the deal makes no sense. Just do the math:

Market salary (40k) less salary offered (16.8k) = 23.2k per year

Stock vesting in year 1: 0.5%

For the stock to make up for the salary discount, the company has to be worth at least 23.2k/0.5% = 4.64 million

If _you_ value the company at more than that, and are happy with the level of risk, then you might consider it.

Do the math. Think about your alternatives. Get everything in writing. Make sure you understand the contract and the tax implications before signing.

Where is the job located, wages in London are a lot higher than other parts of the country for example.

It'll be remote work (at least to begin with).

Then maybe look for someone in Central or Eastern Europe? This salary would be decent there.

No, this is not a fair offer. You should get more equity (founder level, 25%?), or the post should be part time (1 day a week).

When I was a junior I would have refused this offer, I don't know how you want to hire an intermediate-senior with that.

As written, do NOT take this offer.

At such a low salary, you're a founder, not an employee, and deserve to be treated like one.

When you take a deal like this (low salary, low equity, because the founders have a track record of raising money) you are paying for connections. How connected are they? So far, they've only done something you could do (join an accelerator, and crowd-fund). I don't think you should sell your labor at a discount for their "connections".

(I'm going to convert these numbers into dollars, just because it's easier to use one currency.) You're making $2,375 per month, or $28,500 per year. That won't even cover rent in a major city.

Let's do the math. I'm going to compute a fair equity slice for you. An intermediate-to-senior level developer (7 years experience) is worth at least $100,000 per year. (Bay Area: $150k, New York, Seattle: $135k, Austin: $125k, Midwest: $110k.) That's about £58,000. Now, I get that startups often pay less, but you need to know what you're worth in order to figure out how much equity you should get.

If you're worth $100k (and you're worth at least that, if you're intermediate-to-senior level) and making $28.5k, you're putting $71.5k per year into the business. Let me add a few things to consider. First, you're not getting the typical big-company benefits (in the US: 401k matching, conference attendance, health insurance) which are probably worth $15k a year in addition. Second, raises are rare in startups. When things are going well, the equity appreciation is the raise (even if that enrichment is illiquid) and when things are going badly, it's not a time to ask for things. So, if you stay for 4 years, you're forgoing four years of raises. That's another $60k or so ($10k in year 2, $20k in year 3, $30k in year 4). Third, there's more risk in a startup. People are fired more quickly, and while traditional corporations tend to call it a layoff and pay severance unless you do something illegal, startups fire people without severance all the time. I'd price that risk at $10k per year.

All-in, the total opportunity cost is $446,000 over four years. That is, in effect, what you'd be paying (one could argue for lending, but at zero interest) to work there.

Now, what is the business worth? It might be worth $4 million to VCs, who get some measure of control of the company. Unlike you, VCs are nearly impossible to fire. They also have a lot of capital to invest; their job is to do exactly that. The company is worth less to you. Also, all you have to justify the $4 million claim (which is where the company will be valued if it is funded) is the founders' statement. I'm going to put the startup's value (including the work you'll put into it) at $2.5 million. That's generous. If the founders aren't connected, it's less than that.

With those numbers, you're putting $446k into a startup around $2.5 million, and argue for 17.8 percent. Even that, I think, is low.

This sounds terrible. 2/10

However, since you have such low self confidence ( because you're posting this here and wasting your time with a BS offer) you should probably take it.

This offer doesn't even pass the giggle test. What the heck is wrong with the economy and labour market there that would have you consider something like this?

Move to Canada already

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