Comment by brudgers | Hacker News Reader

Comment by brudgers | Hacker News Reader

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In my deluded world, significant equity is enough that you get rich if the founders get rich and get wealthy if the founders get wealthy even if less so in both cases.

It's not the $100,000 in salary over three years you didn't get in exchange for taking equity after a deal which made the founders rich if not wealthy. Significant equity aligns your outcomes and interests and gives you a seat at the table when liquidity events are going down.

Significance is more of a sliding ratio. 0.5% is significant if the founders each have 6%. 10% is significant if they have about 25%. There should be only one qualitative step between stakes, and that step should reflect the size of the company.

A final tell on significance is if the ownership structure is relevant to the discussion. Significant equity alters it in a...wait for it...significant way. It signifies that the offer is about more than a hiring decision. If the next programmer passing the interview process would get the same offer next week then the equity isn't significant. Gates and Allen wanted Ballmer, nobody else was going to get 6% with an option to 8 because there was nobody else.

Good luck.

And in this context it's especially important that you (the first employee) have the same stock type/class as the founders. You have disadvantages if they have stock and you only stock options. If they have preferred stock treatment or grant other investors preferred stock treatment then the company might exit at $100 million and you still receive nothing.

yeah, its a grant with vesting period, not options. As far as type I'll have to get into with actual contracts to sign but I believe we're all the same across the board, talking in terms of fully diluted percentage.

So if I'm reading you right, if the founders have split things with 40% each, and an option pool of 20%, significant would be > 4%?

35/35/10/20 would be significant. The equity grant is treated as increasing the value of the founder's equity. The option pool is already a sunk cost toward employees.

I would say significant stock is at least an amount that doesn't make someone think twice about the package. If the founders are holding 80%, then everyone else is pretty much an employee not an owner.

There's nothing wrong with being an employee. There's nothing wrong with working below market rate in exchange for some equity. Just be clear that it's a job and the only way you'll achieve market rate compensation or above is with a significant exit, limited dilution, and good-will toward you on behalf of the major shareholders.

So essentially employee equity is never "significant" in your opinion?

Completely understand that, but my question was about significant from an employee perspective as I mentioned in the OP.

Employee equity is usually not significant as equity. It might be significant as compensation. That's more likely if it already has value and the offer is in terms of shares. If it's in terms of percent, then we are talking equity not compensation: we're talking about ownership and control of the business and shaping the direction of the company.

Is the value of 2% of a startup meaningful compensation? Probably not. See my valuation elsewhere in this discussion.

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