Ask HN: In this situation, what's a fair equity share? • Hacker News Board

Re: Ask HN: In this situation, what's a fair equity share?

#11

Post by wyvern » Mon, Apr 13, 2009, 12:09 AM UTC

khangtoh wrote: post #6

Whatever it is, you agreed to the original offer and technically the other founders do not have to re-negotiate the offer with you. Since you accepted the offer with salary although deferred. I think it is fair, assuming the other founders did not get salary, in lieu of the low equity you are receiving.

The other founders have deferred salary as well.

Obviously, no one has to renegotiate anything, but I'm asking what's fair. I can't evaluate my own number because I don't know what's happening at the bigger picture. If 30 programmers more skilled than I am are hired tomorrow, I'm probably getting a fair share. If some post-money marketing VP gets, say, 8%, I'm going to ask for a raise to at least that level or quit.

Re: Ask HN: In this situation, what's a fair equity share?

#12

Post by wyvern » Mon, Apr 13, 2009, 12:15 AM UTC

vaksel wrote: post #5

What exactly do the other founders stand to gain by giving you even more equity now? If you thought the original deal was unfair, you shouldn't have signed.

I figured the deal was fair because I thought salaries would be coming in imminently, and that I'd only be putting a few grand on the line. That turned out not to be the case.

In truth, I don't know what fair is, because I don't see the whole picture: who else will get equity in the future, what does the option pool look like, etc.?

Re: Ask HN: In this situation, what's a fair equity share?

#13

Post by jack » Mon, Apr 13, 2009, 12:24 AM UTC

First, read pg's essay on the subject, if you haven't already: http://www.paulgraham.com/equity.html.

Although it's tough to revisit this question after you've already established a deal (it would easy be perceived as opportunistic), it can't hurt to ask.

At worst, the other founders should be able to justify the allocation you've been given and their reasons for not upping your share; at best, they might revisit their decision given how much value you've delivered over the past 7 months.

Just make sure raising the question doesn't come across as blackmail.

Re: Ask HN: In this situation, what's a fair equity share?

#14

Post by wyvern » Mon, Apr 13, 2009, 12:25 AM UTC

bayareaguy wrote: post #10

These things are never simple but a fair distribution should take into account the risk each person took and the value of their contribution. For example if they worked twice as long as you and they took twice the risk you did then it would be difficult for you to justify more than a 1/9 stake. If they were stuck before you got there and you played an important part in getting a 3-person company to some measure of pr…

For example if they worked twice as long as you and they took twice the risk you did then it would be difficult for you to justify more than a 1/9 stake.

That seems about right. I figure I'm worth about 9-10% of the work up to now, considering time spent and what we'd command on the market. That number needs to be docked according to the pool reserved for future employees, and raised if we go longer without salaries. There are enough variables that I'm not aware of, so I don't know what fair is although I have a general sense of the range.

A board seat is probably out of the question at this point but I'd recommend you negotiate for the same class of shares and vesting/acceleration options that your co-founders get.

Why is a board seat out of the question? Should I want one? I'm really naive about this question, and don't even know if I necessarily want one. What are the benefits and drawbacks?

Re: Ask HN: In this situation, what's a fair equity share?

#15

Post by geoffw8 » Mon, Apr 13, 2009, 12:39 AM UTC

wyvern wrote: post #3

jojoleflaire wrote: post #2

You are a minor player. Not being harsh, but it's just a job for you. Don't worry about the corporate details, if you believe in the vision. If the company is successful, you will be too. But make sure that as the company grows, you grow (career wise) too. You might get rich some day from it.

I disagree, because I've put 7 months of opportunity cost on the line, which is about $60k, so I definitely feel entitled to the trappings of founderdom. I'd almost certainly leave if I found out that a post-money marketing guy got more equity than I did.

wyvern - I agree.

I have to say, as someone who is massively new to this - this is no right or wrong. There's no harm in asking the question, if you raise your concerns and walk away with any additional % - excellent. But the thing you don't want to do is alienate the others, so be sure of your approach before you voice concerns.

Nobody here will ever be able to understand the effort/risk you have all put in comparably apart from yourself, so the only advice I'd give is go for what you can get, nicely.

Re: Ask HN: In this situation, what's a fair equity share?

#16

Post by wyvern » Mon, Apr 13, 2009, 12:44 AM UTC

geoffw8 wrote: post #15

wyvern wrote: post #3

Earlier quoted context omitted.

I disagree, because I've put 7 months of opportunity cost on the line, which is about $60k, so I definitely feel entitled to the trappings of founderdom. I'd almost certainly leave if I found out that a post-money marketing guy got more equity than I did.

wyvern - I agree. I have to say, as someone who is massively new to this - this is no right or wrong. There's no harm in asking the question, if you raise your concerns and walk away with any additional % - excellent. But the thing you don't want to do is alienate the others, so be sure of your approach before you voice concerns. Nobody here will ever be able to understand the effort/risk you have all put in comparab…

My plan is to wait until we're ready to formally incorporate before I raise the issue, because I'll have a better sense of what the numbers mean. I'm sure there were external people given equity (legal counsel, etc.) so it's premature to judge what's a fair share.

Re: Ask HN: In this situation, what's a fair equity share?

#17

Post by webwright » Mon, Apr 13, 2009, 1:15 AM UTC

"salary offered (deferred until funding)..."

I'm assuming you don't mean that you get paid back for salary you didn't get paid before funding. FWIW, investors are REALLY not keen to give $ to a startup and have a big slice of it go to to back-earnings.

Onto the question/situation, though. How long did they work on it before you? Do you all work the same amount?

Depending on the answer to those questions, I think you're entitled to a close to even share, assuming you all vest.

A way to get around the inevitable response is to vest. If you want to own 25% of the company, suggest that it vest over 3 years (you should ALL be vesting anyways). A good way to pitch it is this: "You guys have been working on this for 12 months. I've been working on it for 7. By the time I vest, the difference will be 41 months versus 36 months of time in. What do you think a reasonable percentage of my contribution will be at that point?" If time is the only facture, that's a fair point. If they poured cash in, have amazing connections, or had higher paying careers they set aside, they might be entitled to more.

Regarding board seats, those get re-assigned if you get funding oftentimes. Board meetings aren't particularly fun-- I'd avoid it unless you think your board will do something screwy. Only thing I'd offer is that you want founders to have control of the board-- if not, the board can fire the founders. If you are the odd-man-out, the board can fire you whether you are on it or not. So being on it offers little protection unless you have unanimity clauses written in. You can always ask to have regular optional attendance for the board meetings.

Re: Ask HN: In this situation, what's a fair equity share?

#18

Post by bokonist » Mon, Apr 13, 2009, 1:22 AM UTC

wyvern wrote: post #16

geoffw8 wrote: post #15

Earlier quoted context omitted.

wyvern - I agree. I have to say, as someone who is massively new to this - this is no right or wrong. There's no harm in asking the question, if you raise your concerns and walk away with any additional % - excellent. But the thing you don't want to do is alienate the others, so be sure of your approach before you voice concerns. Nobody here will ever be able to understand the effort/risk you have all put in comparab…

My plan is to wait until we're ready to formally incorporate before I raise the issue, because I'll have a better sense of what the numbers mean. I'm sure there were external people given equity (legal counsel, etc.) so it's premature to judge what's a fair share.

No it's not premature to figure out what your fair share is. The proper time to negotiate is immediately, it only gets harder the longer you wait. You should negotiate your share relative to the current other members of the startup, and then everyone should dilute at the same rate when you add an option pool.

Unfortunately, you have already made the mistake of waiting seven months. As soon as they reneged on paying you the "imminent" cash salary, you should have demanded a much higher equity stake than low single digits.

At this point, you have the right to ask for whatever you can get. It's just a matter of what your alternative is, and how valuable you are to them.

Re: Ask HN: In this situation, what's a fair equity share?

#19

Post by bokonist » Mon, Apr 13, 2009, 1:26 AM UTC

wyvern wrote: post #9

[deleted] wrote: post #4

[deleted]

How much did the original founders spend both in time and in money before you came along. * How much have /you/ spent in relation to that? * How affected was the outcome of the business by your presence, did you accelerate the growth, did you take it the extra step, can they survive without you etc.>> I've done this math, valuing time at the market rate. I come out as about a 10% contributor, but they obviously can't…

I come out as about a 10% contributor, but they obviously can't give me 10%, since there need to be points for the option pool...I was offered 2%, which seemed really low, but I was told that this was because the CEO wanted to conserve points for future hiring.

That's silly. There's no such thing as persevering points. If you create an option pool later on, everyone dilutes together.

Re: Ask HN: In this situation, what's a fair equity share?

#20

Post by wyvern » Mon, Apr 13, 2009, 1:41 AM UTC

bokonist wrote: post #18

wyvern wrote: post #16

Earlier quoted context omitted.

My plan is to wait until we're ready to formally incorporate before I raise the issue, because I'll have a better sense of what the numbers mean. I'm sure there were external people given equity (legal counsel, etc.) so it's premature to judge what's a fair share.

No it's not premature to figure out what your fair share is. The proper time to negotiate is immediately, it only gets harder the longer you wait. You should negotiate your share relative to the current other members of the startup, and then everyone should dilute at the same rate when you add an option pool. Unfortunately, you have already made the mistake of waiting seven months. As soon as they reneged on paying y…

Thanks.

Should I try to line up a job before negotiating?