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?

#21

Post by mrtron » Mon, Apr 13, 2009, 1:53 AM UTC

wyvern wrote: post #11

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.

That sounds like bad news waiting to happen.

The other 2 people have no idea you are upset with the current arrangement. Waiting to see what happens with other hires and then getting angry just seems spiteful and jealous.

If you are unhappy with the current situation, you need to figure out if it is enough to force you to quit. If so, give them the option to re-negotiate to a favorable arrangement for both, or quit.

If you aren't willing to quit over it, ignore that factor completely and learn from the experience.

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

#22

Post by bokonist » Mon, Apr 13, 2009, 2:02 AM UTC

wyvern wrote: post #20

bokonist wrote: post #18

Earlier quoted context omitted.

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?

That's usually not necessary, but I don't know enough about your situation to comment.

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

#23

Post by wyvern » Mon, Apr 13, 2009, 2:15 AM UTC

bokonist wrote: post #22

wyvern wrote: post #20

Earlier quoted context omitted.

Thanks. Should I try to line up a job before negotiating?

That's usually not necessary, but I don't know enough about your situation to comment.

Situation: so-so. 4 jobs in 4 years, but good performance/references, obvious talent that comes across in an interview. Sour notes are that I have an unfinished graduate degree (left academia for Wall St) and was laid off and unemployed for 5 months in 2008 because of health problems. Because I've been working for deferred cash for a while, I don't have a lot of savings. Once my back pay comes through, though, I'll be on better ground, but right now I wouldn't want to be out in the cold. Also, I really like the other founders and the work, so leaving lightly might be a dumb decision.

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

#24

Post by wyvern » Mon, Apr 13, 2009, 2:17 AM UTC

bokonist wrote: post #19

wyvern wrote: post #9

Earlier quoted context omitted.

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.

I didn't know this. This seems like a much fairer arrangement than accepting a low number on the premise that other people might needs points. I have a year's protection against employee-grant dilutions (none against investor dilution, obviously) but I'd give that up for a higher share.

However, I don't think I can suggest the CEO change how he runs his company.

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

#25

Post by ericb » Mon, Apr 13, 2009, 3:00 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.

>> What exactly do the other founders stand to gain by giving you even more equity now?

Presumably he knows the lay of the land, and is someone that they would not want to lose--there may be a significant cost associated with losing him. That said, his leverage is way lower now that the work has been done.

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

#26

Post by bokonist » Mon, Apr 13, 2009, 3:49 AM UTC

wyvern wrote: post #23

bokonist wrote: post #22

Earlier quoted context omitted.

That's usually not necessary, but I don't know enough about your situation to comment.

Situation: so-so. 4 jobs in 4 years, but good performance/references, obvious talent that comes across in an interview. Sour notes are that I have an unfinished graduate degree (left academia for Wall St) and was laid off and unemployed for 5 months in 2008 because of health problems. Because I've been working for deferred cash for a while, I don't have a lot of savings. Once my back pay comes through, though, I'll b…

That's a tough call. Take any advice here with a grain of salt, because I don't know you or the people involved. But if I was in that situation, I might ask nicely for a greater stake, and then if they refused, and I thought I was getting below market compensation, I might quietly look for another job.

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

#27

Post by enjo » Mon, Apr 13, 2009, 4:13 AM UTC

As to what is "fair" that's between you and the founders.

You do need to be ready for some serious shock come tax time if you do take on additional equity. Equity (from the IRS perspective) is income, and is taxed as such. If the valuation of the company is high (not the cash value, the fair market valuation) then taxes are going to be through the roof even though you haven't received any cash.

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

#28

Post by tptacek » Mon, Apr 13, 2009, 5:22 AM UTC

enjo wrote: post #27

As to what is "fair" that's between you and the founders. You do need to be ready for some serious shock come tax time if you do take on additional equity. Equity (from the IRS perspective) is income, and is taxed as such. If the valuation of the company is high (not the cash value, the fair market valuation) then taxes are going to be through the roof even though you haven't received any cash.

(a) You only owe based on the fair market value of the stock, which is not simply what a VC pays for it, and (b) you only owe when your stock vests, and (c) if this actually worries you, you arrange to file an 83b election and pay some nominal up-front fee, and pay only cap gains when you liquidate.

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

#29

Post by tptacek » Mon, Apr 13, 2009, 5:23 AM UTC

webwright wrote: post #17

"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'…

Close to equal? Surprising answer from a successful founder. If he signed on, say, 6 months after the other two founders, that's valuing their previous contributions at 0.

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

#30

Post by trevelyan » Mon, Apr 13, 2009, 7:13 AM UTC

wyvern wrote: post #12

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.?

A high single digit stake is a lot of money if things go well. Just make sure you don't get screwed over by dilution and you'll be fine. Get your promised equity in writing and be happy that you're with people who are delivering what they promised.

You can't re-price risk after it has been fully assumed and if I was one of your colleagues I would be pissed off at your attempting to re-negotiate a previous agreement. You seem to believe your co-workers have an obligation to see you get a certain level of compensation and that your equity stake should grow or shrink depending on that compensation. That is the attitude of an employee not an owner.