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Ask HN: How much equity should an early employee get?

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Re: Ask HN: How much equity should an early employee get?

#21

Post by cam0 »

You don't (or shouldn't) join an early stage startup with the expectation that you'll get rich by any measure from the equity. You join an early stage startup because you likely want to eventually found your own startup in which you'll own > 50% of it. That's your shot at getting rich. The experience as an early stage employee just exposes you to the chaos and ups and downs of it all, and if it goes well then yeah maybe you make some money, but even more worthwhile is the connections you make in the process (other employees plus potentially the VCs who invested and may ultimately invest in you down the line).

*edit: realized I didn't actually address the question of topic - I would expect the range to be between 0.25% and 0.75%

Re: Ask HN: How much equity should an early employee get?

#22

Post by autheticity »

The best resource on equity: https://www.holloway.com/g/equity-compensation

Earlier version on GitHub: https://github.com/jlevy/og-equity-compensation

Also look at the Index Ventures link and calculator: - https://www.indexventures.com/rewardingtalent/calculating-in... - https://www.indexventures.com/optionplan

From your question and knowing nothing else, I assumed it was probably low - but it depended primarily on salary and total compensation (is it market rate for your friend? How far off?).

From other answers (the company's fair market value is $30- $70 million vs $0 or unknown, the salary is slightly under market rate), it depends on the difference between your friend's total compensation here and other offers (or realistic other offers they theoretically could get).

I'd ask for more than the difference between this start up's total comp and other offers. Why? Expected value and risk. Get a reasonable risk adjusted amount given liquidity and likelihood it will ultimately be worth $0, $1,000, or even $10,000 (good chance it's in the 90-98% range, and if the company wasn't already worth something it'd be closer to 99%).

It's probably in the ballpark of fair, but not quite there for your friend.

Re: Ask HN: How much equity should an early employee get?

#23

Post by deusex_ »

javert wrote: post #9
wikibob wrote: post #2

Have they raised a seed? If not at least a few to several percent. If yes maybe 1-3 percent. Profitable? Product market fit? Will the stock fit the requirements for Qualified Small Business Stock? This makes a huge tax difference. Early-excercise and 83(b)? Market rate salary or under market? Note market has 50% increased for startups the past year.

Thanks for the feedback. Can you quantify "a few to several" percent? Thanks for the questions... answers below. Raised a seed? Yes. Profitable? He hasn't asked yet, but it seems that it should be profitable soon. Product market fit? Good. Tax stuff? We don't know right now. Anyway, we just want a ballpark comparison to what early employees have gotten at other companies. Salary? Slightly under market rate.

If few and several come from Heroes III terminology, few would be 1-4, several would be 5-9.

Re: Ask HN: How much equity should an early employee get?

#24

Post by FreakLegion »

It's hard to say without knowing more. Here are a few questions that come to mind:

- What stage is the company? Earlier employees will be diluted more, which is one reason for getting a bigger slice of equity. 0.2% is low if they haven't raised any money.

- If the company has raised, how? A lot of people don't appreciate that if a seed-stage company uses a YC SAFE and hasn't done a priced round yet, as an early employee you're going to eat that dilution, even though the raise already happened. The money may already be in the bank, but the shares won't be issued until later.

- How senior is your friend? 0.2% would certainly be low if they're Staff+, for example.

- What's the cash component of the offer? As you approach and push past $200k you should expect equity to drop precipitously, even for a more senior person.

- Are there other valuable elements to the offer worth considering? E.g. 10-year exercise window and/or early exercise on the options.

- How specialized is the business, and does your friend offer any expertise in the area, or are they fungible?

The market is pretty hot right now, so I'd guess that 0.2% is low, but if it comes with a solid salary and good benefits, for a mid-level generalist developer it could be more or less right.

Re: Ask HN: How much equity should an early employee get?

#25

Post by harel »

cam0 wrote: post #21

You don't (or shouldn't) join an early stage startup with the expectation that you'll get rich by any measure from the equity. You join an early stage startup because you likely want to eventually found your own startup in which you'll own > 50% of it. That's your shot at getting rich. The experience as an early stage employee just exposes you to the chaos and ups and downs of it all, and if it goes well then yeah ma…

This is exactly it. Your chances of getting rich off that 0.n% are about the same as the percentage itself. The odds are stacked against you and there is an element of luck to any startup, regardless of how good the idea and execution is. But being there during that ride is something else. The experience and connections you will make will carry over and accumulate in your next venture and the next, etc.

Re: Ask HN: How much equity should an early employee get?

#26

Post by ben-gy »

wikibob wrote: post #2

Have they raised a seed? If not at least a few to several percent. If yes maybe 1-3 percent. Profitable? Product market fit? Will the stock fit the requirements for Qualified Small Business Stock? This makes a huge tax difference. Early-excercise and 83(b)? Market rate salary or under market? Note market has 50% increased for startups the past year.

I don’t agree with this logic - I run a bootstrapped startup with 7 figure revenue and > 50% margin - we’re growing ~12% monthly - I have no intention of raising capital, but no way would it be appropriate for me to give away a few percent to a new employee just because i haven’t raised any money from investors

Re: Ask HN: How much equity should an early employee get?

#27

Post by mytailorisrich »

cam0 wrote: post #21

You don't (or shouldn't) join an early stage startup with the expectation that you'll get rich by any measure from the equity. You join an early stage startup because you likely want to eventually found your own startup in which you'll own > 50% of it. That's your shot at getting rich. The experience as an early stage employee just exposes you to the chaos and ups and downs of it all, and if it goes well then yeah ma…

Joining an early stage company is also a shot at advancing to senior roles very fast (or at all) compared to joining an established company.

Re: Ask HN: How much equity should an early employee get?

#29

Post by ironmagma »

cam0 wrote: post #21

You don't (or shouldn't) join an early stage startup with the expectation that you'll get rich by any measure from the equity. You join an early stage startup because you likely want to eventually found your own startup in which you'll own > 50% of it. That's your shot at getting rich. The experience as an early stage employee just exposes you to the chaos and ups and downs of it all, and if it goes well then yeah ma…

Since when do founders make 50% equity? Two co-founders, that's 100% already with no room left over for VC investors.

Re: Ask HN: How much equity should an early employee get?

#30

Post by airza »

cam0 wrote: post #21

You don't (or shouldn't) join an early stage startup with the expectation that you'll get rich by any measure from the equity. You join an early stage startup because you likely want to eventually found your own startup in which you'll own > 50% of it. That's your shot at getting rich. The experience as an early stage employee just exposes you to the chaos and ups and downs of it all, and if it goes well then yeah ma…

Man, i would not want to be paid less than market rate for the privilege of maybe getting an investment from my former boss and the experience of running a business and making someone else wildly rich.
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