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Ask HN: How much equity should I ask for?

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Re: Ask HN: How much equity should I ask for?

#31

Post by kzhahou »

gesman wrote: post #7
d0m wrote: post #2

You ask £40k and 1.5%. What's the worst that can happen?

You: I want £40k and 1.5% Corp (in 1 week): "Thank you, but we cannot entertain your offer. We wish you all the best in your future endeavors". You: Ok, let's negotiate. Corp: "We've just filled in the position with suitable candidate. We'll keep your resume in our database for 6 months in case we might get openings down the road."

So people should not negotiate? Should not value themselves highly, because of severe risk that they'll lose every opportunity? I should hope not!

Re: Ask HN: How much equity should I ask for?

#32

Post by kzhahou »

glofishx wrote: post #6
d0m wrote: post #2

You ask £40k and 1.5%. What's the worst that can happen?

well the worst that can happen is that he does not get hired: no salary increase, no equity. And this is not even the worst that can happen. I have withdrawn (let them expire) offers from people that after receiving my first offer tried to strongarm ridiculous bonuses. The reason I have withdrawn the offer is that it made me clear that the person does not understand their worth to us - hence would likely be a trouble…

If someone doesn't want to negotiate at all, it's because they're trying to get the best of you.

That said, to negotiate effectively, both sides have to be willing to walk away. It's the fundamental premise.

Re: Ask HN: How much equity should I ask for?

#33

Post by mvc »

7Figures2Commas wrote: post #29
Catalyst4NaN wrote: post #18

Earlier quoted context omitted.

First thing on my todo list for Monday! :)

> You will find hiring managers that literally have no idea how or why your options could be worth anything, and it's worth knowing when you're dealing with them. Here's a different perspective for you to consider: most founders or hiring managers at early-stage startups don't have the ability to convince a reasonably skeptical person why the company's equity will ever be worth anything. It's basically a matter of fa…

> But ask yourself what you stand to gain or lose from taking negotiations down a path that will ask your employer to convince you that whatever equity it offers you could be worth something.

If you're going to be the head engineer in a startup, shouldn't you be having this conversation anyway as part of your job?

Re: Ask HN: How much equity should I ask for?

#34

Post by [deleted] »

7Figures2Commas wrote: post #29
Catalyst4NaN wrote: post #18

Earlier quoted context omitted.

First thing on my todo list for Monday! :)

> You will find hiring managers that literally have no idea how or why your options could be worth anything, and it's worth knowing when you're dealing with them. Here's a different perspective for you to consider: most founders or hiring managers at early-stage startups don't have the ability to convince a reasonably skeptical person why the company's equity will ever be worth anything. It's basically a matter of fa…

[deleted]

Re: Ask HN: How much equity should I ask for?

#35

Post by imaginenore »

tptacek wrote: post #9

Personally, I think negotiating for equity in terms of percentages is a mistake. The better way to do it is in terms of financial outcome. You make X dollars in salary every year. You model the equity as a lump-sum bonus paid after 4 years (divide the liquid value of the options by 4, mentally applying as a deferred bonus for each vesting year). To make that happen, you ask management for some outcome scenarios --- a…

But where did the $50MM figure come from?

Re: Ask HN: How much equity should I ask for?

#36

Post by [deleted] »

7Figures2Commas wrote: post #23
tptacek wrote: post #9

Personally, I think negotiating for equity in terms of percentages is a mistake. The better way to do it is in terms of financial outcome. You make X dollars in salary every year. You model the equity as a lump-sum bonus paid after 4 years (divide the liquid value of the options by 4, mentally applying as a deferred bonus for each vesting year). To make that happen, you ask management for some outcome scenarios --- a…

The intention of the process you outlined is good, but the process itself is flawed and highlights the pitfalls of trying to value equity at early-stage startups. First, very few startups can accurately tell you "If we're acquired for $50MM, your options would be worth $Y." Heck, for fun, ask a founder of a typical angel or venture-backed startup how many shares it has outstanding fully-diluted . If tons of startups…

[deleted]

Re: Ask HN: How much equity should I ask for?

#37

Post by puppetmaster3 »

brudgers wrote: post #30

Practically speaking non-controlling non-preferred equity of a private company is worth only whatever value those higher up the food chain assign it out of goodwill. Controlling interests can structure liquidation largely however they want...e.g. they can sell to themselves at a nominal price or they can sell their stock into a round and buy a Ferrari. Hollywood accounting happens outside of Hollywood. There's nothin…

Perfect response. What brudgers said is if you don't have control or preferred w/ anti dilution their commitment is minimal.

Common 5% in Q1 can be any number less than that in Q2.

Re: Ask HN: How much equity should I ask for?

#38

Post by tptacek »

7Figures2Commas wrote: post #23
tptacek wrote: post #9

Personally, I think negotiating for equity in terms of percentages is a mistake. The better way to do it is in terms of financial outcome. You make X dollars in salary every year. You model the equity as a lump-sum bonus paid after 4 years (divide the liquid value of the options by 4, mentally applying as a deferred bonus for each vesting year). To make that happen, you ask management for some outcome scenarios --- a…

The intention of the process you outlined is good, but the process itself is flawed and highlights the pitfalls of trying to value equity at early-stage startups. First, very few startups can accurately tell you "If we're acquired for $50MM, your options would be worth $Y." Heck, for fun, ask a founder of a typical angel or venture-backed startup how many shares it has outstanding fully-diluted . If tons of startups…

try this: ask for $50 to $100 worth of equity for every $1 of salary offset

You take that number from their last valuation?

Re: Ask HN: How much equity should I ask for?

#39

Post by tptacek »

imaginenore wrote: post #35
tptacek wrote: post #9

Personally, I think negotiating for equity in terms of percentages is a mistake. The better way to do it is in terms of financial outcome. You make X dollars in salary every year. You model the equity as a lump-sum bonus paid after 4 years (divide the liquid value of the options by 4, mentally applying as a deferred bonus for each vesting year). To make that happen, you ask management for some outcome scenarios --- a…

But where did the $50MM figure come from?

It's an arbitrary number, but so will the real estimate; what I think the important exercise is: take the arbitrary "real" estimate and have them back it out to what multiple of their projected sales that's meant to be.

As the other commenter points out: it's very difficult to gauge how valuable a share in a private startup is going to be worth. I think it's a lot less hard to reason about how much revenue the company is going to make.

That doesn't directly solve the valuation question --- the multiple on revenue is going to vary wildly from 3x to 100x --- but at least you get an idea of what they think their business plan is; and, if they're hoping for a 50x valuation, or they think they're going to be doing $1bn top-line in 2 years, then at least you know they're being crazy optimistic.

Re: Ask HN: How much equity should I ask for?

#40

Post by arethuza »

walshemj wrote: post #25

oh one thing no one has mentioned as this is the UK - is this a HMRC approved scheme or not - might have tax implications.

^^^^^^^^^^^^^^^^^^^^^

Really sensible comment - you need to understand whether it is an approved options scheme or not (assuming you are in the UK).

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