How I negotiated my startup compensation (with numbers)

Wait, what? Firstly: She's engaged to the founder. Secondly: This is on the company blog (which indicates she might not be 100% forthright). (And what am I supposed to learn about Keen.io, here?)

Finally (and most importantly): Did she run the numbers about what that 1.25% might realistically be worth? She compared the offer to her current position and (without the equity) there's a ~$55,000 difference. That's a shit-ton! How much of an exit would Keen.io have to have in order for that to pay off if she's on a reduced income for, say, four years? She'd have to get a couple hundred grand off of that exit. Will her share of equity get her that?

Anyway. This isn't a negotiation. And she didn't fully run the numbers.

[Edit]

I also wrote up my experience negotiating with a start-up [http://auscillate.com/post/238]. I'm pretty naive about this stuff, but at least I attempted to answer some of the issues of the value of equity.

Everything I've seen has shown NYC is still slightly higher than SF. Do you have any sources other than this one guy's personal experience?

Some great advice I got when someone comes back to you and says "We'll give you 16,000 shares" is essentially to ask "shares of what?"

One of the best questions to ask is "What percentage of the total outstanding shares does this represent?" Since 16,000 shares could be out of 100K, 1M, etc.

I think Michelle's methodology here is great, except for the fact that she applied it without a goal number; in other words, she took the offer number and tried to "reconcile" it to the model. The mechanic of running your offer through a model to justify a counteroffer is a great one that more nerds should adopt, but she's missing an input: what does she want the model to say? Your goal as a prospective employee is to maximize the number.

The offer side of this post makes my head hurt though.

    70k with .5% equity or
    60k with 1% equity or
    50k with 1.5% equity or
    40k with 2% equity

This offer says that 1% of the company is worth $20k. The company is worth $2MM. Late note: this analysis is silly, see comments below.

Later:

    Inputs:
    -        Employee’s market salary 
    (I used my current salary, plus bonuses)
    -        Salary offered by the startup 
    (I used my offer, plus benefits like rent subsidy)
    -        Company’s valuation 
    (I used $5M, the cap for Keen’s seed note)

No, it's $2MM, the CEO just told you so, right?

Frankly, an offer with a .5%->2% spread between possible equity stakes is a red flag. Those are wildly different equity grants for the exact same role.

Also:

Our expected net worth after a few years in our existing management positions was, by any practical estimation, the most financially sound outcome – and a very good one, at that. Even if things went great at Keen, with a big Series A or early profitability, we’d probably make less.

What does "a big Series A" have to do with your long term financial outcome? The A-round money goes to the company, not to your family. How many companies with "institutional" VC rounds fail? Answer: most of them.

OP also mentions $12k worth of rent subsidy. Not bad, I think.

I believe there's an implicit "keep up with the Jones" factor here. Surely there are plenty of non-programmers living with less than $70k in San Francisco.

In Japanese companies, you need to get to senior level (implying at least team lead but more likely project manager) to earn $70k a year. And it's not like Tokyo is a cheap place to live. I told a Japanese coworker that in the US new grads get U$70k right out of the school and he thought that was crazy.