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Ask YC: Help in negotiating my stake in a start-up
21–30 of 31 posts
Re: Ask YC: Help in negotiating my stake in a start-up
#22Earlier quoted context omitted.
I started my company 1 year ago. I haven't found any clients and haven't built a product, but I've traveled around the country talking to potenatial customers. Want to come work for me with no salary for the next 2 years in exchange for a 4% stake?
I understand your point here, but this situation appears to be a bit different. - VC money and some salary is on the way shortly http://news.ycombinator.com/item?id=178290 - The idea seems to have matured and people want it. Sounds like a good deal to me.
VC money and salary is on the way in 2 to 3 years (according to the initial post). And having an idea of something customers want is good, but without a product it's still a huge risk.
Re: Ask YC: Help in negotiating my stake in a start-up
#234% non-dilutable (if it really is so) and 8% dilutable may not be so different if there may be more rounds. And 8% is a LOT if they have cumulatively invested 4.5 man-years and you have invested none so far. If they give large percentages to every new person, the math doesn't add up and they'd have little left at the end.
There is a solution to giving large percentages to every new person: pay them a salary, even if below market. If you're paying someone with equity only you're asking them to assume all the risk of the company failing, which is fine, but you'll need to compensate them for that risk in addition to compensating them for the work they will put in.
Re: Ask YC: Help in negotiating my stake in a start-up
#24It comes down to an investment decision. Do you want to invest 2 years worth of salary into a company without a product in exchange for 4%? You're basically giving the company a yearly salary x 50 valuation. Pretend you're an angel investor and think about whether or not this is a good investment.
Re: Ask YC: Help in negotiating my stake in a start-up
#25Earlier quoted context omitted.
What do you mean by "operating"? You could well be right but there is no hackin or anything going on here, its more the founders going round looking for customers and creating relationships with strategic partners etc. There are no contracts signed yet, no shareholders invested yet. Don't get me wrong, I am not trying to discount in anyway what they have done, I am just trying to get to a situation where I can unders…
18 months of 50% effort at no salary = 9 months full time no salary. Why do you think a 21% gap is too high for that? Again: 4% is a very large share for an employee. When the company comes to its senses, nobody else is going to get anything even in that neighborhood.
4% isn't in any way an unreasonable share for a first or second hire, especially when they're asking you to take no salary.
Re: Ask YC: Help in negotiating my stake in a start-up
#26[deleted]
Re: Ask YC: Help in negotiating my stake in a start-up
#27As the 5th member that's pretty low. Last year I was offered 1.5% and would have been the 12th employee at a company that had been around just under a year, the only reason I didn't take it was the salary was too low to live any kind of half-enjoyable life. Now of course the company has about 35 employees and they seem to be doing well, although they're in a saturated market and I can't imagine them fairing very well in an economic depression. At this point I'll only kick myself if they get acquired and my 1.5% is suddenly worth upper 6 to low 7 figures.
If you're to be the 5th and crucial member, I'd fight for more or don't bother. The fact is most startups don't get acquired and you aren't going to get rewarded for your 80 hour weeks and below market salary - but you will have learned a lot and you'll probably have less hair.
Re: Ask YC: Help in negotiating my stake in a start-up
#28| my stake will be protected from dilution at all stages. So you are being given preferred stock? That's the only stock that I can think of that would prevent dilution during later stages. I find it difficult to believe that a smart startup company that would give out preferred stock to employees. I also can't imagine VCs/angels who would invest in a company that had just given preferred stock to a "Legal and complia…
Thanks for this. We're still in early discussions. No it wouldn't be preferred stock, just ordinary. They seem to be proposing that a shareholders agreement will contract for my stake to be protected, but, as you know, a VC will restructure all the shareholders if it wants to, so that doesn't work. My calculations are based around a sale value of around £50million to £90million in about 5 years which at 2% would make…
I don't think you can make that assumption unless you have preferred stock.
Re: Ask YC: Help in negotiating my stake in a start-up
#29My feeling would be that 2-4% plus a market rate salary would be about right post the first VC funding round. Ahead of that, then the offer feels too low - particularly as you are effectively investing your salary on a monthly basis. One mechanism you could apply - take your personal valuation of the current worth of the business IP and divide it by your notional annual salary for the next couple of years. What perce…
2-4% and a market rate salary after a VC funding round is about market rate for an experienced executive, eg someone brought in to be a VP of Engineering.
Re: Ask YC: Help in negotiating my stake in a start-up
#30Earlier quoted context omitted.
18 months of 50% effort at no salary = 9 months full time no salary. Why do you think a 21% gap is too high for that? Again: 4% is a very large share for an employee. When the company comes to its senses, nobody else is going to get anything even in that neighborhood.
4% isn't in any way an unreasonable share for a first or second hire, especially when they're asking you to take no salary.
I agree, it's not unreasonable. Just high.