

Founder salaries after an acquisition: how much?  - os111

Early-stage acquisitions usually involve an employment agreement for the founders.<p>I think the offer I was presented is below market value, but when coupled with the purchase price it seems like a moot point.<p>Should I put up a fight? Does the acquiring company have the right to discount my salary because they're already paying for the company?
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CRASCH
It really depends on the state of the company and potential earn outs, etc. So
it is completely dependent on the situation.

I have personally taken less than market value. I would never do that again. I
would suggest that a founders value is much higher to the acquiring company
than it is to the market. Hence a higher market value. On the other hand you
are worth what you negotiate. Their job is to negotiate the best deal for
themselves.

Make sure that there are escape clauses if your liquidity depends on a
promised liquidity event. Mine has not happened yet and may never happen. Also
if earn outs depend on anything outside of your control make sure that if
those events don't happen your earn out goals are adjusted accordingly. We
missed an earn out by less than 10% . The acquiring company did not sign deals
they committed to signing that would have facilitated at least 30% toward the
earn out. Ouch.

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Flemlord
I agree. I've taken a salary significantly less than market value after an
acquisition and would never do it again. I actually think it caused other
people at the company who weren't involved in the deal to discount my ongoing
contribution. Whether that was true or not, you should always be paid what you
are worth.

On earn-out, I've never seen a company actually hit their earn-out numbers.
IMHO, they're usually set up to get the management or shareholders to accept a
smaller valuation than they would otherwise. And the earn-out numbers are
usually based on the best-case scenarios being presented by the company being
acquired. ;) The scenarios were somewhat unrealistic, especially considering
the major disruption of going through an acquisition, and possibly increased
levels of big-company-bullshit it may take to get sales closed. In some cases,
the fictional earnout values were obvious face saving measures for executives
and the board.

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nimrod
I was the CTO of a company that was recently acquired. Before the acquisition
I was being paid less that a Sr. developer should (my primary role), and way
less than a CTO should be.

Post acquisition I was given a raise to above what a Sr. dev. would make, but
less than a CTO. Coupled with the acquisition price, I'm very happy, and my
stress level is lower.

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SwellJoe
Rather than "fight", I think I'd humbly suggest something more in line with
market rates, and if that fails, become much more aggressive on the escape
clauses, and shortening the vesting schedule dramatically...they might even do
the math and realize you plan to leave as soon as possible if they don't value
you as an employee post-acquisition. Of course, if the acquisition makes you
rich, by your definition of rich, and not just on paper in the form of options
in another startup or slow-growing established company, I wouldn't worry too
much about compensation.

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huhtenberg
These are two questions really - is discounting the salary in your situation
normal ? and should you do something about it ?

The answer to the first question is a "no". Slightly below market average is
OK, but taking, say, a 20% hit is not.

Whether to fuss or not really depends on how much you are getting out of the
actual acquisition. Just do the math. Assume you are going to stay with an
acquirer for 2 years, add up what you will not be getting in salary and
compare that to what you get from the deal.

All in all though .. this sort of an attitude is _unhealthy_ and you should
not endorse it. There could be two reasons for it:

# they think they are making you a favor

# the deal is so marginally beneficial for them, that the size of the salary
makes a difference

In either case, I would be prepared for further surprises.

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secorp
The acquisitions I've seen typically have the following components to the
compensation package to negotiate before closing:

* Salary (should be market for your new skills and position)

* Retention bonus (usually paid out over 1-2 years)

* Conversion of equity (either to cash or to new stock)

The above depend a bit upon the acquiring company. If you are acquired by a
large public company, then you should expect a competitive salary, reasonable
bonus to keep you around, and some combination of cash-out and new stock to
keep you strategically aligned. If you are acquired by another smaller company
then your salary may be lower (but fair for that size of company), bonus may
be given in stock, and your equity package is probably pretty flexible
depending upon how long they want to you to stay.

As a founder, I took $1/yr salary with the expectation that I'd get a market
rates when we secured funding. As an acquisition I negotiated what I thought
were fair market rates for salary and stock in the new company with a bonus to
keep me happy to stay. When acquiring companies we would offer competitive
salaries, retention bonuses (stock, cash, or both) for people we wanted/needed
to keep around, and stock conversion (we were public by that point).

In your specific case, I believe that your salary should be market rate for
your skills and your new position. The acquisition price is independent of
your salary and should be treated as such.

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delano
CRASCH and Flemlord made some great points. I'll also add:

The paying price for your company and your post-transaction salary are
separate issues. You wouldn't agree to be acquired for less than you feel your
company is worth so why agree to become an employee for less than you feel
you're worth.

And don't discount the other kinds of value a larger company can provide.
Different positions, your working schedule (4 day week?), company car, etc...
Now is the time to ask for what you want.

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webwright
What's your position after the acquisition? CEO? Lead Developer? Founders
shouldn't get too much special consideration-- they should be paid a fair rate
for the position they'll be filling.

Presumably the extra consideration for your startup is baked into the
cash/stock part of the deal.

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sabat
No special consideration for founders?

Why would they stay?

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anamax
The importance of "stay" is in the context of the acquiring company, not the
acquired one.

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sabat
If an acquiring company treats founding employees the same way it treats the
other acquired employees, the founders are likely to run for the door the
moment they legally can. Maybe that's OK as far as the acquiring company is
concerned. Maybe not.

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pistoriusp
No, they should be paying you more to make sure you stay... That's if they
really want you to stay.

Steve Jobs earns $1 a year though...

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sabat
_Steve Jobs earns $1 a year though_

Well, yeah, but god knows what he makes in bonuses, and his stock options are
out of control. Not to mention the stock he owns, and its rising value (the
past month notwithstanding).

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admoin
There are also tax reasons to heavily overweight his compensation in stock
options. See IRC § 162(m)

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eru
Yes, tax may be the only reason to go for a lower salary / higher aquisition
combo.

