

Employee Equity - How Much? - brlewis
http://www.avc.com/a_vc/2010/11/employee-equity-how-much.html

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shalmanese
There's a bit of fuzzy math going on here. The equity formula is measured in
terms of annual salary but stock actually vests over 4 years. So for the
senior team member, they're actually getting 12.5% of their salary in stock
every year.

If you assume the fabled 10X exit, the home run exit which makes the portfolio
for investors, then that means the senior exec basically gets about double his
salary as a reward for the exit (taking into account further dilution). For a
"key function", a 10X exit represents a 20% bonus.

These numbers seem pretty underwhelming to me.

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mmt
_These numbers seem pretty underwhelming to me._

To me, as well, which is why I insist on a fair salary and consider the equity
portion as pro-forma icing on the cake.

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kkowalczyk
The formula doesn't address a (common?) case: people joining an early stage
startup sometimes (often?) accept lower pay than they could get somewhere else
in exchange for equity.

Given that the formula for number of shares is based on annual salary, you're
double-screwed in that case: not only you get paid less but you also get less
shares because of that.

Or am I mistaken in my assumption that early stage startups pay less than
stable, successful companies like Google, Yahoo or Cisco and attract people
mainly with a promise of shares that some day might be worth a lot?

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jdp23
It's a great point that the approach you take for the first few key hires is
different from the longer-term approach. With my 1990s vc-funded startup
Intrinsa, we took a similar approach: looking at percentages for the first
handful of employees during our seed funding, and then in terms of estimated
value of the equity once we closed a multi-million dollar funding round.

Thinking of it in terms of "brackets" as Fred does also makes it easy to
explain to new and current employees, so creates a feeling of fairness across
the different organizations as things scale.

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anamax
Is anyone else bothered by the idea that the VP of HR and the general counsel
get so much equity?

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jdp23
Not at all. These are senior-level positions and you need to get good people
there. If you value them less than other positions, you'll get second-class
hires -- which will cause huge problems going forward.

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anamax
They're not getting that kind of equity upside from not-startups.

Note that you are valuing them more than folks who are actually producing the
first version of the product. Do you really think that the VP of HR is more
essential than a lead engineer?

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jdp23
yes, once you get to a certain size (or for corporate counsel, start doing big
or complex deals)

and the best corporate counsels and HR people get very good compensation from
not-startups.

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anamax
> yes, once you get to a certain size (or for corporate counsel, start doing
> big or complex deals)

> and the best corporate counsels and HR people get very good compensation
> from not-startups

We're talking about startups....

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jdp23
Fred's talking about startups that take venture funding, who frequently do
grow to this level.

