

Ask HN: What's an appropriate multiplier for stock-as-salary w/ sm biz/startup? - anorak

Before you give the smart response "Get it in writing beforehand," I've learned that lesson. Now I need to decide how to move forward.<p>I was asked to sign on "full-time" with a small business (startup?) that's been around for a few years. The deal was that I'd be paid a small fee on a per-job basis (basically a deployment to a remote job site) so that I could pay bills, while growing the company. I was also to be compensated in the form of stock. (Privately held company) I had recently lost my full-time job and had enough safety pad to take the risk, so I jumped in.<p>I now know I shouldn't have been so optimistic as to enter the situation believing that I'd be taken care of, and instead should have gotten things in writing before I started the work. Hindsight is 20/20. I spoke with the owner of the company about stock compensation and was asked to make a request to them in terms of how much stock I should receive at the end of the year.<p>I thought it would be appropriate (having committed a year or so of my life to growing, improving, and developing for this company) to receive stock at a multiplier level (that is to say, not 1:1, but more like 2:1). So I submitted a stock plan of 2x - 3x of the standard American salary ($40,000/yr) for my yearly compensation in stock, to be awarded at the end of the fiscal year.<p>The owners were mortified that I'd make such a request, and without responding with a "no," made sure I knew that I wouldn't be getting my request. On the advice of a trusted business friend, I'm seeking out what is an appropriate multiplier to use in stock compensation of work performed, based on my situation.<p>Last bit of information/details: I've literally lived the job for almost a year now. Traveling, residence, 60-80 hr work weeks, sometimes done in four days; doing marketing, developing, sales, ... as though I were the boot-strapping founder of the company. The company is privately held, and I would be diluting the stock of others by whatever I am awarded - but I would be getting less than 5% of total shares if I were to receive my original request. If income continues at its current rate (which it will at this company), I will have made less than $20k of taxable income.
======
trevelyan
I'm a single founder and disagree with the other posts here that this is
unsalvageable. But first things first, remember that it isn't odd for
employees to own around 10% of the business IN AGGREGATE after dilution with
senior non-founders taking up to 2%. Double that number if there are no
outside investors, and do the math based on whatever your company is worth.
Then divide by four to factor in vesting....

If those numbers don't make you happy, the problem is that your company isn't
valued at the speculative 5-10 million that would make what you are asking for
reasonable. Assuming the business makes 100k a year, we can guesstimate you
want at least 10% of the value of the company for a single year's work. That
might be fair or it might not be, but it's clearly disproportionate given the
time and risk the others have already put in.

Where does this leave you? In my opinion as a business owner, the best way to
get around this is NOT to haggle over the valuation of the company because you
have no control over it and neither do your partners. By all means throw the
ball in their court and see what they offer, but whatever they come back with
remember that you can probably do better by linking your ownership to growth
and the amount of new revenue you drive. This will be easier for them to agree
to since they'll only give up more ownership if the company performs better
thanks to your work. And assuming your work makes the company money - you will
be able to push your stake in the business much higher than you would get
otherwise as an employee, possibly even up to founder levels.

~~~
anorak
Thanks for your hard numbers; they're enlightening to a worker-bee like
myself. A few questions: "Double that number if there are no outside
investors" - do you mean double the 10%, or double the 2%? (I'd like to pursue
this vein so I can relate to the owner's perspective.) How do you recommend
calculating what the company is worth? Assets and revenue? (Company is still
trying to turn a year in the black.)

So you'd suggest that I propose a stock package based on growth of the company
over a certain period? Say maybe, over the next six months (if I stay with the
company), what the increased revenue is? [Or would you recommend doing that in
retrospect over the last six months - to say "a growth of X makes it
reasonable for a compensation of Y"?]

~~~
trevelyan
If there aren't outside investors and no-one is getting diluted the 5% you
mention in your write-up is reasonable since there is usually around a 20%
total allotment to employees. All I meant otherwise is that from the owner's
perspective it can be psychologically difficult to give significant equity to
a new hire if you've been running the business for several years. It is always
easier to agree to something generous if it is funded out of growth and
conditional on business improving generally, so arguing for conditional
options or whatever based on performance can be a good way to align interests.

------
dreamux
You don't need an estimate of an appropriate equity stake, what you need is
leverage. Even if you asked for a single share tomorrow, it doesn't sound like
they have any reason to give it to you. Find the places where the bus factor
is low (a specific technology that only you hack on, something falling apart
that only you can fix, etc.) and point out that the costs to keep you (in your
example ~80-120k in equity) far outweigh the downside they'd be exposed to if
you left. Basically, find out how much value you create, get leverage by
showing them that you're a pivotal part of the business, and then approach
them with an offer that balances the two.

~~~
anorak
Hm, thanks for the good perspective; I have some significant leverage, as the
founders don't want to do the work any more and that's one of the reasons they
enlisted my help. As one with integrity, I feel it appropriate to hand-off
what I've developed gracefully, and so documentation has been a big part of
what I've done. I'll definitely look at the leverage side though, thanks for
the thoughts!

------
brudgers
The appropriate multiplier is zero, because in this case it is time to leave
and move on - there is no repairing the rift in the relationship; both sides
see the other's position as outrageous and assess your role completely
differently (hired help on the one hand and cofounder on the other). Finally,
there is a significant difference between a small business and a startup when
it comes to how closely the owners expect to hold the company (as you have
discovered.)

Hindsight is the right word, because it's time to put this in the past.

Good luck.

------
rdouble
Stock in a small business like this is worthless. If you are truly making less
than $20K/yr you need to move on. You can make more with better benefits at
Starbucks.

