
Ask HN: How much equity should I ask for? - Catalyst4NaN
I&#x27;m not particularly  motivated by money but this feels like something I should ensure that I&#x27;m doing myself justice.<p>I dropped out of University after first year and took pretty much the first job I liked the sound of that would pay me to code. It&#x27;s been a great year and I wouldn&#x27;t trade it for the world. I was the first technical hire at the company working with an external agency. Fast forward 10-12 months, I&#x27;m now an experienced Junior Dev. I&#x27;m currently working for £18k p&#x2F;a. I&#x27;ve been interviewing at a couple of other companies and have had been quoted £26-32k and with a hard offer of £28k.<p>We&#x27;re about to go for a funding round with a valuation of ~£7m. My bosses have informally agreed to better the £28k offer. I really like the idea of a minor equity stake. I was thinking somewhere between 0.125% and 1%. This feels like a big range. I don&#x27;t want to come off like I don&#x27;t understand the value of the potential equity stake.<p>After the funding i&#x27;ll (hypothetically anyways) be working under an experienced CTO (new hire) with a quite substantial amount of responsibility.<p>I really appreciate any advice HN :)
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tptacek
Personally, I think negotiating for equity in terms of percentages is a
mistake. The better way to do it is in terms of financial outcome.

You make X dollars in salary every year. You model the equity as a lump-sum
bonus paid after 4 years (divide the liquid value of the options by 4,
mentally applying as a deferred bonus for each vesting year).

To make that happen, you ask management for some outcome scenarios --- a
"low", "medium", and "high" outcome, for instance --- that values the grant
you're getting.

ie: "If we're acquired for $50MM, your options would be worth $Y". You make
$X/yr, so, if the company is acquired, you'd effectively have made
$X+($Y/4)/yr. Are you happy with that number? Then agree.

To dig into the low/med/high scenario, two helpful anchor numbers: first, the
company's valuation at its last round (if the medium option 20x's valuation,
that's, you know, worth knowing), and second (and I think more important) the
multiple of trailing revenue that represents. In other words: in the "medium"
outcome, how much revenue do your employers propose the company to have done
in the preceding year, and what multiple does that imply for the valuation?

These are easy numbers to get your head around, implicitly capture the
percentage of the company you're getting without making that the terrain
you're negotiating over, and (most importantly) forces your employer to be
clear about where the numbers are coming from and how the business will
actually work.

The other way to do this is just to value equity at $0.

~~~
7Figures2Commas
The intention of the process you outlined is good, but the process itself is
flawed and highlights the pitfalls of trying to value equity at early-stage
startups.

First, very few startups can accurately tell you "If we're acquired for $50MM,
your options would be worth $Y." Heck, for fun, ask a founder of a typical
angel or venture-backed startup how many shares it has outstanding _fully-
diluted_.

If tons of startups struggle to describe what their capital structure looks
like _today_ , why should prospective employees rely on them to make estimates
based on what their capital structure will look like months or years from now?
Dilution, liquidation preferences, the option pool, acceleration terms.
There's so much that can't be predicted or controlled, so asking a company to
come up with exit scenarios for specific employees is like asking a blind man
to read tea leaves.

> The other way to do this is just to value equity at $0.

At most early-stage startups, this is the correct approach to dealing with
equity. There are very good reasons most vested employee options are never
exercised.

This doesn't mean that the OP shouldn't ask for some equity, but focusing
negotiations around basis points of equity and trying to assign a future
dollar amount to equity is generally a bad idea for the average employee
because it opens the door for treating equity as a 1:1 (or close to 1:1)
substitute for salary, which at early-stage startups it is not.

If an early-stage startup wants to offset your cash salary with equity, try
this: ask for $50 to $100 worth of equity for every $1 of salary offset. How
the company responds will likely tell you a lot more about its future than if
you ask what it guesses 1 option will be worth 4 years from now.

~~~
tptacek
_try this: ask for $50 to $100 worth of equity for every $1 of salary offset_

You take that number from their last valuation?

~~~
7Figures2Commas
Of course. In the US you can't get around 409A.

As a prospective employee, if you fundamentally believe that the company's
latest 409A valuation is already too rich and equity is important to you,
don't join the company.

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brudgers
Practically speaking non-controlling non-preferred equity of a private company
is worth only whatever value those higher up the food chain assign it out of
goodwill. Controlling interests can structure liquidation largely however they
want...e.g. they can sell to themselves at a nominal price or they can sell
their stock into a round and buy a Ferrari. Hollywood accounting happens
outside of Hollywood.

There's nothing to be gained by forcing your way into equity unless you are
funding. You're not and recognition that there are sound business reasons for
a negative response to a request for equity is not a sign of lacking
sophistication.

If it's on the table take it. If it's not figuring out the business reasons
why is immensely valuable.

Good luck.

~~~
puppetmaster3
Perfect response. What brudgers said is if you don't have control or preferred
w/ anti dilution their commitment is minimal.

Common 5% in Q1 can be any number less than that in Q2.

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shubb
How much of the value of the company is tied up in it's technology?

Your leverage at the moment is, if you decided to get another job, you would
walk away taking all knowledge of the current system with you. Imagine you
quit, and something went wrong the next day - how long would it take them to
fix it?

I think your boss did you a huge favor, taking a risk on you this first year.
Now you are no longer an unproved dropout, he owes you a real wage. Keep both
of those in mind.

~~~
Catalyst4NaN
I don't think I can quickly evaluate that. I would say it's less technical
than a traditional tech company but still closer to that than say an eCommerce
store.

> I think your boss did you a huge favor, taking a risk on you this first
> year. Now you are no longer an unproved dropout, he owes you a real wage.
> Keep both of those in mind.

This is exactly the lines I'm thinking of. I've been lucky enough to gain the
sort of experience that puts me on the same playing field (at least in the
view of employers) as my a grad.

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greenyoda
Lots of people advise job hunters to be skeptical of counter-offers. For
example:

[http://corcodilos.com/blog/7874/should-i-take-a-big-
counter-...](http://corcodilos.com/blog/7874/should-i-take-a-big-counter-
offer)

The job offers you got suggest that your current employer has been happily
underpaying you by 50% of your market value.

Also, you're comparing a "hard offer of £28k" with " _informally agreed_ to
better the £28k offer". Don't turn down the hard offer until you've gotten a
real commitment. And you'd need to get that commitment before the £28k offer
expires.

~~~
Catalyst4NaN
It's true that it seems like I'm being underpaid - I wouldn't say they're
happily doing so. We're a young start-up struggling for cash and to make ends
meet. Hopefully the funding round will alleviate that to a degree.

Also thanks for the link. I hadn't thought of it like that.

From my perspective, £18k (and indeed £28k) is a lot of money. I'm 19 and I'm
getting paid to code, I know it's naive but I think it's awesome. I love the
people I work for/with and I love my job. I come across adults who haven't had
that their entire career.

Edit: Just to follow up on the counter offer. The process of raising this
round of funding has been such a whirlwind. I don't think there is anything
untoward going on. I think a case of Hanlon's Razor:
[http://en.wikipedia.org/wiki/Hanlon%27s_razor](http://en.wikipedia.org/wiki/Hanlon%27s_razor)

~~~
deanclatworthy
It's brilliant you are getting this experience at such a young age. It'll be
absolutely invaluable when job hunting in the future. Many CS graduates come
out of university in the UK ill-prepared to enter the job market and end up
taking underpaid junior roles.

But 18k doesn't sound far off the salary I'd expect an inexperienced junior
dev to make. Things that might get you a higher salary for this kind of role
are a degree or prior experience. If you have prior working experience (even
freelance) then you probably are getting a little too low.

~~~
walshemj
18k sounds low for a grad starting that's only 5k less than the minimum wage.

Around 26k would be nearer the mark for a starting grad with no experience.

~~~
deanclatworthy
He isn't a graduate though. He is a junior developer who dropped out of
university after a year.

~~~
walshemj
Its the rate for the Job what does a graduate certificate matter the UK isn't
as fixated as some country's on credentials.

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troels
A lot of the comments here tells you not to get taken advantage of
(financially) and how to maximise your worth etc. I don't think that's wrong
per se, but I also think that may be better advise for someone a bit further
in their career than you are. Where you are, I would say you should maximise
for learning. That means getting to work with experienced people who are
willing to teach you. By all means, make sure you get a fair salary, but make
it a secondary priority when deciding what to do.

Regarding equity - Certainly ask for some amount of equity. That could never
reflect bad on you as it signals a commitment to the company on your end. Keep
in mind though that equity is a fairly long-term view. At 19, a 4-year vesting
is eons away. There's a good chance you'll never turn those options into
anything material.

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d0m
You ask £40k and 1.5%. What's the worst that can happen?

~~~
glofishx
well the worst that can happen is that he does not get hired: no salary
increase, no equity.

And this is not even the worst that can happen. I have withdrawn (let them
expire) offers from people that after receiving my first offer tried to
strongarm ridiculous bonuses. The reason I have withdrawn the offer is that it
made me clear that the person does not understand their worth to us - hence
would likely be a trouble later on. I did not negotiate and just let the
deadline stand.

I am tired of all these advices that make it sound as if asking excessive
bonuses and money does not give off bad impressions. It actually does.

~~~
chimeracoder
> The reason I have withdrawn the offer is that it made me clear that the
> person does not understand their worth to us - hence would likely be a
> trouble later on.

Or just doesn't have much experience with (salary) negotiation, which, for
most roles that aren't sales or HR, isn't necessarily a problem. The people
who do this for a living (employers, recruiters, etc.) are always going to
know the rules and the social norms better than the ones that don't (most
employees).

I don't really know what you mean by "ridiculous" in that situation, so it's
hard to draw any conclusions, but I will say that most good engineers are
pretty bad at negotiation skills, and IMHO withdrawing an offer is quite an
extreme move.

~~~
glofishx
Let me add to all this that we first did an informal negotiation with the
prospective employee with a quite lengthy back and forth that led us to put
those terms in writing.

But only when he had the official letter did it occur to him to ask for a
larger office (it is not possible as he should have seen during the visit,
travel funds (???), extra time off and more salary. It was extremely annoying.

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lordnacho
1% is £70K, albeit illiquid that still sounds like a lot of money. If they
better your £28K salary it looks like £100K (of course salary is real and
ongoing whereas equity is a single NPV). Is there a vesting schedule?

I'd say you need to think about how much you like working there, and your
chances of finding something better. The market does seem pretty buoyant,
could be well worth it to talk to more people.

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MrTortoise
28k outside of london is good. If they are getting funding then they are
probably also scaling up, you want to get on the leading edge of that if you
can. Career wise that might be worth more than equity.

Equity is a double edged sword, sure you get extra value but you are also tied
to the company. When things are going great you don't want to leave and when
things do sour then you cant because you just lost money and may feel a moral
pressure.

28k is also a good figure as it will springboard you into all kinds of other
job roles (because recruiters only look at previous salary). my salary jumps
were similar in the beginning.

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walshemj
oh one thing no one has mentioned as this is the UK - is this a HMRC approved
scheme or not - might have tax implications.

~~~
arethuza
^^^^^^^^^^^^^^^^^^^^^

Really sensible comment - you need to understand whether it is an approved
options scheme or not (assuming you are in the UK).

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auganov
How many employees do they have? The less the more likely you are to negotiate
a good stake. I don't think it really makes sense to apply financial
calculations at this stage. You might be underestimating the amount of equity
you can get.

What I'd do is keep the table open - make them hire/pay you for a month or
two, then negotiate. You can probably get way more if you develop a good
relationship.

EDIT:sorry, sounds like you already work there

If they're <=5 people don't be afraid to say 5 or even 10%.

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djloche
Ask for £35k from the existing company. Leave the discussion of equity out.

