
How much equity should I get as the first employee? - hangryhippo
Hi guys!
Needed some equity advice. I am moving to a sister firm, which is a design tech start-up incorporated 2 months back, with two founders(CEO, non-technical and CTO, technical) and me as the first and only current employee. The shell prototype has been developed by CTO over 2 years (Concept Dev and UI). I worked extensively over the last 5 months and contributed significantly to major milestones, through which we gained significant traction with client&#x2F; VC interest. The company is still at pre-seed funding, with some money coming in from the CTO&#x27;s family.<p>I am now formally migrating to this firm and negotiating equity. My skillset is kind of a rare find - I have a Masters in Architecture, I can code very well and am good at Math, three skills crucial to develop the core tech, for which there is a lot to do. I have good work ethics and am very reliable, something the founders are familiar with.<p>Given my formal education in Architecture but my job scope as an amalgam of coding and architecture, I am unable to pinpoint a base salary (coders obviously get paid higher, coders with archi background should get more?). I am also unsure how much equity I should be vying for. I am being offered 1%, which I think is rather low. Any advice will be greatly appreciated!
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simonebrunozzi
I suggest you change the title to "Ask HN: How much..."

In terms of your question, there is not an exact % but rather a quite large
window. I would consider these two things heavily:

> I worked extensively over the last 5 months and contributed significantly to
> major milestones

> My skillset is kind of a rare find

Those two things in my mind position you as a quasi-co-founder, and them
offering you a 1% is a warning sign for me - meaning they might not value your
contribution as much as they should.

Not having any other detail, I would suggest you to ask for a 6-8% equity, but
I would also ask myself: why can't I be a third co-founder? What did they do
that prevents this option in the first place?

~~~
hangryhippo
I think they would want me to chip in some money, which I don't have
(graduated last year) or work with no salary, which I also can't due to
student loans and being a foreigner (rent)

~~~
quickthrower2
Ask anyway. Be prepared to walk, to give you more negotiating power. You don’t
have to threaten to leave but having other option will make you stronger.
Don’t worry about offending, coming across too greedy etc. be greedy! Ask for
a lot and say you need a salary and you are not in a position to invest your
own money.

------
smush
According to [1] 1-2% is common but IMO too low. Ask for 5%, settle for 3+%

[1]
[https://news.ycombinator.com/item?id=973060](https://news.ycombinator.com/item?id=973060)

~~~
hangryhippo
Thanks! Is there any math I could apply to arrive at that number? Also, since
there is so much development left to be done, could I be treated as a co-
founder instead that takes salary?

~~~
smush
There probably is some certain math, but I don't personally know it. I will
say you will be functionally a third cofounder so if your negotation skills
are up to snuff then yes you can angle for that. 2nd employee certainly cannot
argue for that like you can. Might as well. At the very least take 5% since
that is what a bunch of early executives will want and they will be likely
building less of the actual tech stack than you.

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segmondy
0%-99.9% There's no magic number. If you're getting paid fair or more than
fair wage why should you get anything? Let's imagine the going range at your
location is $50/hr for a developer. You're getting paid $60 or $75/hr why
should you get any equity? On the other hand, if you're getting paid $10/hr
when it's $50/hr or even asked to work for free. Well, could be from 0%-99.9%
How much can you negotiate for?

~~~
sloaken
great point. The details he left out was how much salary is he currently
receiving. If the others are not pulling a salary because there is no money
coming in, or have not pulled a salary from this for 5 months, but he has,
then he is an employee.

~~~
hangryhippo
Hello, my current salary is way below market rate for this type of a job -
market rate would be 6k+, I drew 3.3k for the last 5 months

~~~
sloaken
IMHO I think your best next step is to make your resume current and look for
another job. There is nothing like seeing an employee being desired by another
company to motivate your current employer to treat you better. In todays
economy that should be easy to do. Be sure you have well defined what would
make you stay or go. Make it quantifiable numbers, like in a spreadsheet.

------
jiveturkey
Suggestions of 10% here are ludicrous. You won't get that. And you're not a
founder.

> I worked extensively over the last 5 months and contributed significantly to
> major milestones, through which we gained significant traction with client/
> VC interest.

Key word: interest.

In other words, you're still pre-revenue and in fact don't even yet have an
MVP. And the company is operating on bank of mom.

This is a very, very high risk position to be in. You should ask for 6% and do
not take less than 4% plus an executive title. It's not just a title for
title's sake, you need to have a seat at the table.

Do your best to negotiate in the abstract, ie don't let familiarity or even
friendship with the founders muddy the waters. Use your leverage as
"extensive" contributor up to this point. Once you start this negotiation you
have to set a time limit (2 weeks?) to complete it and be nice about it but be
clear you will not be making further contribution under the old terms. It's 6%
or nothing, not 6% or continue for a while longer as you have been doing.

There's no math behind the number. Any math that is out there is just
rationalization.

~~~
mattmanser
Suggesting anything more than 1% is ludicrous.

It's clear this company is being bankrolled by an existing company, and as far
as we can tell he's a recent grad, junior programmer who did an architect
degree first. They had the idea, 1.5 years of work done already and money
before he came.

They're not in a high risk position and that they're offering him anything at
all is actually surprising.

~~~
jiveturkey
Correct on the last point: _they_ are not in a high risk position.

Coming in as first employee into a pre-seed company _is_ high risk. That is
not a 1% position. You can only go by what he is saying: that he is well and
uniquely qualified for the position. If the job (at this stage of the company)
truly needs his fairly unique skillset and experience, he needs to come in as
not just "first employee" but "first executive". Which is a 5% position.

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Reebz
I feel you’re closer to “somewhat co-founder” status if you’ve contributed to
major milestones over 5 months, especially without pay and no major
investment.

Assuming you’re negotiating pre-money and you’ll get a non-competitive salary;
id like to see at least 10%. Consider you will be diluted very soon.

~~~
hangryhippo
Thanks! Technically I did get paid form my original company, but was working
for the upcoming sister firm. I was assigned to do so during office hours and
the startup has to pay back my original company my salary over the last few
months

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toss1
Knowing that profile, and nothing else, you look like a rather critical part
of the enterprise, and have demonstrated your value at a founder level. Yet
you have also dramatically reduced your leverage. I'd value you 10-20%
(subject to a vesting schedule). But with your reduced leverage at this point,
it may go well under 10%. I certainly would strongly avoid settling for the
normalish 1-2% for the first half-dozen employees, since you've already
contributed substantially. If you accept such a low amount, be sure that you
get a very good current pay package and treat the stock as a lottery ticket.

------
richardknop
I would suggest finding a job at a medium/big tech company with market rate
salary as compared to this if you will only get 1%. You are risking quite a
lot and you should get much higher equity.

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streetcat1
The question is how much they need you to get to first revenue or cash flow
positive (or get first investment). Nothing else matter - not your skill set,
work ethics etc.

Everything can be found given a price.

Why did you waited so long to ask for equity? I.e. why did you not ask for it
before the 5 months?.

So, if the product can stand on its own (I.e. can get paid customers month
over month) I am afraid that you do not have leverage, and hence you are
treated as any other employee. If not, than you have leverage.

~~~
hangryhippo
The product is still in very nascent stage and needs a ton of development. I
know that I can ask for more, but I do not have a basis/ math to show how much
is proportionate. And I couldn't find a hard and fast way of doing so.

As for asking equity at this point - this is a sister company I helped out
with and it has only been incorporated and gained traction recently, hence I
am formalizing things now.

~~~
streetcat1
So lets look at de risking the company offering.

If the company is derisked from the product side (even tough there is ton of
work left) than you are like any other employee . If, on the other hand, you
have some sort of a proprietary knowledge that is still needed for de risking
to occur, than you have leverage.

When I read between the lines, I see that the CTO already derisked the product
in the two years prior, and its looks like the CEO is derisking from the
market side (i.e. have traction).

~~~
hangryhippo
Thanks Streetcat1! What would you consider as derisking? I think the product
is still at conceptual stage with most major functionaility not yet developed.
Would that be considered derisked?

~~~
streetcat1
So I am not sure what is your domain and what are your core uses cases.
Derisking from the technical side for a typical web app is :

1) Is the API defined (if any) and implemented. Do you understand the domain
entities. Do you need any outside knowledge to understand it.

2) Is the basic architecture standing? For example, division to micro
services, GRPC interface between micro services.

3) Are the core 1-2 use cases implemented end to end ("tracing bullet"). I.e.
from some sort of UI up to record in a database.

4) If you have any propriety algorithm, is it implemented.

5) If you have any propriety data (e.g. real estate listing), do you have the
data and understand how to get it.

So if the functionality left is trivial (e.g. CRUD) than they can do it
without you, hence they have the leverage.

------
amirathi
Go for either,

A. Best possible salary you can fetch anywhere with low equity (around ~1%)

B. Just enough salary to get by with high equity (around ~4%)

Don't get stuck in the middle, avg salary with 1% equity.

Given your status (recent graduate) and company's status (pre-seed), option A
wouldn't be ideal for both the parties but less so to the company. You can use
that as a negotiating strategy to get to option B which would be best for
both.

Also, keep in mind, the CTO has built the platform for 2 years so she might
also have some background in architecture. If true, your negotiating position
is less strong.

You are in the best position to know how the business is doing or going to do
in the next couple of years. I would adjust the numbers depending on the risk
in the business.

Finally, if there are too many unknowns on the business side, then I would
only stick to option A. It's a personal decision but my risk appetite as an
employee is very low.

~~~
hangryhippo
My market salary would be 5-6k per month, and I am ready to take ~3.5, going
for option B. Could I still ask for ~4% equity? The main argument I hear from
the founders is that I am drawing a salary, so my equity will be limited to
around 1%.

~~~
mars4rp
if I get that much pay cut, I would ask for at least 5%! yes, you are drawing
salary but not market rate, so think about it this way, if you don't take
salary, do they make you co-founder with 33% equity?

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skypanther
I got 1.125% which in retrospect was too low. But perhaps the bigger point is
to find out or negotiate what it will take to get additional grants.
Executives and the founders will likely get additional equity, particularly
during funding rounds, the hiring of key roles, etc. You should have a path to
getting additional stake too.

~~~
hangryhippo
As in I ask in the contract to grant me additional equity when we get
funding/meet KPIs? Also, how does it affect the vesting schedule?

~~~
smush
You vest as fast as the founders since you've been here from the very
beginning and 'deserve' to be taken care of just as much as the founders do.
You've had nearly equal risk in terms of company stabilization vs implosion,
therefore logically you should have nearly equal reward in the early stages.

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throwaway413
Without more detailed context, I'd say you are looking at a range between this
comment:

> According to [1] 1-2% is common but IMO too low. Ask for 5%, settle for 3+%

and this comment:

> I feel you’re closer to “somewhat co-founder” status if you’ve contributed
> to major milestones over 5 months, especially without pay and no major
> investment. Assuming you’re negotiating pre-money and you’ll get a non-
> competitive salary; id like to see at least 10%. Consider you will be
> diluted very soon.

Anywhere from 3% - 10% I'd say is a reasonable number, pretty much depending
on who's the better negotiator.

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hightower
Hi, cto of a fintech. 1.2 m in sales. I own 4%. Other members of mgmt team
have about 4% also. Main founder has about 35, investors and option pool own
the rest. You should look for about 8% and be part of mgmt team. Anything less
and you won’t go the distance even if company is successful. It’s extremely
early and extremely risky and you need to be rewarded and motivated
accordingly. You will become resentful when others join later and negotiate
themselves onto cap table if u don’t get about 8 now. Expect to be diluted.
Apart from stock it’s critical you get experience seeing a company scaling.

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ReD_CoDE
I think there's no rule, it depends on the startup, its market, and the
potentials ahead

Imagine you be the first employee in a startup that has the potential to
become next Uber?

Or a startup that can't be big enough, which the majority of startups are
here, in this zone

You should find even 0.5% of Uber is better? Or 40% of an average startup
which finally will have a value between $10-$100 million

~~~
hangryhippo
I just want something proportional to my contributions. If I contribute 10%
and receive 0.5, isn't it a shit deal even if it is in millions?

~~~
ReD_CoDE
Does your startup has a Pitch Deck and Executive Summary? Take a look at the
Total Addressable Market - TAM, Market Segment, and predictions. Find do you
work in which kind of startup? Then can calculate 1% means how much money 5-10
years later

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Ididntdothis
If they offer you 1% it means they are viewing you just as an employee and not
as important part of the founding team. With dilution I would expect your
share to quickly go to basically nothing. Maybe that's OK with you but at a
minimum you should then get a competitive salary.

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hangryhippo
Some details I missed out:

My current salary is way below market rate for this type of a job - market
rate would be 6k+, I drew 3.3k for the last 5 months

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codegladiator
3-5%

------
chovy
12%

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simplecomplex
1% you are being fucked. You’re building the product that is used to raise
money, pre-investment.

You’re really a founder. Ask for 10-30%.

~~~
jboles
10-30% doesn't even seem excessive if there is no product today.

There are so many startups that post on this board with an open-ended title
similar to "Looking for an engineer to build our product", then you go to
their website and they're offering 0.5% equity. It's almost insulting.

~~~
hangryhippo
Yeah, I was told 5%+ is what senior execs get post series B~. Isn't that like
claiming the nanny to be more important that the amniotic fluid lol

