
Ask HN: How much equity does one deserve as a CTO of a seed funded company? - vs2370
Hi HNers,
  I met a founder recently who has put out an offer for CTO&#x2F;VP of Engineer title. But the offer is 20k less than my current salary and equity is 5%. The company has received a seed stage funding from a reputed VC and has gone through a incubator already. Is this a good offer?
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AnotherMarc
It's hard to say if it's a good offer without knowing how well you're
currently being paid compared to market for the salary, and what you would
bring to the company. That said, 5% for a senior executive is pretty typical,
I think. And I would expect a seed stage company to pay less in salary for a
CTO/VPE than a more established company would for the same sort of role
(regardless of titles).

You already got some good advice about how to consider equity as part of your
total compensation, but that's not what you asked. Hopefully, you've already
done some thinking about how much (or little) to value equity yourself. In a
vacuum, 5% seems OK for a CTO. If the technology is a critical piece to their
business and you have unique expertise in it, you should probably expect more.

~~~
rahimnathwani
Yours is the only response that has attempted to answer the question which was
asked. As you say, the others have focused on how to value the offer, i.e. to
compare the salary+equity with an equivalent salary-only offer.

For the OP, Angel List may be a good source of comparative data. It has job
postings with salary and equity ranges for similar positions.

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zer00eyz
Lets just assume you can LIVE WITHOUT the 20k in pay.

If you stay in your current job and put that same 20k into the stock market
for the next 4 years (80k total) and then do 10% gains for the next ten
years... you come out to 200k in your pocket.

If the founder your talking to was asking you for 80k would you give it to
him? Go ahead get out your checkbook and write him a check for 80 grand right
now. See how thats going to make you feel, take a good long hard look at it.
Ask yourself what its going to take to GIVE HIM that check, what would he have
to tell you or show you or do for you.

That cash out of your pocket is REAL, its tangible. The options, don't count
them, ever. They are incentive not compensation.

~~~
nicholas73
Both the non-taxed 20k and 10% gains are not going to be realistic.

~~~
zer00eyz
last 3 years the S&P would get you close to 10%

the last ten years on the S&P would put you firmly at 5%

Thats assuming you don't pick a decent fund with return rates that sit
somewhere in the middle. If your lucky/smart you fund may return much higher,
or you get slapped and loose money.

If one isn't doing it already, 401k withholdings can go up to 18k a year
(close enough to 20k a year), and you can get some more savings in there
depending on your marriage and partners employment status.

If OP isn't maxing out his non taxable investments today, then him putting
aside 18k in 401k from his current paycheck (rather than taking the cut) has
even MORE upside for him, than I'm suggesting. And hitting the right fund (and
its unlikely) could have 14% returns.

SO I fully agree with you, my estimates could be foolishly low (or
outrageously high) we simply don't know.

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malanj
One way to figure it out is to calculate what the 5% is worth. Here's a very
rough/inaccurate calculation - that ignores option prices etc - that might
give you an idea:

Lets say the company's post seed valuation is $3m (random guess). So 5% is
$150k. Your shares probably vest for 4 years, so that's ~$40k/year of shares.

Given that you're (most likely) getting ordinary stock (not preferred), you
should discount that $40k quite heavily.

In short: it's probably not a bad offer, but definitely comparable with your
current compensation.

~~~
vs2370
thanks, can you plz elaborate on preferred shares? how will that change the
math...

~~~
malanj
You can think of preferred stock as both a loan and shares. If the current
valuation is $3m and you have 10% preferred stock, then you have the choice of
taking your loan back ($300k) or keeping your shares.

If things go well (company value increases), then you have to take the stock.
However, if things don't go well, you get to take all of your money back
before any common shareholders get any money.

So in marginal cases (where the company doesn't become very valuable), common
stock tends to be worthless and preferred stock still has a chance of having
some value.

~~~
vs2370
thanks again.. so basically if I negotiate to get preferred stock and if the
company gets valued at 100 million, I can cash out 5 million since it would
not get diluted with subsequent funding rounds..

~~~
TuringNYC
Be careful with the assumption that you can just "cash out" \-- firstly some
companies simply will not let you...you are stuck with the equity for 10+
years until an IPO. If you are allowed to sell, selling in the private market
is not as easy as eTrade -- you will pay a big commission and you only get
what someone is willing to pay. See
[http://www.ft.com/intl/cms/s/0/27e9444c-0879-11e5-85de-00144...](http://www.ft.com/intl/cms/s/0/27e9444c-0879-11e5-85de-00144feabdc0.html#axzz3jcuUW6A9)

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brudgers
Did you mean "reputable VC" or is it one of those many incubator + reputed
VC's that are increasingly common out in the wilds?

How many engineers would you be VP'ing?

How is the rest of the equity distributed?

What does the company's growth look like?

What is everyone else going to be doing...i.e. is this business type founders
looking to outsource building their vision?

Good luck.

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smt88
The equity is very likely to be worth nothing in the long-run. Even if it does
become liquid at some point, that's going to be years down the line. I imagine
there's a 3+ year vesting schedule attached to it, as well. Are you sure
you'll be there that long?

Pretend the equity is worth zero and then make your decision.

~~~
eip
I think of equity as having roughly the same value as a jar of farts. For most
startups this will be the case.

~~~
smt88
"I know that most farts aren't worth anything, but these are OUR farts.
They're going to be worth millions!!!"

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alain94040
That sounds fairly typical, yes.

Another way to think about it: if you take the job just to get a job and don't
particularly believe in the startup, then focus only on the salary. If you
have other choices of jobs, but really believe this startup can succeed, then
do care about the equity. Which as I said, sounds fair. You can probably get a
little bit more with good negotiations (6% - I'm guessing no way to 10%).

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mattwritescode
As a CTO I would guess something from 4% - 6% some will get more depending on
a number of factors. The thing is a CTO could get 10%, but if it is a bad idea
or mismanaged then that 10% might be worth $0 after 4 years. A well managed,
great idea might still get you $0 but it might also get you $1,000,000. You
never know. You have to way up if you think this idea is something which will
be viable.

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bosky101
Ask if they're willing to hike it back to your current salary on the next
round of funding.

