

Ask HN: 1% equity vested over 4 years, is it okay for first employee? - hemezh

I am a fresher and have joined a startup recently. I joined it even before the founder came full time. We didn&#x27;t talk about the equity then and now they are giving me 1% equity vested over 4 years with 25% cliff after 1 year. I have already declined to another &quot;big company&quot; who offered better salary than this startup(20% more of what I am getting now). I don&#x27;t like the technology stack they are working on and more than anything I hate the city they are based in. Seeing all these factors, is it a good idea to continue working with them?
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brianchu
1\. Agreed with tptacek. 1% is within the "standard" range of equity from what
I've heard in SV. But that range is highly variable: 1-5%, but even 0.1-10%
might be justified. But we have nowhere near enough information to judge
whether that kind of an offer is a good offer for your specific,
individualized case. Some questions to consider: What kind of salary are you
making? What salary could you make at a BigCorp? When was their last round of
funding, how much did they raise, who did they raise from, and what was the
valuation? What kind of shares were issues to the investors (preferred,
participating preferred, bla bla bla etc.)

2\. Approach this like an investor. You are "investing" a below-market salary
( _and_ , if you are going to be working longer hours than at a BigCorp, you
have to factor that into your calculations), and in return you are getting
equity. The easiest way to calculate the dollar value of your equity is
valuation * equity (then divide by four since this is vested over four years),
and that is the rough cash equivalent of your equity). But depending on what
kind of stock your investors got (preferred stock vs. the common stock or
stock options you get), you might want to discount this valuation by 10-20%.

3\. Valuing startup equity is a huge topic, there are entire HN threads
dedicated to this: search HN for "startup equity." Here are some good
articles: [http://mba-mondays.pandamian.com/tableofcontents/](http://mba-
mondays.pandamian.com/tableofcontents/) (read the Employee Equity sections),
pg's essay on this
([http://www.paulgraham.com/equity.html](http://www.paulgraham.com/equity.html)),
an article on someone's negotiation process
([https://keen.io/blog/29904565692/how-i-negotiated-my-
startup...](https://keen.io/blog/29904565692/how-i-negotiated-my-startup-
compensation)), and another summary article
([http://www.payne.org/index.php/Startup_Equity_For_Employees](http://www.payne.org/index.php/Startup_Equity_For_Employees)).

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tptacek
1% does not sound like a lowball offer for a salaried employee, but why take a
job you know you don't want?

~~~
NhanH
I'm not sure if this is an appropriate question to ask, but you're the only
one in the comments (so far) that say 1% is a reasonable number for the 1st
employee. As someone who know nothing about the norm, do you mind explaining
why it is so (or simply why 1% is not unreasonable would be great too!)?

I saw an answer to a similar quora question here:
[http://qr.ae/I9ZWz](http://qr.ae/I9ZWz) . What do you think about the answer?

Edit: I was once told that the rate for CEO hires is normally ~ 5%, with that
number, it seems to me that employees, even the early one should be in the
range of .1-.5% . Of course, it could just mean that even 5% for CEO is just
too low?

~~~
tptacek
Joel gives a better answer than I do; note that his plan gives 4 developers
2.5% of the company each, but 1%-5% seems like a typical range. The commenter
says they were only able to improve their salary by ~20% by taking a BigCo
job, so the rest of comp doesn't seem to be too far off the market.

I don't think it's an amazing offer, but then, amazing offers can be red flags
too.

[http://answers.onstartups.com/questions/6949/forming-a-
new-s...](http://answers.onstartups.com/questions/6949/forming-a-new-software-
startup-how-do-i-allocate-ownership-fairly)

~~~
NhanH
Thanks, the answer is great. However, with that plan, wouldn't the first layer
employee has ~ 100-200 times more equity than the last layer? Would this cause
some sort of division within the employees in the company?

~~~
tptacek
Equity compensates risk. Earlier employees take more risk.

~~~
NhanH
But, exactly what is the risk that employees take (no sarcasm intended)? I
mean, let's say an early employee takes 20% less salary than a later one for
the first year or two. Additionally, take into account the fact that the
company is more likely to fail at an earlier stage, and the earlier employee
might need a couple of months to get a new job, I still can't see the risk of
an earlier employee being a degree of magnitude higher than a later one.

Again, thanks for your time in answering such silly questions. For a kid
trying to figure out those things, I'm much appreciated that.

~~~
jplewicke
Part of it is that as the total value of the company rises as the company
matures and it removes various sources of risk. The dollar value of 1% of the
company could easily rise from $1 (idea on a napkin) to $2000 (early prototype
in seed stage) to $250,000 (business model proven and many customers secured).
As that happens, a smaller and smaller percentage of the company is required
to make up a given disparity in cash compensation.

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mcv
I honestly have no idea whether 1% is good or bad, but which depends on a lot
of factors:

What's the chance that this company is going to make it? 1% of nothing is
nothing. If they make it, how big are they going to be? 1% of $1 million isn't
all that much either. But if they get bigger than that, it very quickly
becomes very worthwhile.

How much salary do you get? Equity can make up for low salary, but if your
salary is okay, any equity is bonus.

~~~
hemezh
Chances are pretty good that the company will make it. Huge market(real
estate) and very less competition in this market in India. As I have said in
description, I turned down an offer of 20% more than my current salary for the
experience of working at a startup + equity but I know I can easily get a job
of upto 70-80% more.

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DevX101
I feel like you've already answered your question.

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brudgers
Here's an F.U. money calculator:

[http://www.kludgecode.com/index.php/a-crude-f-u-money-
calcul...](http://www.kludgecode.com/index.php/a-crude-f-u-money-calculator/)

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tagabek
_I don 't like the technology stack they are working on and more than anything
I hate the city they are based in._

You will resent your work and you will be unhappy with where you are
geographically.

~~~
thetrb
I assume by this line he meant the "big company".

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foobarbazqux
If you are willing to quit anyway, it's a good opportunity to practice
negotiation. Tell them that either they give you a good percentage or you
leave, but make sure you leave if they refuse.

~~~
hemezh
Nice perspective. Will definitely do that.

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rywalker
1) Definitely ask for more, they're low-balling you. 2) Take it as a lesson
learned. The earlier you nailed this down, the better your negotiation
position is.

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joeldidit
As employee number 1 ask for 2-5%. Or more.

