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Ask HN: Am I getting a fair deal?
32 points by throwaway69 on Sept 3, 2011 | hide | past | web | favorite | 40 comments
I am being offered a developer position at a pre-funded startup and the salary being offered right now is 1/3rd of the market rate(based on my previous employment) for the first six months. The next 6 months however I will be paid back the diff and also get my market salary, provided there is money. I will be the first employee who's a developer. (The CTO is a fairly awesome coder, so its not like I am the first developer or building stuff from scratch.) However the development work wll be non-trivial. The only thing which is bothering my is that there is NO EQUITY being offered. The reason being that the company is based in U.S.A while I will be working in its office at a foreign location.

To be fair, It will be a new domain I will be working on, with really smart people on a really interesting problem.

So am I getting a bad deal or am I over thinking this? Badly need some advice.

UPDATE1: Should highlight the fact that after six months, they plan to pay my lost wages subject to the availability of capital.

Market Rate: y FIRST SIX MONTHS SALARY: x NEXT SIX MONTHS SALARY: y+ (y-x) + z AFTER ONE YEAR SALARY: y + z

z being equal to a measure of the risk I am taking

My opinion of the co founders is that they are really smart and honest people.

UPDATE2 : Just got a call from one of the co-founders. He has very kindly explained to me that the deal they have offered me is taking into consideration the fact that any equity I have will be enforceable in U.S. Their idea of this structure is a cash payout in lieu of an equity.




A terrible deal, you're seeing a bunch of downsides and no upsides.

Unless the work is absolutely fascinating to you then you shouldn't even be considering this. I'm impressed that someone had the balls to put an offer like this on the table. Honestly, even if you loved the work I'd suggest telling them off because it's kind of an insulting trick when some people try to get geeks to work cheaply on "interesting" projects.

If they're somewhere where giving you shares triggers auditing requirements, which is the only reason I can think of them giving for this, there should still be plenty of workarounds. Significantly increased pay back over the following few months at least being the immediately obvious one.


They have agreed to do that as I mentioned. After the first six months they will pay me my market rate+ (marketrate- prev salary) + risk money for the next six months, of course subject to the availability of capital.


If you want to seriously consider this kind of cash back deal then you should look at the amount of money you're giving up as an exceptionally high risk investment.

What kind of a return would you want the upside to be for you to walk out right now and gamble 3 months of salary on a 25% chance of winning bet. Unless you've got significant wealth already then most measurements that take into account the diminishing returns of wealth will probably suggest a that you'll want the win to be at least 6 times that mount.

That's quite a lot of cash for a startup and it makes no sense to a startup that's worried about cashflow to make that kind of an offer when they could give out nice free equity.

Liabilities are much worse on a balance sheet than having employees with stock. Employees with stock in the company have an ongoing alignment with the company; employees who are owed cash are going to be slowly getting more irritated.


From my own experience, the line "subject to the availability of capital" means you're never going to see the money. Capital is always short or tied up in other areas not earmarked for salary.


That's the problem. There's no guarantee they will succeed or get funding. The pay back may not happen and you may end up with the short end of the stick. Not to mention investors wouldn't like to know that any seed investment might be gobbled up in paying back payroll instead of being invested into the company moving forward.


We have a similar setup. I am a technical founder who owns the project and company, I hired two developers from overseas full time. They joined because each were interested in the project, and were heavily trained by me. I paid them full salary of their market rate - they told me their existing salaries, and we started from there, including pay rises every 6 months.

This is how it should be. I am taking the risk and paying them full time, and since they were also happy with the interesting work they did not need or ask for equity. In your case you should either get full salary or equity. Because you are taking the risk with them. It is simple as that.

I don't get to judgement that your employer is taking advantage of you, sometimes arranging equity gets complicated, you need lawyers etc. He may have good intentions to keep you until you see the upside. But there is no guarantee, and if he is not paying you now, he should agree to offer you something in exchange that should fulfill you, or simply just pay you your market rate.

You are not overthinking at all. You should protect your rights at all times.


It's a really really bad deal. Please listen when I say someone is trying to take advantage of you. You're taking on a lot of risk with no upside. If I'm reading it right, the best you can do is break even with the salary you could be getting. On the other hand, the company is assuming absolutely no risk, if they become successful because of your risk and hard work, they just have to pay you what they should have been paying you from the beginning.

If you're seriously considering this offer there must be something else in play. Is it a visa you're after? Have you always wanted to work at a startup? Is it a field you're very interested in? Have you been out of work for a very long time?

Whatever it is, at the very least, you should push back and try to negotiate to get what you really want.


I have always wanted to work at a startup. I am not after a VISA, though it will be good. I quit my previous job at a big company two months ago because I was tired of doing mundane tasks and was shit scared that I had stagnated.


This sounds very shady. Wage equals appreciation, and their ability to pay you correlates strongly with the company's viability. At least one of those factors is not what it should be (probably both).

> Should highlight the fact that after six months, they plan to pay my lost wages subject to the availability of capital.

Another very bad sign, they're already looking for an easy way out. Chances are in six months you're either stuck with the exact same level you started with ("there just isn't any money, we swear!") or they'll just can you. Don't do this to yourself.

I'm not categorically advising people to stay away from bootstrapped startups, it can be fun. But I think if you do something like this, you should have a personal stake in the company (i.e. be a co-founder). Because if this goes south, as the majority of them do, at least you have been working on something that you own as opposed to being a wage slave for a few months.

You also implied you would be the only developer there. If this is in any way a web company, this is another very bad sign. If so, you'll probably end up doing most of the work there yourself.

Sorry to sound so pessimistic, but this just doesn't sound right. If they don't have any money they should make ANY financial promises to you, period. It doesn't feel like they are being completely honest (or realistic) about the risk involved.


I would be the first developer as an employee. The CTO is the main developer there.


So it comes down to the question whether you trust and whether you can afford this adventure. Trust in this case not only relates to their personal conduct but also their ability to realistically judge where this business is going. In any case, it's a bad deal for you if you depend on the income. But if you have time and money to spare for such an experiment, you might be better off working for no wage at all during that time and taking equity instead.


In any deal, you want to look to protect yourself. Look at this -

> The next 6 months however I will be paid back the diff and also get my market salary, provided there is money.

So, answer, What if there isn't money? Then what?

Draw up the contract so that you get something if there's no money for you. You'll feel burned quite badly if the answer is just, "Oh, sorry, we don't have the money now."

So, figure that out. If you want to guarantee you get the cash, have something serious in the event you don't get it. Maybe very significant equity at that point? Then it's very clear that you need to be paid, lest there's consequences. Look, everyone is great and honorable and all that, but things go wrong sometimes, and it's better to have it written down in the contract what happens in the event things go wrong.


Based on what you've said it sounds like given the early-stage development you're involved in ("development work will be non-trivial") and the risk involved ("provided there is money") and the fact that you are one of the earliest (first?) employees, you should be in line for at least some equity--obviously it varies company-to-company, but based on an earlier HN discussion here: http://news.ycombinator.com/item?id=973060, it seems there wouldn't be (too) many startups that wouldn't provide at least SOME equity <3% for someone in your position who's taking a fairly large amount of financial risk.

And as a sidenote: if you're uneasy about the terms offered, maybe you already have your answer.


I am not uneasy, just unsure. My biggest worry right now is if the company does take off, would i regret not asking for equity?


You are taking a risk of only being paid 1/3rd of your market rate for the next 6 months.

After that, you may be without a job. This is your downside, and it's what you should plan for.

In a best case situation, after 6 months you will start gradually earning back the money you missed out on, + a raise.

This means the only upside for you is the raise you _may_ get after 6 months. You should decide for yourself if you're comfortable with the amount of risk you will be taking for this upside.

As an extra caveat: it seems to me like it would be very easy for the founders to claim "there is no capital". Especially considering you are in a foreign country and are likely to not have any insight into the company's financials, it will be extremely hard and costly for you to prove otherwise if things go sour.


yes you would


Ask them to articulate why equity can't go to a foreign person. Make your decision based on this. (if you live in someplace like Somalia or Belarus or China, and they're a defense or security startup, maybe an argument could be made; alternative arrangements like a cash settled "phantom stock" allocation equivalent to the 0.5-2% or so you should otherwise get (over 4y) might be worthwhile instead).

Taking a below-market salary itself, if there's likely funding, isn't horrible, assuming you can live on it. Adding that you're being paid back the difference makes it good, too.


You're either a cofounder or an employee, and this deal gives you the worst of both those roles (i.e. all the risk, none of the upside). If you really want to work at a startup with an interesting problem then I suggest humbly that you take a couple of months and see if you come up with any ideas on your own.


I think you need to look at the positives and the negatives. Work out what risk you are taking, and how that risk can be compensated.

In this case your risk is that after 6 months of working far below market rate you will have nothing to show for it and then be out of a job.

Paying you back market rate at a later date isn't really compensating for it, unless there is some sort of bonus. Sometimes this bonus is equity, but it could just as easily be monetary (often this is how sales people are motivated - work for cheap, but if you sell then you get a large reward).

It's hard to say what compensation you should ask for. The most important factor is that you don't feel like you're being screwed, you should feel happy with the deal. Because if you are unhappy, then that unhappiness will leak through the stress of a startup and probably result in fighting, you hating your job and depression.


Thanks for the reply. I dont really feel like I am being screwed. Based on my interaction with the co-founders, they seem like really decent guys and they have been pretty honest about everything. I think its more to do with the fact that I expected some equity or at least a discussion sometime down the line.


Well look at why one gets equity - to compensate for risk. What is risk? Not having money tomorrow to be getting paid. Well you are taking risk according to that definition, but no equity in return. This is one problem, but not the end of the world. Also, giving you equity is going to get them in trouble with the law, and future investors. So giving you equity is stupid for them. So how to compensate you for your risk? Cash money. Ask them for above market, in back pay if you're interested and trust them - walk if you don't.

Get them to sign a contract in your country of origin - so fighting you in court becomes expensive for them. Or maybe in a state far from them within the US.


I don't care how interesting the work is, it's not worth 1/3rd market rate for someone else to own it. That's not far from 0% market rate which you would get for working on your own projects which you would have 100% ownership of.


Not a good idea they want u to do all the work and Only pay you if it takes off. Scam


I don't think it's as bad as everyone else does.

If, instead of getting the missed wages after 6 months, you were offered equity equal to the wages you were missing, would that be fair?

In the end, that's the same deal, assuming you could buy equity. (That isn't necessarily true, though.) If the company survives, you get your money in both situations. If the company doesn't survive, you don't get your money in both situations.

If you still think it's not fair, ask for equity instead. But they apparently just don't have the money right now, so they couldn't possibly pay you more to start.


I've been considering this for a few days, and I've changed my opinion. This is a raw deal.

Unless you get something out of it that isn't obvious (been out of work for 2 years, really need a job?) then you are taking all the risk here... They could fire you in 5 months and save a TON of money. And that might just be too tempting for them.


Based on my discussions with the CEO, its more to do with the fact that they are trying to keep costs at a minimum right now.


So what's wrong with offering legit equity? Aside from possible overseas issues which doesn't seem to be an issue they're bringing up.


Can you give me a link where I can read more about this?


It sounds like you know the answer to your own question. What you really want, I believe, is someone to comfort you into thinking that the decision you already made, which is to go to work for them, is a good call. Obviously I may be completely wrong but I would think you would have entered an update stating you opted out based on the recommendations of HN members. The opposite argument is, of course, you are going to do some work you will love and enjoy. If this is the case equity doesn't matter. You may be right and these guys may be truthful and honest; it is their business and they do not need to offer you equity. They will do what they can for you later. I would offer equity if I were them but only after you showed me something. Then it would be a no-brainer. Good luck with this.


Yes. You should be getting equity commensurate with the risk and role you're taking.


It sounds like you're trying to talk yourself into this. Consider other options. Have you been interviewing for other positions actively (sounds like no, devs are very in-demand)? Will your current employer counter-offer (though there's nothing to counter here except a ~67% decrease)?

Another thing to consider is whether you'll ever be subject to US taxes. Unless this is a non-elective deferral you could face stiff penalties: * http://www.irs.gov/retirement/article/0,,id=186222,00.html


Ask yourself why you'd take this opportunity. What do you hope to get out of it? If you can't find other work it sounds like a great deal. If you are hoping to get equity later and you'd be willing to risk it, maybe it is a good deal. If you need experience you'll get, that is worth something. If this is just about money, that sounds weak to me.


Thanks for this measured response. I am not really looking for work, I am looking to work at an interesting problem with smart people and the experience of a startup.


All signs point to NO.

You're taking just as much risk as the founders, however you aren't receiving any equity. Negotiate an equity position that rewards you for your risk.


As a rule of thumb, if you have to ask, it's yes.


No, you're getting a raw deal. The idea that you can't get equity because you're in another country is absurd. Foreigners can freely own property in the USA, including equity in companies. The only requirement is that you pay US taxes on it if you sell it.

The correct offer, if they want to conserve cash, is to take the 2/3 of the salary they are not paying you in the first 6 months, convert that directly into stock (not options) at the same price that the founders are doing so, and give you a bonus on top of that for risk of say %25-%50 of the stock value.

If they want to stop giving you stock after 6 months, then paying you the amount they're proposing to pay you now would be fair (at least to make up the 2/3 you missed out on for 6 months.)

Basically they're asking you to take as much risk as they are, yet they're going to screw you on equity and on income. And they're not even offering it as a deferred salary (which would give them the legal obligation to pay it.)

To be honest, looking at this deal, it communicates to me that these people are not honest and you should not do business with them. I could be misreading something, but it sounds like they're trying to cheat you and use your nationality as an excuse.

--

Edit to add: This is the reason for equity in startups. To allow cash poor startups to attract good talent. They're trying to not pay you (until some imagined future cash infusion at which point they can fire you) and not give you equity.... you're going to do the 6 months of work that earns them the big venture capital and then they can replace you without you getting any equity?

That's why I think this transcends raw deal into the realm of cheating you. (And normally I'm of the "whatever two people agree to is none of my business" persuasion. But you asked here so this is my opinion. It doesn't matter how great the idea is or the other guys, if you're not going to be able to participate in the long term. Equity measn they want you around, no equity means they'll replace you in those 6 months.)


Thanks a lot for your concerned post and suggestions. Their point was it would be more convenient for me if I take an increased salary after the six months instead of equity. They were also very willing to listen to alternative suggestions I might have. Also I do the think the people are pretty honest. They called up to clarify that it isnt the case that equity is not an option, its just that cash would be more convenient for me. I do believe that they are good and honest people and if I have implied otherwise in my post, Its a mistake on my part.


Horrible deal. There's a chance that you will work for 1/3 of your regular salary for 6 months, and there's NO UPSIDE.

Let's say they let you go after 6 months, or tell you "there's no money". If your normal rate is 100K, you will be working working for $33K. Which means that in 6 months you lose $33.5K. That's quite a lot of money.

I would not take that.

WARNING: if they offer you equity, let's say 50,000 shares, but don't tell you what % of the total number of shares that represents, DO NOT TAKE IT, IT'S A SCAM.


Of course that would be a scam, no capital letters or warning signs needed - it's very basic math; 50,000 shares of unknown value X has unknown value - a 5th grader knows that.


There's another factor: the shares have no value and no way to sell them.




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