I've been having discussions with a partner of a tech startup about coming on-board. They've made it clear they want me to work there. I'd be the 8th employee (5th if you exclude the 3 partners). What are early employees getting in terms of equity in a firm of this stature? I've seen some databases showing 1-1.5%. Any insight into this is greatly appreciated. Located in NYC area btw.
Thanks,
UTDFinanceGuy said it one of his previous threads that:
"Key early hires (director level and above) normally are able to secure between .5% to a full 2% of equity."
From what I have seen, this is spot on.
What position are you looking at taking?
If its technical or product related then I would say between 1-2% roughly. Maybe 3-10% if you're really a rockstar and coming in as like a Director or VP of Product/Tech, higher end for CTO/CPO.
If its finance, biz dev or sales related you're looking at between 1.5% to .5% (sales closer to .5%) because you're going to make money most likely on commission and be given a great comp plan. Finance doesn't quite have that so thats why its a bigger percentage of equity.
It would be product related. Thanks for the responses.
Equity Negotiations w/ Startup (Originally Posted: 08/01/2014)
Got an offer to join a startup working with a few of my current execs (I know in another thread I mentioned a potential opportunity to do CVC, but I turned it down..). I'll be the lead on VC funding efforts and partnership execution.
Any way to think about this equity negotiation process? In the past, I've just accepted what the exec level would give me for grants/options, but now they asked what % would feel reasonable, so I feel like I have a little more leverage this time around..
-I'm only contributing a couple grand to the product's IP. -Product idea mainly developed by one of the execs. -I only foresee two rounds of venture debt (could be 1 round of JV equity from a potential commercialization partner) as we'll be cash flowing immediately from product margins and low IT infrastructure cost, so a smaller probability of future dilution (especially since I control the fundraising piece).
I'm trying to be humble and aim for 2% - 5% (@ exit), but obviously I'm blind to any experience on this.. Any advice from WSO oldballs would be greatly appreciated!
There are bunch of things to consider in addition to what you've written:
How many founders will there be? How much capital have others contributed? Have other people been working on this full time for a while? Will everyone be full time at the outset? How senior are you relative to the others in the mix? Whose skill sets are most critical to the company becoming successful?
Thanks for the questions to consider, I'm currently incorporating those into my considerations.
Why did they ask you to invest money in the company? Is that so you too have some more skins in the game? How many shares would the two grand buy? Based on that you can value your sweat equity accordingly.
Also percentage is only part of the considerations. Just as important is to make sure that your equity stake is treated equally as the execs/other founding members so that when new shares are issued you also get to participate proportionately and won't get completely diluted away.
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