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I have been working with a start up without pay for the last 8 months.

I have been a senior sales executive with tier one companies for the past 20 years. My position is to build and manage all sales and revenue functions within the company. My colleague will be the CEO.

The founder has two investors who have contributed $220,000 in seed money. It is a bootstrapped operation. Although we have not contributed hard cash, both my colleague and I have contributed considerable time and risk to help get this company on it's feet. We are in the process of finalizing employment contracts and are trying to understand what equity percentages are appropriate for our investment and the degree of risk we have undertaken. Starting salaries will be minimal (approximately 1/3 of customary) until we have supporting cash flows which will be at least another year.

Any guidance on this would be greatly appreciated.

Thank you!

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3 Answers

up vote 6 down vote

Fred Wilson of Unions Square Ventures (investors in Stack Exchange, Twitter, Zynga, Feedburner, etc) have written well about employee equity here and employee equity dilution here.

Commonly startups will set aside 5-10% pre-Series A stock to divide among early employees and key hires.

I've adressed this question before here.

Edit: As Jesper points out in the comments, this hardly covers the case where someone has gone without salary for months, and then to work for a very low pay. That sounds much more like a co-founder and obviously deserves more.

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But the pre-series A options pool hardly covers hires who go without salary for months, and then take only 1/3 salary later on...? – Jesper Mortensen♦ Jan 17 '11 at 21:19
Ah, true Jesper. I should clarify. My comment was too narrow, only explaining the principle. – John Sjölander Jan 17 '11 at 21:21
Thanks John and Jesper. They are proposing 3% vesting over 3 years which seems very low for the risk, but I am finding it very difficult to find concrete sources to support my position.There are more resources for funded companies than bootstrapped. I would think getting the 3% at the onset would be the minimum to consider. – Stephanie Jan 18 '11 at 0:16
Have you had other sources of income during the eight months? How much of your time have you spent? If it's considerable time and little money you deserve a bigger share, in my opinion – since you're then actually closer to a co-founder. Otherwise, I say 3% is fair, but you should be compensated greatly (future sales bonus or whatever) for your upcoming boot-strap salary. Basically, as it stands now, unless you get more, your risk is way too high. Non-co-founders shouldn't have to take that much of a pay cut unless they have considerably more stock to make up for the risk. – John Sjölander Jan 18 '11 at 8:23
@Stephanie: here is your hard evidence - take a job offer, tell them to match or get lost. Seriously, 3% vested over 5 yeears while you forego pretty much a normal salary and bonus is not an offer, it is insulting. Slap in face and tell them to get lost insulting. – NetTecture Mar 15 '12 at 15:13
up vote 2 down vote

I think you can base your contribution to the startup on how much money you would be making in a regular company.

You should consider:

  • Money you could've made working in a regular company for 8 months.
  • The difference between 1 year of customary salaries and 1 year of minimal salaries.

Once you know your contribution equivalent in cash, see how much it is of the total percent:

  • $220k.
  • Your colleague contribution equivalent in cash.
  • Your contribution equivalent in cash.

There might be other things to consider like how vital you are for the company's success and other details.

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+1 I agree that inputting time translates into cash (as in opportunity cost of money). However, it's not necessarily a 1:1 ratio. – John Sjölander Jan 18 '11 at 20:01
up vote 0 down vote

I'm not sure why you can't convert your time into equivalent cash investment. Taking a salary of $0 is nearly the same as taking a market salary, but investing the equivalent amount into the company. Every dollar you forgo in salary is one less dollar needed for investment.

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