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I am trying to understand the right compensation for VP of engineering at a series B company with $10+M revenue in 2010 with plans to double it in 2011. The company is 5+ years old and has gone through weird financial structures in the early days to stay afloat.. It's currently raising series C.

Any suggestions are much appreciated.

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I assume this is a new position? That the person was not there prior to now? – TimJ♦ Jun 29 '11 at 15:11

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Fred Wilson has a great system for making a quick determination on equity (obviously the rule isn't hard and fast, but it's a great place to start).

From his blog:

When you have the brackets set up, you put a multiplier next to them. There are no hard and fast rules on multipliers. You can also have many more brackets than four. I am sticking with four brackets to make this post simple. Here are our default brackets:

Senior Team: 0.5x

Director Level: 0.25x

Key Functions: 0.1x

All Others: 0.05x

Then you multiply the employee's base salary by the multiplier to get to a dollar value of equity. Let's say your VP Product is making $175k per year. Then the dollar value of equity you offer them is 0.5 x $175k, which is equal to $87.5k. Let's say a director level product person is making $125k. Then the dollar value of equity you offer them is 0.25 x $125k which is equal to $31.25k.

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how does it work if a startup looks at offering the salary in part cash, part equity. Say for the example of VP Product development. What would be a god multiplier in this case? – Giridhar Nayak Jul 28 '11 at 9:17
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Probably at this point after 5 years, there are many "hands in the pot" so the equity wouldn't be as good. Plus after 10 million dollars investment there was likely some dilution.

I can't say exactly, but definitely under 5% equity. Probably much less.

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At least a factor of 10 less... – TimJ♦ Jun 29 '11 at 15:08
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I haven't done this myself but have heard and quite liked the the following:

Given the goal of the comapny (buyout or public list) what is this likely to be $100M? or more? pick a nice figure for them to get at this point ... say $1M for arguments sake. Then scale this backwards to where you are today.

In my example it is 1% of the company because the math is easy.

The incentive being "This is what you are driving towards", we go well hit our targets, your a millionaire (or you can buy a house ... etc).

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Thanks Rob, good advice. They offer me 100K shares, sounds pretty lame. In previous series B startups I was getting 300K options for the same position, although they had less revenue. – user9085 Mar 31 '11 at 8:07
Ah, yeah it's hard to answer because each company value and share holding is different. I could just comment on the vibe. – Robin Vessey Mar 31 '11 at 8:32
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@KOD you can't compare share numbers, since not all the companies have the same total number of shares. You need to compare the percentage of the shares they are giving you. – Filippo Diotalevi Mar 31 '11 at 13:38
That is a much better way of saying it ... :) – Robin Vessey Mar 31 '11 at 22:51
Further to @Filippo's point, keep an eye on percentage equity, but remember 5% of company A is going to be worse than 1% of company B if company B has a chance of a 10x bigger valuation... – edralph Jun 29 '11 at 9:40

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