Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 2 down vote favorite
1

A bit of background: The two founders are guys I used to work with before our previous employer (a SaaS company) was aquired back in 2010. One of the founders was a senior sales exec and the other was director of IT. They have a senior Software Engineer currently developing their beta product (a SaaS offering). They also have a strong support network backing them, mostly comprised of seasoned industry execs. I've seen their product and it is solid and I believe it has a lot of potential. Right now they are seeking funding and are realistically about 3-4 months away from securing capital (VC and/or Angel). They've just finished a round of "friends and family" funding wich has raised about $150k.

I've been presented and offer of employment with two different compensation packages. What do you guys think would be the best option?

Option 1:

  • base salary of :65k
  • 3 weeks of vacation
  • 20 000 stock options.

Option 2

  • Lower base salary of 50k. (bumps back up to 65k when they get investment)

  • 4 weeks vacation

  • 20 000 stock options

  • Risk Bonus: 5000 additional stock options per month until they get investment. With max of 20 000 aditional stock options.

Notes: I do not know yet what the amount of shares outstanding is (total amount of shares issued). I also don't know what their stock ISO pool / ownership blocks look like. Both options provide the flexibilty to work from home as deemed fit.

EDIT: I'm just waiting for a response from them concerning amount of outstanding shares, vesting shcedual and strike price.

share|improve this question

6 Answers

up vote 2 down vote accepted
  • If you believe in the leadership and product then go with the risk bonus option, if you aren't inspired/confident/super excited about the group then go with option 1.
  • Without knowing shares outstanding/pool its tough to make a call on the options- the risk bonus could be huge or meaningless
  • The extra week of vacation is a non-factor in my opinion (if you're invested in the group would you really want to be away for that long)
  • Bottom line- if you really believe in the startup take Option 2 for the extra equity
share|improve this answer
I agree almost 100%, apart from I would say, "...if you aren't inspired/confident/super excited about the group then politely decline." For either option, you'd need to really be fired-up to join at such an early stage. Just IMHO, YMMV, etc. – Steve Jones Sep 23 '11 at 8:30
up vote 2 down vote

I don't have much experience in this, but the second option looks a lot better to me. The only downside is the lower salary until they get funded, but frankly, if they don't get funded it will be hard to keep paying you the higher salary anyway. So if you believe in the product, why would you take the safer way, which doesn't seem to be that much more attractive anyway? But it is definitely weird to negotiate over stock options without knowing the options pool.

share|improve this answer
up vote 2 down vote

Another factor to keep in mind - you'll be working closely with this team. Which option do THEY want you to take? I presume option 2, to best align your interests with the company's (keep cash burn low until revenue floods in). From the beginning if you act like an owner, they'll likely treat you like an owner, and in my experience with a handful of companies that is a win for all parties - especially on key hires/positions.

share|improve this answer
up vote 1 down vote

Love to say choose one over the other, but the information you do not know is the most important to choosing.

Having said that, if the potential reward is significant and you can survive on 50k. Take the 50k: you get an extra week vacation :)

share|improve this answer
But that one week of vacation costs you $15,000. That's a very expensive week off work. – John Sep 23 '11 at 7:12
I look at it this way. Each week is worth roughly 1k. They are giving him an extra 1k for not working. Presumably forever. If they get the next round of funding his salary jumps back up. His maximum exposure is 4 months. So his maximum potential loss is 5k. On the flip side, he also gets extra stock options. If he feels they are going to get funded - no downside to the stock options (assuming they aren't diluted to hell). Again, his worse case loss is 5k. His best gain win is additional stock options and an extra week of vacation for several years. – Chris Kluis Sep 23 '11 at 11:07
up vote 1 down vote

I like the 2nd offer more. Another thing I'd like to say, they are offering you 65K a half of the funds they raised for their start-up and other investment still hanging in the air? Good job, you must be one skilled fella.

share|improve this answer
Well it depends on how you look at it, they expect to have funding secured in 3-4 months. So what they'll actually be paying me during that period will not amount up to 65k. And the incomming CFO, whom I know personnaly, flat out told me that after 4 momnths, if they haven't got money, they are closing shop. LOL. – Kronprinz Sep 22 '11 at 17:35
Well yea I understand and hope all will go well and you guys will get funding. If you believe the business is good and will take off, I would go for the option which offers higher share options. – Peter K. Sep 23 '11 at 1:21
@Kronprinz , so how is the first option an option at all? These options are poorly constructed, there is no single benefit of the first one. If they don't get funded they are closing up, but if they do get funded, they pay you 65k anyway. What is your dilemma with the options exactly? :) – Mihaly Borbely Sep 23 '11 at 5:52
up vote 1 down vote

At $15K per year difference between salaries in the two offers, that's $1250 / month. So you are exchanging $1250 per month for 5000 shares per month. What's the strike price they're offering? Breakeven is $0.25; above this is a good deal, below this is not. (Not accounting for the extra week off.)

share|improve this answer
I don't really know much about this stuff, but since they're offering stock options and not actual shares, wouldn't the deal be better the lower the strike price is? Because he has to actually exercise his options and buy the shares with his money. And the cheaper they are the better for him. Or is there an error in my logic? – znq Oct 12 '11 at 18:20

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.