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 1 down vote favorite
1

I got an offer from my friend in a startup company with $30K/year (take into account it's not in a "hot" spot like Silicon Valley or NY, but yeah, it's not high in any standards, and the job's in a mid-city in TX) with a stock options: I got 1.5% after the first year, another 1.5% after the second year, 1% after the third and 1% fourth year. And when I quit, I lose a significant portion of the shares I gained.

They want me to be the lead developer (right now I'd be the only developer). If I take the job, I'd be in a CTO-like position when new programmers are hired. The salary and stock will increase later on based on performance (but it's not specified in any paper, so I guess I need to make them specify that, or no? I guess it's kind of hard for a startup).

The startup does seem to have potential. I guess I just lack the knowledge to negotiate a better deal (as you might have guessed, I'm a tech guy, not a biz guy). I have been spending several hours browsing all the top questions on onstartups, so I think I know a little bit more. But I'm still walking on tightrope right now: So what should I be aware of? Which ones are reasonable and which ones I need to stand up to?

share|improve this question

5 Answers

up vote 4 down vote

Options should get vested over time. You should not lose them when you leave, except for the vesting schedule (which is normal).

Read this: Forming a new software startup, how do I allocate ownership fairly?

Consider where you are. You're not a founder, I gather. Are you in the second band? The third? How important is tech to this company? If it's a software company then they should have a tech founder so I'm guessing they are not a tech company.

I don't need to tell you that $30,000/yr is way below market price (assuming you have any kind of background worth talking about) so either you should be talking about deferred compensation or other perks. Make sure you're not the only one stuck with dilutable shares or you can easily end up with nothing. Ah, so many things to worry about.

About the raises, make sure you have some objective measure on performance. If you hit the targets then your pay goes up x%. If they cannot do that (and perhaps they cannot) then have it judged by an impartial third party. Just leaving it up to them to judge what you are worth in the future and you working for a below market rate seems a bit generous of you. They should give something as well (unless there are no jobs where you are and you really want to stay there).

Good luck!

share|improve this answer
The founder got the idea recently, and got positive feedbacks from some potential investors. So he asked me in. So I guess I'm at the first band (?) I do think that shares is too small, but I'm not sure what should be the expected percentage? It's kind of a social network thing, so yes, the tech part is extremely important. – Anh Pham Sep 23 '11 at 16:54
@AnhPham: Sounds like you're a technical founder considering it's at the idea level. You'll be doing a majority of the work and be a critical team member. I'm not an expert, but I'd expect far more equity, maybe 15-25%? – Ryan Doherty Sep 23 '11 at 18:35
2  
@AnhPham - xin chao, if it is the two of you and everything is at the idea phase, you should go in 50/50. Take that link, print it out, and take it to your partner - if hey have any common sense, they'll see the benefits of making you a 50/50 partner. – John Sep 24 '11 at 1:53
up vote 2 down vote

Doesn't sound like a good deal to me, but then I don't know anything about your situation, or the company. If you can live on $30k and feel really passionate about the business, then maybe it is worth a shot.

Given you are taking a massive gamble, assuming that you can earn way more than $30k elsewhere, you should be rewarded for that, so losing your stock if you quit seems churlish. It is like an opportunity cost on your time and energy.

share|improve this answer
up vote 1 down vote

I'd be asking these questions:

  • Does the company have a product yet or would you be the one developing it for market?
  • Has the company raised any outside capital? If so, ask to see the Cap Chart.
  • Have any other team members been granted stock or options? If so, under what terms.
  • Are any other team members accepting well-below-market compensation like you've been asked to accept?

Further, I would separate the conversation about compensation into two: first, what is your Founder's Equity position going to be as compensation for joining the startup as it's first technical team member; and second, what additional equity will you be granted in exchange for agreeing to accept a well-below-market cash compensation rate. I think these two issues are related but different. Whether you can separate them depends on the answers to the questions listed above.

Further, I agree with others who say that all equity, especially if it's Founder's Equity, should be granted up front and subject to the same vesting schedule that everyone else's is subject to. You should only lose un-vested equity when or if you leave the company.

Best of luck.

share|improve this answer
I would be the one developing the product. I think he hasn't raised any outside capital yet. – Anh Pham Sep 23 '11 at 17:12
up vote 1 down vote

It's your call, but the risk that you'll work there for a year or two with nothing to show in the end (money wise) is great. So they are paying you a substandard salary only to pay you what a developer should be making once the company is successful? If you want to take the risk I'd ask them to commit in writing (plus remedies if they don't own up to their promise) that IF the company is successful they will pay twice the rate what a regular developer salary is. Just a thought.

share|improve this answer
up vote 1 down vote

You are either an employee or a partner.

If you are an employee than you should get a fair salary, taking a salary that is a bit below market rate because you believe in the company is ok - but as an employee you should never take major financial risk for the company (including not taking a salary that is significantly under the fair market value based on promises).

If you are a partner you should get a fair part of the company, something around 50/50, this brings with it all the risks of being a co-founder (what if the company fails? what if your friend doesn't do anything and leaves all the work for you?) so this is not for everyone but it does also have the advantages (control over the company, monetary rewards in case of success...)

Taking partner-level risk while being just an employee is not a good place to be.

share|improve this answer

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.