equity, employees, employee-compensationI’m considering joining an early stage (pre-seed) startup.
As of now, I’m working full time at an established firm and will be joining them full time after my 1 month notice period.
The startup plans on raising seed money in this one month period.
In such a scenario what is the general trend of equity offered to an early employee and should that equity be based on the pre-seed or the post-seed valuation assuming they raise money before I join.
If you sign on prior to the seed round, your risk is significant. Seed rounds can get delayed or fail outright, owing to endless lawyer-related BS, investors changing their mind, indecisive investors who don’t want to be the first to sign and end up waiting for a lead investor, etc.
Your salary also counts in the equation. The rule of thumb to have in mind is that stock options are your bonus, rather than something to compensate for loss of pay.
This is important because if you sign pre-seed and accept an offer where you’re paid less than what you can get elsewhere, you might not be a founder in that they’re shipping already or nearly there, but you’re not really an employee either – you’re somewhere in between and probably best described as a late cofounder. If that is your case, don’t settle for a pittance in stock options, and probe into getting an up-front (vested) equity grant if you feel comfortable with negotiating that.
If the company is willing to pay your full salary pre-seed, then you are an employee, and your risk mostly depends on how long the company can pay you before going broke in the event the seed round fails. The founders will of course assume and argue that the seed funding will succeed, but keep both scenarios in mind when assessing the risks you’re taking.
If you join in post-seed, your risk is lower still because the money is secured. The only thing that counts is how long the company can stay around before going broke in the event it gets no traction. A low digit percentage is then typical in SV culture if angel.co is anything to go by.
Related reading:
https://startups.stackexchange.com/questions/1885/how-much-equity-should-a-partner-with-a-short-term-commitment-be-entitled-to/1886#1886
Putting aside the form the offer would take, assuming that the company is able to secure funding before your start date, then the your offer would be based on the current value, not the prior value; that being the value of the company on your start date, not the offer date or acceptance date.
As for the “right” or average amount to offer pre-seed or post-seed, honestly it would depend on the value of the company prior and after you joining the company; which based on the information provided would not be possible.
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