equity, employee-compensation, co-founder, ctoSo, I graduated from college about 6 months back and have been working in a pretty big company (in fact the leading ecommerce company in my country) for about 4 months. The work is not very challenging or interesting right now but the team is very good and the environment is pretty relaxed. I am not dissatisfied with my job.
Two of my batchmates who had been working on an idea for about a year and half recently managed to raise seed funding of about $100,000 at a valuation of $1 million or so I am told.
Because of the time they have put into the startup they don’t have a degree yet and don’t seem like getting one in near future but do seem dedicated towards the startup.
Anyways they are offering me 2% equity and the same salary as my current job and the position of CTO (Personally with me being the only tech guy at the moment I’m not sure if the title means much). The offer at the moment is up for negotiation.
Currently one of the cofounders is working as the sole tech guy but if and when I join the company, I’ll have that responsibility with the cofounders busy in raising the next round.
Considering what’s at stake here, with me leaving my first company less than a year and the only guy with a degree (whose significance may vary from person to person) I’m not sure I’m getting a fair enough deal.
I’m not entirely comfortable working under my batchmates as just an employee. If I’m leaving such a comfortable position, it doesn’t make sense for me to join a company just as an employee. I would like to help run the startup as well. But who apart from cofounders can run the startup? At the same time they have been at it for almost two years and managed to raise funding on their own. So, it doesn’t make sense to ask to be made a cofounder, if that’s even a possibility. Or is this request actually fair?
So, what are my options here? Increasing equity probably makes sense? If so, how much equity can I expect?
Is there any other way where I can stop being just an employee? Is it fair to be ask to be made a cofounder? Do I have any other options?
Thanks.
Edit: I read up a few answers on equity distribution and a lot of them focus on the risk factor. I think it is arguable to say that I am taking a big risk leaving my job less than 6 months (which might reflect poorly on my resume) as compared to the founders themselves who have not got much to lose. They can always continue with their education in case of the worst scenario. Of course this is opinion based and hence I have used the word arguable.
Do you bring anything to the company that nobody else can? Unless that is the case, I don’t think it is a terrible offer.
Thinking about risk: you will get the same salary as now (And a 2% share = 20’000 USD on top) - which is not a typical start-up risk. A real risk in a start-up is that you would get no salary at all and then it would also make sense that you get a bigger share. (I currently work for free for my own start-up …)
Wondering what equity you would consider fair? Think about this: if you would get 20% share that would mean that you would get 200’000 USD for free - quite a lot for explaining future employers that you left a job after 6 months for a cool start-up job you have been offered.
With the details available, maybe you can try to negotiate 3% or 4% but I don’t think you can still be a co-founder at such late stage.
But you are not a co-founder. They have been working on it for almost two years and have gotten it far enough for initial funding. Getting a product / service far enough along to raise $100,000 is not a minor task. They were probably working for free.
A investor just paid $100,000 for (assume) 10%. They are offering you 2% for free and match your salary. At a valuation of $1 million that 2% is $20,000 dollars. That is nice offer. Get over you have a degree and they don’t - that does not matter here.
I was (am) the 2nd employee at a startup and was initially offered 1.5% with opportunitites for more in future. Had no new shares been issued, I’d now be around 7.5% which I consider very good.
It’s worth noting that since more shares have been issued to investors, my current percentage is really ~3.8% but it’s ~4% of something considerably more valuable than the company pre-investment.
Yes, the founders are going to start with 20-50% each, but that’s because they’ve scraped a lot of money together and started a company. They’ve probably already had to give shares to an investor (usually a significant percentage for the first round).
You’re not coming along with a big bag of cash, nor do you have hundreds of valuable contacts to open doors / kickstart sales. You’re an employee, being paid a salary. The shares you’re given are to offset the added risk of being at a startup.
Remember that they need to offer shares to other early employees. It’s common to offer less shares to each new employee (the risk drops the larger the company is).
Note that it’s not uncommon to be given share options which vest (“unlock”) over a number of years/when conditions are met. This is to encourage you to stick with the company. In the UK, there are tax benefits doing it this way.
In short, seems like a fair offer to me, especially considering you’re likely to be able to obtain more in future.
Finally… Don’t underestimate the power of a title. When looking at your CV or business card, your title is obvious, but company size is often less clear. It might not get you a job/sale but it will make people pay attention.
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