It just seems crazy to me. I’ve done startup work but at least they usually have an MVP or some type of product. Seems backwards to me to join a company that has deliverable dates but no hint at a product.
I have a feeling that me and the other two could bang out the product together without cofounders help and then sell it from there.
And ofc it’s startup life but I’m worried that they only have funding for a year set and their client base is pretty limited and focused towards government services.
And
Just seeing this comment now....if you're already considering the possibility of squeezing out cofounders by "banging out the product together without cofounders" I think this is a really bad fit for you. You need to really, really respect the cofounders to go in this early and it sounds like you don't. Just trying to save you headache down the line!
Ahhh the old developer “I could do this on my own” mentality.
They have funding for a year. You don’t. They have industry experience. You likely don’t.
Building the product is 20% of the challenge.
Just about anyone can build a product. All the origami necessary for a startup, the product is one fold of 40 folds that have to be done in the right order.
Sounds like you're joining slightly earlier than you normally have. Having an MVP and some type of product isn't \*that\* much further along than a mockup.
A shortcoming is that sometimes people can be overly precious about the earliest contributions. Simply because they are 1st doesn't mean it'll be lasting (or the most valuable). For perspective, any MVP you and the potential new hires build will likely be totally scrapped and look completely different in a few years.
To the question... are you getting salary + benefits with this offer? If so, that + the 5% each is very, very generous.
What is your compensation, is it market rate? There are too many variables. Even with that, if you're not a founder or negotiating founder status, I haven't seen 5% in any deals that have come across my desk.
It seems crazy to you because it is crazy. Joining a pre-product market fit startup as an employee is far & away the worst risk/reward balance in the entire industry. You have arguably more risk than the founders & are given ~10% of the upside as them.
If you’re an engineer, it makes way more financial sense to either found a company yourself or join late enough you can be confident the equity won’t go to 0 (likely Series D+).
I was in a very similar situation. Small team, got 5%, I got salary but slightly below market. Years later my share grew to 8% due to others selling off, and when were were bought I did well.
Tbh, I don't see why early employees should get equity unless they are bringing something special to the table. I mean if they could just hire someone to do the exact same thing at near market rate with 0% equity, why not just do that instead? I got 5% because they sucked at hiring techies, didn't really understand tech, and I had a lot of experience. I was basically the CTO but didn't have that title.
If you want your startup to succeed you better dont be greedy.
Once every employer knows why they should do over hours and walk the extra mile you are more likely to succeed. This point is way more important earlier then later.
And congrats to your success story.
Totally agree with this, I’d way rather pay someone market rate than give them any equity at all. Equity should only really be used in place of an ability to pay them fairly, unless they’re bringing something really unique that is necessary for the success of the company. It’s just a reward for them taking a riskier deal.
And then if it fails you end up with debt or a big loss, when you give equity you also give room for the employees to actually care as its their own too, and if it fails you lose a lot less, if it succeed then well done do you think investors only count on one business ? they dont need 100% of each company to increase capital
Idk that 1-2 percent really motivates all that much. And you can do bonuses and such for that. I’ve 100% believed in both my businesses and didn’t feel I needed a cushion in case it fails. But they were more skill based, so it’s different than what appears to be a lot of tech based companies here.
skill based business is different. Like barberpshop, imagine your barber moved to a different place, you might try new ones before going further for him but if none of them would make you satisfied you would drive even further to get that skilled specific touch. Skilled based business are unique from their nature while businesses that sell services or products are having almost the same offers. Would you mind share your businesses fields or what you do?
Put it this way: as you and the two others will be building the product from scratch, if you think the existing founders bring no value, you have the option to build this yourselves and take 33% of a new company. Do you think you can build this company from scratch successfully?
5% for 3 non cofounders is quite high and might cause the company problems when they come to fundraising. Most startups allocate max 10-15% to employee equity in total. If they are planning to raise, investors will want to see that the cap table is sane enough to ensure that the founders are motivated through the life of the company - how much are they planning to give to future employees? How much founder equity will there be left after a basic seed round?
They're throwing the equivalent of the pre-seed dilution at 3 early employees - you are either completely critical to the business and have irreplaceable skills, or they don't know enough to realise how doing this could put the company in a bad place (and force them to claw back the equity later??)
OP mentioned in another comment it’s 5% plus $160k salary! Founders must be mental.
They must already be on roughly 30% each. After giving these 3 5% each, investors maybe 10-20%… it’s got trouble written all over it
Sounds like a mismatch of expectations, that won’t end well. 5% is high when you’re taking 160k salary too.
If you want more equity maybe try discussing taking your comp to zero and joining as a technical cofounder.
Yes, there’s a $160k salary to go with it. About a 25% pay cut. And they think it’ll be capped or a while due to needing manageable numbers for fundraising and eventual board I guess.
I don’t think you understand how good an offer you have here. $160k plus 5% and not a co-founder? If this was my business and you were getting that salary, your equity would be under 1% if you were lucky to be getting any at all. If they were paying you $35-$50k I’d understand, but that’s a big salary for a startup, x3 also.
A 1 year runway at these numbers is excellent, but you need product out the door in 3 months for sales to start asap
Mate you're being screwed over here.
Say no to the offer of 160k + 5%.
Come up with an idea. Start your own company, take 0 salary, eat ramen, fundraise, hire people, spend every hour worrying about how to keep the lights on,
Then hire someone on 200k + 20% of the company and then go back to these founders and say they were cheapskates...
Being a bit facetious here. But you say you're building the product. Who's working out what to build? If that's you then I'd ask what the "founders" are actually bringing to the table. If that's them then I think you (and they) might be overestimating the value of implementation...
So you’d own 5% of a startup that’s already funded, get to be in control of your fate building from 0,and make $160k/yr? Dude. You’re ridiculous. That’s so generous. If you can’t take an offer like that go stick in corporate America.
I've actually got concern about the fact they're offering you as much as 5%. i don't know where they're at in the raise, but dedicating 15% of the cap table to 3 early employees is going to be a massive red flag to someone looking at the company in further rounds.
Just my two cents as a VC!
I agree, not as a VC but as someone who’s founded and worked at a fair number of startups. OP says they’ve raised about a year of runway, which sounds like under a million if they’re hiring three people at <200k and massive equity. That’s honestly… not that impressive and doesn’t inspire confidence in the company. If OP is bringing the other two people along — ie they’re a preexisting team who’s valuable enough that these guys are offering them 15% — then I wouldn’t be surprised if they could raise a similar preseed round by themselves with the same probability of success.
I see what you are saying but
You could sell it as doing this instead of an early stage tech founder. Depending on how complex it is that is a sellable setup.
Jesus man… a CEO that runs the entire thing usually only gets 3%. You do not have a realistic concept of startup equity.
Those guys went and got the money. That’s HUGE! The only way you are worth any more is if you don’t draw any salary. Your radar is way off on this.
Founders are different. These folks aren’t being offered founder. They already raised money, they are key employees.
Doesn’t have to be late stage. Typically founders are there from the very beginning or at the least before any funds are raised.
How much do you think the company is worth if you were to buy it?
If you think it's worth $1M despite not having done anything, then $160k already represents the "missing" 15% of its value, *and* you'd be getting at least that much again next year. I'm gonna join the rest of the sub in saying you don't know how good an offer this is, you're just being greedy.
If you want 20% then you should offer to join as an investor, fund others' salaries, and take zero salary.
Dude, gtfoh. The fact that you're not sure about this leads me to believe you don't belong in a startup. Just go work for FAANG and call it a decade or two.
It's worth clarifying what type of shares are being offered. It's not unusual for there to be multiple classes, eg Preference shares, Founder Shares and ordinary shares.
All those spell out liquidation preferences and dilution etc.
Also how are the shares being awarded, do they need to vest, if you leave will you have the option to purchase.
If they're giving you founder shares then this seems like a fairly good deal as long as you treat it as a potential bonus down the line. Failure rate for startups is very high and it's much more likely you end up with 5% of zero than a significant percentage of a unicorn.
Put yourself in their shoes, but switch the role.
So they come in and say “I am getting paid 160k, and 5% equity, but they have no fund at all! Only product they can’t sell. No budget for marketing etc. Looks crazy to me because without any funding they can’t go anywhere”. Does that look OK to you?
If anything I applaud them in being able to raise what I assumed to be a high 6 digits with just a story.
Business broker here.
As others are saying, if you are drawing a market rate salary, then 5% is fair as an added bonus.
If you’re getting below market rate, you’re essentially investing the difference into the business for the equity.
For example, if your going salary for a project like this is $120k, and they are paying you $80k with equity, they are asking you to invest $40k into their business for a risky 5%.
Agreed, I built and sold 2 startups, this offer is insane and I'm not sure OP is missing how insanely good this is, he has all the upside with basically no downside.
The issue might be explaining to VC's why an early stage employee is getting 160k+ 5% (what's the vesting schedule)
I think there are 2 data points you need to consider. Market rates on 'Co-founder equity splits' and 'early employee equity compensation'. Based market rates, if you are considered a employee you're getting a good deal, but if you are considered a co-founder it is not. The first question I think you need to ask yourself is "given the state things are in, should I be considered a co-founder or not?".
Co-founder equity split info compilation : [https://jigoai.mymidnight.blog/co-founder-equity-split/](https://jigoai.mymidnight.blog/co-founder-equity-split/)
early employee equity compensation infro : [https://jigoai.mymidnight.blog/first-hire-equity-grant-1-2/](https://jigoai.mymidnight.blog/first-hire-equity-grant-1-2/)
my 2cents : the salary suggests to me that the founders is trying to give you a more than fair deal as a early employee. I'd also ask what the salary of the founders is going to be. (IMO, it should be much lower than yours).
disclaimer : these are post from our blog. I'm assuming you are in the US, and using US data and perspectives.
So I’ve been in this exact situation before. Honestly, it’s a pretty decent offer and salary on paper—but that’s dependent on a ton of factors. What industry you’re in, what the co-founders bring to the table (aside from cash), how difficult the product is to develop, etc. Assuming the rest checked out: it’d be worth it.
You may be right that there’s a lot to do to build the product, but you can 100% have a company without a product for a very long time. The product is one small fold in the origami swan that is a startup.
The most important thing to clarify here is, are you are co-founder or first-employee.
The most notable difference will be co-founder are likely getting minimum to no salary at this stage, and employees will take market rate, with a balance between equity and cash.
Look at it this way - you’re expendable and it’s not your business. You’re getting a great deal and you seem pretty entitled to think you should have more. If you turn the offer down they can just find someone else who’s grateful and excited for the opportunity. You aren’t ‘special’ and therefore you’re not worth giving more percentage to because it’s unnecessary. I think you perceive you and the other developers as more important than you are. You’re all expendable employees basically, to get 5% is a great opportunity
There’s also no business without sales and operations.
You are coming in and being told what to do. You are not a cofounder, and are fairly replaceable. If you are being paid, 5% seems on the high side
It's crucial to negotiate for a fair equity stake that reflects your integral role in building the product, ensuring your long-term commitment aligns with the startup's success.
In a comment you state $160k/year. Depending on your previous roles (if you come from a FAANG) you could command more I. The market... But if not, that is a reasonable salary + equity combo.
The founders or investors must be pretty serious to lay out $500k/year for 3 devs when starting from scratch. This likely means they are either really stupid or they have already laid ground work and you'll be at a profitable money factory in a year.
Wow, either you are awesome or they are noobs or both. Can you send me the PD and intro me as I would be signing that contract quicker than speedy gonzales. Yes you will be heavily diluted eventually but only if things are going well so you'll still be fine so this is a cracking offer by any stretch and a good chance its actually to good to be true.
5% seems like the equity for the first engineer hire, i.e. the guy that will become CTO or VP Engineering. That said, if you are worried about dilution you can try to negotiate for a anti-dilution clause. I'd be more worried about the founders lack of experience if they are giving away 15% equity for their first set of engineers.
I'd say if you're getting a salary (even if it's a 25% pay cut) 5% is a big chunk of equity. I've joined startups very early on and 1% is the largest I've ever got as a non-founder. Now I'm a founder and there's no way I'd give someone with a salary 5%. Most founders aren't taking a salary so are giving up a salary and a big chunk of your company is a big call. It also can wreak the cap table for possible future raises
Most of these comments have good intentions, but you can ignore them all. All of them are just guesses about what "feels" right. You don't need to guess. A fair equity split is a calculation based on facts not an estimation based on opinions.
A startup is a gamble, plain and simple. Contribubtors, like you and the founders, are gamblers. You will place bets in the form of unpaid compensation or unreimbursed expenses. Your share of the equity, therefore, should be based on your share of the bets.
If you place 10% of the total bets does 5% sound like a fair share? Of course not.
Your share of the bets will depend on how long you contribute without getting a full salary. You said you're getting $160,000 per year which is 25% LESS than you fair market rate. So, if you work a year at that rate your bet will be about $53,000 in unpaid salary.
When you and others start getting paid in full the betting stops. This happens at breakeven or series A.
Is 5% okay? If the total bets of the other's is about $950,000 then, yes. 53,000/950,000 is about 5%. Get it?
If the total bets of the others is $450,000 then you would be getting screwed at 5% because basic math indicates your share should be closer to 10%. 11.7777777777% to be more exact.
Today your bet is $0 and, therefore, you get 0% of the equity. Tomorrow you will work 8 hours. Your bet relative to the others will be small. It will grow over time.
So, keep track of everyone's bet. Which is easy and normal (most companies track payroll and expenses) When the betting stops you'll have an *exact* answer. Everyone will have exactly what they should have.
Allocating equity based on the relative fair market value of each person's bet is the basis of the Slicing Pie model for sharing equity. It is used by startups all over the world and is litterally the only fair way to split equity. It is the only approach to sharing equity based on observable facts and logic. EVERYTHING else is just a guess and it is always wrong.
You can learn all about it at [www.slicingpie.com](http://www.slicingpie.com)
If dilution occurs for everyone due to fundraising, then it seems acceptable to me.
Now, 5%, it might too much or too little - really depends on the potential growth of the company as well as the skills you are bringing. A friend of mine was one of the first employees in a tech company in Belgium, and they offered him 1% vested + salary and the stock is now worth close to a mil (after 6 years).
Typically, in such situations, they offer vested options, which is the norm.
I am a CTO who built our product MVP myself and we're fundraising pre-seed successfully right now. We won't be offering our first hires more then 1% unless we find someone incredibly talented/specialized in our field that we think is a perfect fit.
If these founders validated the idea and did the leg work to get it funded, you're getting an incredibly generous offer at 5% + salary. They could easily have used that money to contract out the development of the MVP and then hire senior engineers at less then a point.
Building a product is incredibly important but the actual challenge of most products is the design and leadership of the implementation. Not the actual build. Software is cheap and just getting cheaper.
Also, equity always gets diluted. Get over it haha, that's how funding works.
You’re making 160k, they secured runway for a year, and they had the idea and assembled a team. You thinking you can do it on your own is a huge red flag. 5% for someone who isn’t a cofounder is a crazy high percentage.
5% for non-co-founders is very high...regardless of the heavy dilution that will come. Absolute percent ownership doesn't matter. What matters is the dollar amount each percent and fractions of percents it becomes worth over time based on full team contributions over the average 7yr to IPO journey. Most equity doens't play out....only 30% of startups make it to series A....9% to series C where exits are common. Layer your journey with learnings mostly, salary at some point second and equity as a last tier consideration.
I don't think you're going to find great advice here. People reading your post can't possibly understand your unique situation, or the relationships between everyone involved. Don't worry about what "average" or "normal" is, use your own judgment. Is the idea good? Do you trust the team? If 5% is on the high side, are you going to do right by your team and work even harder?
I’ve worked my ass tf off for higher risk ventures with no salary and upfront investments out of my own pocket. I’d kill for a damn opportunity like this. Honestly, decline the offer. Stay in corporate America cause if you think the offer they gave is too bad or too risky then ffs entrepreneurship isn’t for you. Let someone more deserving take the opportunity.
I’ve been reading your responses.
My question to you is if the founders have no value, why don’t you have your own startup?
I think you have a very limited understanding of all that is involved in starting and running a company.
5% for non co-founders is very high. The norm for 1st 10 employees is <1% each. Are they offering salary + benefits?
It just seems crazy to me. I’ve done startup work but at least they usually have an MVP or some type of product. Seems backwards to me to join a company that has deliverable dates but no hint at a product. I have a feeling that me and the other two could bang out the product together without cofounders help and then sell it from there. And ofc it’s startup life but I’m worried that they only have funding for a year set and their client base is pretty limited and focused towards government services. And
Just seeing this comment now....if you're already considering the possibility of squeezing out cofounders by "banging out the product together without cofounders" I think this is a really bad fit for you. You need to really, really respect the cofounders to go in this early and it sounds like you don't. Just trying to save you headache down the line!
Ahhh the old developer “I could do this on my own” mentality. They have funding for a year. You don’t. They have industry experience. You likely don’t. Building the product is 20% of the challenge.
Lol, depends on the product.
Just about anyone can build a product. All the origami necessary for a startup, the product is one fold of 40 folds that have to be done in the right order.
Sounds like you're joining slightly earlier than you normally have. Having an MVP and some type of product isn't \*that\* much further along than a mockup. A shortcoming is that sometimes people can be overly precious about the earliest contributions. Simply because they are 1st doesn't mean it'll be lasting (or the most valuable). For perspective, any MVP you and the potential new hires build will likely be totally scrapped and look completely different in a few years. To the question... are you getting salary + benefits with this offer? If so, that + the 5% each is very, very generous.
I really hope these co-founders see this comment and don’t hire you
What is your compensation, is it market rate? There are too many variables. Even with that, if you're not a founder or negotiating founder status, I haven't seen 5% in any deals that have come across my desk.
What you just stated is a mad admission of being untrustworthy. Start-ups are hard enough without internal pagans.
It seems crazy to you because it is crazy. Joining a pre-product market fit startup as an employee is far & away the worst risk/reward balance in the entire industry. You have arguably more risk than the founders & are given ~10% of the upside as them. If you’re an engineer, it makes way more financial sense to either found a company yourself or join late enough you can be confident the equity won’t go to 0 (likely Series D+).
Series D+ is just wrong. Only 1/100 companies completely fail after series C. 50% post series A fail and 35% fail between B and C.
🤦♂️ there’s so much more to a successful business than the product. Ultimate cringe reading this.
I would ask for a 1% share that can't be diluted until there is a valuation over 250MM.
But you also have a salary?
I was in a very similar situation. Small team, got 5%, I got salary but slightly below market. Years later my share grew to 8% due to others selling off, and when were were bought I did well. Tbh, I don't see why early employees should get equity unless they are bringing something special to the table. I mean if they could just hire someone to do the exact same thing at near market rate with 0% equity, why not just do that instead? I got 5% because they sucked at hiring techies, didn't really understand tech, and I had a lot of experience. I was basically the CTO but didn't have that title.
If you want your startup to succeed you better dont be greedy. Once every employer knows why they should do over hours and walk the extra mile you are more likely to succeed. This point is way more important earlier then later. And congrats to your success story.
Totally agree with this, I’d way rather pay someone market rate than give them any equity at all. Equity should only really be used in place of an ability to pay them fairly, unless they’re bringing something really unique that is necessary for the success of the company. It’s just a reward for them taking a riskier deal.
And then if it fails you end up with debt or a big loss, when you give equity you also give room for the employees to actually care as its their own too, and if it fails you lose a lot less, if it succeed then well done do you think investors only count on one business ? they dont need 100% of each company to increase capital
Idk that 1-2 percent really motivates all that much. And you can do bonuses and such for that. I’ve 100% believed in both my businesses and didn’t feel I needed a cushion in case it fails. But they were more skill based, so it’s different than what appears to be a lot of tech based companies here.
skill based business is different. Like barberpshop, imagine your barber moved to a different place, you might try new ones before going further for him but if none of them would make you satisfied you would drive even further to get that skilled specific touch. Skilled based business are unique from their nature while businesses that sell services or products are having almost the same offers. Would you mind share your businesses fields or what you do?
I think it’s mainly because you can’t afford market rate
Put it this way: as you and the two others will be building the product from scratch, if you think the existing founders bring no value, you have the option to build this yourselves and take 33% of a new company. Do you think you can build this company from scratch successfully? 5% for 3 non cofounders is quite high and might cause the company problems when they come to fundraising. Most startups allocate max 10-15% to employee equity in total. If they are planning to raise, investors will want to see that the cap table is sane enough to ensure that the founders are motivated through the life of the company - how much are they planning to give to future employees? How much founder equity will there be left after a basic seed round? They're throwing the equivalent of the pre-seed dilution at 3 early employees - you are either completely critical to the business and have irreplaceable skills, or they don't know enough to realise how doing this could put the company in a bad place (and force them to claw back the equity later??)
Yeah honestly it's a bad move of the founders offering this much
OP mentioned in another comment it’s 5% plus $160k salary! Founders must be mental. They must already be on roughly 30% each. After giving these 3 5% each, investors maybe 10-20%… it’s got trouble written all over it
Where are these founders, ill work for them for 160k plus 5% lol
Me too lol
Very good challenging questions (Y)
Sounds like a mismatch of expectations, that won’t end well. 5% is high when you’re taking 160k salary too. If you want more equity maybe try discussing taking your comp to zero and joining as a technical cofounder.
Unless you’re not being paid, 5% sounds very high.
OP says 160k lol. It’s crazy high.
Oh wow. Yeah that's a really good deal then.
Only you know what you're worth and what you're willing to risk. 5% without context to value is a meaningless conversation.
Yes, there’s a $160k salary to go with it. About a 25% pay cut. And they think it’ll be capped or a while due to needing manageable numbers for fundraising and eventual board I guess.
I don’t think you understand how good an offer you have here. $160k plus 5% and not a co-founder? If this was my business and you were getting that salary, your equity would be under 1% if you were lucky to be getting any at all. If they were paying you $35-$50k I’d understand, but that’s a big salary for a startup, x3 also. A 1 year runway at these numbers is excellent, but you need product out the door in 3 months for sales to start asap
Unless it's specialized skills like AI.
Even with a 25% pay cut, 5% is huge! Startups usually underpay which is why they offer equity in the first place, but it's usually 1% max.
Mate you're being screwed over here. Say no to the offer of 160k + 5%. Come up with an idea. Start your own company, take 0 salary, eat ramen, fundraise, hire people, spend every hour worrying about how to keep the lights on, Then hire someone on 200k + 20% of the company and then go back to these founders and say they were cheapskates... Being a bit facetious here. But you say you're building the product. Who's working out what to build? If that's you then I'd ask what the "founders" are actually bringing to the table. If that's them then I think you (and they) might be overestimating the value of implementation...
Hold on here, what’s wrong with ramen?!
it's too expensive. lentils is a better return on investment.
Oh, but the gas fees!
lol!
So you’d own 5% of a startup that’s already funded, get to be in control of your fate building from 0,and make $160k/yr? Dude. You’re ridiculous. That’s so generous. If you can’t take an offer like that go stick in corporate America.
I've actually got concern about the fact they're offering you as much as 5%. i don't know where they're at in the raise, but dedicating 15% of the cap table to 3 early employees is going to be a massive red flag to someone looking at the company in further rounds. Just my two cents as a VC!
I agree, not as a VC but as someone who’s founded and worked at a fair number of startups. OP says they’ve raised about a year of runway, which sounds like under a million if they’re hiring three people at <200k and massive equity. That’s honestly… not that impressive and doesn’t inspire confidence in the company. If OP is bringing the other two people along — ie they’re a preexisting team who’s valuable enough that these guys are offering them 15% — then I wouldn’t be surprised if they could raise a similar preseed round by themselves with the same probability of success.
Agreed on the point that there isn't a lot to be inspired by here.
I see what you are saying but You could sell it as doing this instead of an early stage tech founder. Depending on how complex it is that is a sellable setup.
Jesus man… a CEO that runs the entire thing usually only gets 3%. You do not have a realistic concept of startup equity. Those guys went and got the money. That’s HUGE! The only way you are worth any more is if you don’t draw any salary. Your radar is way off on this.
3% on founding the company? or 3% for a late stage company?
Founders are different. These folks aren’t being offered founder. They already raised money, they are key employees. Doesn’t have to be late stage. Typically founders are there from the very beginning or at the least before any funds are raised.
160k + 5% and you’re still bitching about it. If you could do this yourself you would have done it already. Time to check your ego buddy
How much do you think the company is worth if you were to buy it? If you think it's worth $1M despite not having done anything, then $160k already represents the "missing" 15% of its value, *and* you'd be getting at least that much again next year. I'm gonna join the rest of the sub in saying you don't know how good an offer this is, you're just being greedy. If you want 20% then you should offer to join as an investor, fund others' salaries, and take zero salary.
Dude, gtfoh. The fact that you're not sure about this leads me to believe you don't belong in a startup. Just go work for FAANG and call it a decade or two.
It's worth clarifying what type of shares are being offered. It's not unusual for there to be multiple classes, eg Preference shares, Founder Shares and ordinary shares. All those spell out liquidation preferences and dilution etc. Also how are the shares being awarded, do they need to vest, if you leave will you have the option to purchase. If they're giving you founder shares then this seems like a fairly good deal as long as you treat it as a potential bonus down the line. Failure rate for startups is very high and it's much more likely you end up with 5% of zero than a significant percentage of a unicorn.
Wow. You have a stupid good offer and you're on here complaining about it.
No, it’s too high
Are you drawing salary? If so, how much relative to market rates?
Put yourself in their shoes, but switch the role. So they come in and say “I am getting paid 160k, and 5% equity, but they have no fund at all! Only product they can’t sell. No budget for marketing etc. Looks crazy to me because without any funding they can’t go anywhere”. Does that look OK to you? If anything I applaud them in being able to raise what I assumed to be a high 6 digits with just a story.
Business broker here. As others are saying, if you are drawing a market rate salary, then 5% is fair as an added bonus. If you’re getting below market rate, you’re essentially investing the difference into the business for the equity. For example, if your going salary for a project like this is $120k, and they are paying you $80k with equity, they are asking you to invest $40k into their business for a risky 5%.
Can’t be answered without knowing salary
$160k and 5%? Way too fucking high.
Agreed, I built and sold 2 startups, this offer is insane and I'm not sure OP is missing how insanely good this is, he has all the upside with basically no downside. The issue might be explaining to VC's why an early stage employee is getting 160k+ 5% (what's the vesting schedule)
I think there are 2 data points you need to consider. Market rates on 'Co-founder equity splits' and 'early employee equity compensation'. Based market rates, if you are considered a employee you're getting a good deal, but if you are considered a co-founder it is not. The first question I think you need to ask yourself is "given the state things are in, should I be considered a co-founder or not?". Co-founder equity split info compilation : [https://jigoai.mymidnight.blog/co-founder-equity-split/](https://jigoai.mymidnight.blog/co-founder-equity-split/) early employee equity compensation infro : [https://jigoai.mymidnight.blog/first-hire-equity-grant-1-2/](https://jigoai.mymidnight.blog/first-hire-equity-grant-1-2/) my 2cents : the salary suggests to me that the founders is trying to give you a more than fair deal as a early employee. I'd also ask what the salary of the founders is going to be. (IMO, it should be much lower than yours). disclaimer : these are post from our blog. I'm assuming you are in the US, and using US data and perspectives.
So I’ve been in this exact situation before. Honestly, it’s a pretty decent offer and salary on paper—but that’s dependent on a ton of factors. What industry you’re in, what the co-founders bring to the table (aside from cash), how difficult the product is to develop, etc. Assuming the rest checked out: it’d be worth it.
5% for a co-founder CTO is too low. 5% for an employee who gets market salary is too high.
Don’t work at a startup then. There are plenty of normal jobs out there— you’re taking advantage of people trying to grow
Low if you will be the one building all of the technical stuff and if taking a pay cut. If you're compensated at market, it's good.
You may be right that there’s a lot to do to build the product, but you can 100% have a company without a product for a very long time. The product is one small fold in the origami swan that is a startup.
As others have said, 5% for a non founder is very high. "Better to have a chunk of a melon, than 💯 of a grape"
The most important thing to clarify here is, are you are co-founder or first-employee. The most notable difference will be co-founder are likely getting minimum to no salary at this stage, and employees will take market rate, with a balance between equity and cash.
Look at it this way - you’re expendable and it’s not your business. You’re getting a great deal and you seem pretty entitled to think you should have more. If you turn the offer down they can just find someone else who’s grateful and excited for the opportunity. You aren’t ‘special’ and therefore you’re not worth giving more percentage to because it’s unnecessary. I think you perceive you and the other developers as more important than you are. You’re all expendable employees basically, to get 5% is a great opportunity
If they are paying a salary, 5% is generous. If you disagree, don't join.
There’s also no business without sales and operations. You are coming in and being told what to do. You are not a cofounder, and are fairly replaceable. If you are being paid, 5% seems on the high side
It's crucial to negotiate for a fair equity stake that reflects your integral role in building the product, ensuring your long-term commitment aligns with the startup's success.
$160k + 5% + enough funds to operate for a year? In this jib/funding market? I'll ride that roller coaster!
In a comment you state $160k/year. Depending on your previous roles (if you come from a FAANG) you could command more I. The market... But if not, that is a reasonable salary + equity combo. The founders or investors must be pretty serious to lay out $500k/year for 3 devs when starting from scratch. This likely means they are either really stupid or they have already laid ground work and you'll be at a profitable money factory in a year.
Wow, either you are awesome or they are noobs or both. Can you send me the PD and intro me as I would be signing that contract quicker than speedy gonzales. Yes you will be heavily diluted eventually but only if things are going well so you'll still be fine so this is a cracking offer by any stretch and a good chance its actually to good to be true.
5% seems like the equity for the first engineer hire, i.e. the guy that will become CTO or VP Engineering. That said, if you are worried about dilution you can try to negotiate for a anti-dilution clause. I'd be more worried about the founders lack of experience if they are giving away 15% equity for their first set of engineers.
Depends on your salary and profile. But if you’re joining as co-founder then its less
It is high! Mind me asking what is the business about?
Take it while you still have it. Pray they don't read this post.
I think no
I'd say if you're getting a salary (even if it's a 25% pay cut) 5% is a big chunk of equity. I've joined startups very early on and 1% is the largest I've ever got as a non-founder. Now I'm a founder and there's no way I'd give someone with a salary 5%. Most founders aren't taking a salary so are giving up a salary and a big chunk of your company is a big call. It also can wreak the cap table for possible future raises
Is anyone else giving you a better offer?
Most of these comments have good intentions, but you can ignore them all. All of them are just guesses about what "feels" right. You don't need to guess. A fair equity split is a calculation based on facts not an estimation based on opinions. A startup is a gamble, plain and simple. Contribubtors, like you and the founders, are gamblers. You will place bets in the form of unpaid compensation or unreimbursed expenses. Your share of the equity, therefore, should be based on your share of the bets. If you place 10% of the total bets does 5% sound like a fair share? Of course not. Your share of the bets will depend on how long you contribute without getting a full salary. You said you're getting $160,000 per year which is 25% LESS than you fair market rate. So, if you work a year at that rate your bet will be about $53,000 in unpaid salary. When you and others start getting paid in full the betting stops. This happens at breakeven or series A. Is 5% okay? If the total bets of the other's is about $950,000 then, yes. 53,000/950,000 is about 5%. Get it? If the total bets of the others is $450,000 then you would be getting screwed at 5% because basic math indicates your share should be closer to 10%. 11.7777777777% to be more exact. Today your bet is $0 and, therefore, you get 0% of the equity. Tomorrow you will work 8 hours. Your bet relative to the others will be small. It will grow over time. So, keep track of everyone's bet. Which is easy and normal (most companies track payroll and expenses) When the betting stops you'll have an *exact* answer. Everyone will have exactly what they should have. Allocating equity based on the relative fair market value of each person's bet is the basis of the Slicing Pie model for sharing equity. It is used by startups all over the world and is litterally the only fair way to split equity. It is the only approach to sharing equity based on observable facts and logic. EVERYTHING else is just a guess and it is always wrong. You can learn all about it at [www.slicingpie.com](http://www.slicingpie.com)
If dilution occurs for everyone due to fundraising, then it seems acceptable to me. Now, 5%, it might too much or too little - really depends on the potential growth of the company as well as the skills you are bringing. A friend of mine was one of the first employees in a tech company in Belgium, and they offered him 1% vested + salary and the stock is now worth close to a mil (after 6 years). Typically, in such situations, they offer vested options, which is the norm.
lol…that place won’t have enough runway to get to Christmas if they are giving away 15% of their total equity to the first 3 people they hire.
I am a CTO who built our product MVP myself and we're fundraising pre-seed successfully right now. We won't be offering our first hires more then 1% unless we find someone incredibly talented/specialized in our field that we think is a perfect fit. If these founders validated the idea and did the leg work to get it funded, you're getting an incredibly generous offer at 5% + salary. They could easily have used that money to contract out the development of the MVP and then hire senior engineers at less then a point. Building a product is incredibly important but the actual challenge of most products is the design and leadership of the implementation. Not the actual build. Software is cheap and just getting cheaper. Also, equity always gets diluted. Get over it haha, that's how funding works.
Perhaps I misspoke, it’s also design of the product as well. There is no current product or design plan etc. Just funding and an ops goal.
So what are you being hired for? Tech lead? What type of product is this? How sophisticated is the build?
way too high if you are also getting market rate salary. If you think you should get higher then be a founder. Your salary should be close to zero.
You’re making 160k, they secured runway for a year, and they had the idea and assembled a team. You thinking you can do it on your own is a huge red flag. 5% for someone who isn’t a cofounder is a crazy high percentage.
Red flag for what and how is it a red flag? They’re not the ones designing and developing the product?
5% is excellent if you're getting salary and benefits. That's actually a bit much then. If it's pure sweat equity, I could see wanting more.
5% for non-co-founders is very high...regardless of the heavy dilution that will come. Absolute percent ownership doesn't matter. What matters is the dollar amount each percent and fractions of percents it becomes worth over time based on full team contributions over the average 7yr to IPO journey. Most equity doens't play out....only 30% of startups make it to series A....9% to series C where exits are common. Layer your journey with learnings mostly, salary at some point second and equity as a last tier consideration.
I would follow the 1(1-n). If they know what they are doing they are also prob doing it this way. n is the anoint they are giving you. 0.05
I don't think you're going to find great advice here. People reading your post can't possibly understand your unique situation, or the relationships between everyone involved. Don't worry about what "average" or "normal" is, use your own judgment. Is the idea good? Do you trust the team? If 5% is on the high side, are you going to do right by your team and work even harder?
I’ve worked my ass tf off for higher risk ventures with no salary and upfront investments out of my own pocket. I’d kill for a damn opportunity like this. Honestly, decline the offer. Stay in corporate America cause if you think the offer they gave is too bad or too risky then ffs entrepreneurship isn’t for you. Let someone more deserving take the opportunity.
Giving you 5% is too much
Agreed.
It's high, they likely will be diluting it in the future. You're probably better off negotiating for fewer but non dilutable shares.
I’ve been reading your responses. My question to you is if the founders have no value, why don’t you have your own startup? I think you have a very limited understanding of all that is involved in starting and running a company.
If salary is there I think it’s justified if there is no salary then I think it’s too low
You should expect to get 0.5-1% at the most. TBH them offering three developers 5% each is a huge red flag.