Negotiating remuneration with a startup
Discussion
I have been informally offered a job with a startup (3 yr old) we have not yet discussed salary etc but I was hoping for some advice from ye learned gentlemen and woman. Company is Ltd and has a number of external investors.
I would be fairly instrumental in the growth of the business - No doubt others could do this role but regardless of that. The more effort one puts in, the faster that growth will be.
I could accept a salary (no idea how to figure out what that should be). But from prior experience I find I am motivated better if the amount of work I do correlates to the rewards I receive. Or more that - working above and beyond is rewarded. Struggle with the idea of working my butt off to make someone else horrifically wealthy.
I would like to ask for shares or a performance related bonus of some kind to reflect working above and beyond. I am unsure how this should be asked for and what specifically I should be requesting?!
Any first hand experience of negotiating salary/benefits/bonus/shares?
I would be fairly instrumental in the growth of the business - No doubt others could do this role but regardless of that. The more effort one puts in, the faster that growth will be.
I could accept a salary (no idea how to figure out what that should be). But from prior experience I find I am motivated better if the amount of work I do correlates to the rewards I receive. Or more that - working above and beyond is rewarded. Struggle with the idea of working my butt off to make someone else horrifically wealthy.
I would like to ask for shares or a performance related bonus of some kind to reflect working above and beyond. I am unsure how this should be asked for and what specifically I should be requesting?!
Any first hand experience of negotiating salary/benefits/bonus/shares?
If external Investor's already in place your ability to get shares may be more limited but at this stage what is the overall current turnover of the company , what is the sector and realistically what uplift from that can u achieve over the next year and successive years over say the next 3 years ?
I presume you also have a good idea of existing staff numbers / wage bill ?
I presume you also have a good idea of existing staff numbers / wage bill ?
Is it a tech startup? If so, what type of tech?
How much money have they raised?
Who are the investors?
If they are a pre-seed startup who have raised 500k from some no-name investors, you're going to pitch at a very different level to if they've just closed a $20m series-A with Balderton leading.
If they are VC-funded, industry-standard will be to have an employee share option pool of 10% of the issued shares. If you're actually instrumental you might get up to a couple of %, but you'd have to be pretty outstanding (or they're just not very commercial/feeling generous).
Or is it a "startup" in the sense it's just a relatively young company in a non-tech industry?
How much money have they raised?
Who are the investors?
If they are a pre-seed startup who have raised 500k from some no-name investors, you're going to pitch at a very different level to if they've just closed a $20m series-A with Balderton leading.
If they are VC-funded, industry-standard will be to have an employee share option pool of 10% of the issued shares. If you're actually instrumental you might get up to a couple of %, but you'd have to be pretty outstanding (or they're just not very commercial/feeling generous).
Or is it a "startup" in the sense it's just a relatively young company in a non-tech industry?
First off, three years of trading would (in my book) but them beyond the start up phase. Not a critical point but if the Owners are using this description, you have to wonder why.
Secondly... you know the old Groucho Marks saying "I wouldn't join any club that accepts me as a member"? In the same way, be wary of them offering shareholding unless part of a long-term structured deal that is part of the corporate strategy and offered to all staff. Setting up a business requires enormous effort and risk and those that do so who give chunks of it away too soon generally do so for the wrong reason which can bite them (and you) later on. This is because it (can) demonstrates a lack of planning and foresight in the business plan.
I would be pitching for a decent performance-related package, linked to profit, not turnover.
Obviously if, three years in, they're swanning around all Billy-Big-b
ks in Ferraris and Rolex's then you are right in your thinking.
Secondly... you know the old Groucho Marks saying "I wouldn't join any club that accepts me as a member"? In the same way, be wary of them offering shareholding unless part of a long-term structured deal that is part of the corporate strategy and offered to all staff. Setting up a business requires enormous effort and risk and those that do so who give chunks of it away too soon generally do so for the wrong reason which can bite them (and you) later on. This is because it (can) demonstrates a lack of planning and foresight in the business plan.
I would be pitching for a decent performance-related package, linked to profit, not turnover.
tegwin said:
Struggle with the idea of working my butt off to make someone else horrifically wealthy.
I understand why you think this. But do not forget that the owners may well have remortgaged homes and in debt up their eyes to get the business off the ground which may well take many years to recoup. It can be a huge risk to them with no safety net if it goes south. So just because the company's turning hefty profits doesn't necessarily mean the owners are growing filthy rich.Obviously if, three years in, they're swanning around all Billy-Big-b
ks in Ferraris and Rolex's then you are right in your thinking.Why should the owners hand over or promise equity at this stage to someone who admittedly isn't unique in their ability to generate value?
Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
Forester1965 said:
Why should the owners hand over or promise equity at this stage to someone who admittedly isn't unique in their ability to generate value?
Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
I disagree with this advice.Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
But I don’t have enough information on company, sector, maturity , and role to offer any advice of my own.
I'm playing devil's advocate. There are so many variables it's impossible to answer the OPs question in seriousness.
I built fast growing businesses (for scale, 7 figures with no external investers) and after 3 years wouldn't have considered them startups. By comparison that could be tiny compared to others at a similar age who still see themselves as such. Mine were (multiple)owner-manager rather than external shareholders, hence the direction of my previous post.
I built fast growing businesses (for scale, 7 figures with no external investers) and after 3 years wouldn't have considered them startups. By comparison that could be tiny compared to others at a similar age who still see themselves as such. Mine were (multiple)owner-manager rather than external shareholders, hence the direction of my previous post.
stuthe said:
said:Forester1965 said:
Why should the owners hand over or promise equity at this stage to someone who admittedly isn't unique in their ability to generate value?
Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
I disagree with this advice.Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
A business in its early years will be broadly following a plan set out by the founders. If that plan is sound then there would be sufficient funding and cashflow in place to attract the right staff at the right level to move the company forward. There should be no need to offer equity as a means to attract the right staff to the company. If that's what they are doing it demonstrates that either their planning was off, or they are failing in the proper implementation of the plan or panicking. Or all of the above. A person being offered this should tread very carefully for these reasons.
There are exceptions, where an individual is uniquely brilliant or comes with armfuls of contracts or similar. But generally speaking, equity has to be earned, not gifted.
Forester1965 said:
Why should the owners hand over or promise equity at this stage to someone who admittedly isn't unique in their ability to generate value?
Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
As above, this is bad advice. Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
You are also taking a big career risk on joining a start up (TBD if that's true in this case). Equity is your reward for that risk.
Others (Investors) put money at risk and get rewards. You put in your time and career at risk so deserve a reward.
22s said:
Is it a tech startup? If so, what type of tech?
How much money have they raised?
Who are the investors?
If they are a pre-seed startup who have raised 500k from some no-name investors, you're going to pitch at a very different level to if they've just closed a $20m series-A with Balderton leading.
If they are VC-funded, industry-standard will be to have an employee share option pool of 10% of the issued shares. If you're actually instrumental you might get up to a couple of %, but you'd have to be pretty outstanding (or they're just not very commercial/feeling generous).
Or is it a "startup" in the sense it's just a relatively young company in a non-tech industry?
And.. for the record.. this is excellent advice and are the questions you should be asking to figure out your approach. How much money have they raised?
Who are the investors?
If they are a pre-seed startup who have raised 500k from some no-name investors, you're going to pitch at a very different level to if they've just closed a $20m series-A with Balderton leading.
If they are VC-funded, industry-standard will be to have an employee share option pool of 10% of the issued shares. If you're actually instrumental you might get up to a couple of %, but you'd have to be pretty outstanding (or they're just not very commercial/feeling generous).
Or is it a "startup" in the sense it's just a relatively young company in a non-tech industry?
InformationSuperHighway said:
As above, this is bad advice.
You are also taking a big career risk on joining a start up (TBD if that's true in this case). Equity is your reward for that risk.
Others (Investors) put money at risk and get rewards. You put in your time and career at risk so deserve a reward.
It's context specific. Asking for equity could be an insult on one side and a positive on the other, depending on who/what/where/when.You are also taking a big career risk on joining a start up (TBD if that's true in this case). Equity is your reward for that risk.
Others (Investors) put money at risk and get rewards. You put in your time and career at risk so deserve a reward.
okgo said:
I don’t think I’ve ever heard of a start up not offering equity, and I’ve worked for 4 now. All of which at varying levels of size/scale/funding.
Depends on the industry mind you? But in tech it’s pretty standard to offer equity.
It must be specific to IT because the reverse is the case in most other sectors. Usually, the only time a start-up would / should entertain equity is if someone is putting some real skin in the game. Depends on the industry mind you? But in tech it’s pretty standard to offer equity.
sunnyb13 said:
always a risk getting paid in equity
Indeed. Bread today – jam tomorrow.A company trying to attract talent with equity speaks of a company that has got their sums wrong.... unless they’re trying to attract the Adrain Newey of their sector.
StevieBee said:
stuthe said:
said:Forester1965 said:
Why should the owners hand over or promise equity at this stage to someone who admittedly isn't unique in their ability to generate value?
Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
I disagree with this advice.Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
A business in its early years will be broadly following a plan set out by the founders. If that plan is sound then there would be sufficient funding and cashflow in place to attract the right staff at the right level to move the company forward. There should be no need to offer equity as a means to attract the right staff to the company. If that's what they are doing it demonstrates that either their planning was off, or they are failing in the proper implementation of the plan or panicking. Or all of the above. A person being offered this should tread very carefully for these reasons.
There are exceptions, where an individual is uniquely brilliant or comes with armfuls of contracts or similar. But generally speaking, equity has to be earned, not gifted.
It really depends on context and we need more information.
As a datapoint, we offer equity to very employee in our startup. Options pools are very common in investor backed businesses. The earlier you get in the, the more risk you take you may only have a job for n months/year if funding dries up, so the more upside you should receive. Our investors and board are keen to attract and retain the best talent. Many companies offer a blend of £ and equity and other benefits to be competitive and keep incentives aligned.
I can’t offer more advice to the op without understanding more about the type of opportunity and role, but I’d certainly generally advise against people jumping into a and hoping to negotiate a position after. It’s just common sense to get some form of alignment at the outset. This can always be improved upon if you’re a real key person asset, but setting expectations early can only help alignment IMO.
StevieBee said:
Indeed. Bread today – jam tomorrow.
A company trying to attract talent with equity speaks of a company that has got their sums wrong.... unless they’re trying to attract the Adrain Newey of their sector.
Must be. A company trying to attract talent with equity speaks of a company that has got their sums wrong.... unless they’re trying to attract the Adrain Newey of their sector.
Just this minute got a job sent through LinkedIn. Series B raise of $34m just done. About 60 employees. Offering competitive salary + equity.
stuthe said:
said:StevieBee said:
stuthe said:
said:Forester1965 said:
Why should the owners hand over or promise equity at this stage to someone who admittedly isn't unique in their ability to generate value?
Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
I disagree with this advice.Get in, prove your worth and only ask for equity when it's obvious to them you're better inside the tent pissing out than outside pissing in. Performance related pay would be the first stage I'd offer.
A business in its early years will be broadly following a plan set out by the founders. If that plan is sound then there would be sufficient funding and cashflow in place to attract the right staff at the right level to move the company forward. There should be no need to offer equity as a means to attract the right staff to the company. If that's what they are doing it demonstrates that either their planning was off, or they are failing in the proper implementation of the plan or panicking. Or all of the above. A person being offered this should tread very carefully for these reasons.
There are exceptions, where an individual is uniquely brilliant or comes with armfuls of contracts or similar. But generally speaking, equity has to be earned, not gifted.
It really depends on context and we need more information.
As a datapoint, we offer equity to very employee in our startup. Options pools are very common in investor backed businesses. The earlier you get in the, the more risk you take you may only have a job for n months/year if funding dries up, so the more upside you should receive. Our investors and board are keen to attract and retain the best talent. Many companies offer a blend of £ and equity and other benefits to be competitive and keep incentives aligned.
okgo said:
Must be.
Just this minute got a job sent through LinkedIn. Series B raise of $34m just done. About 60 employees. Offering competitive salary + equity.
As a business grows, the equity can become a more viable means of talent attraction.Just this minute got a job sent through LinkedIn. Series B raise of $34m just done. About 60 employees. Offering competitive salary + equity.
What the OP is describing is a company less than three years old that had not factored in equity previously being asked to offer it in return (in part) for the OP's services.
I'm not certain that many people understand how equity works. It looks attractive (which is why it's used) but is a greater advantage to the company than it is to the employee. All too often it places an employee at a disadvantage compared to performance related bonuses.
Its primary benefit of equity is that as a shareholder, you are entitled to dividends. This can be a tax-efficient way to boost your income. However, getting a dividend is dependant upon the company as a whole making a profit so regardless of how brilliantly you perform, if the company is not making a profit, you don't get a dividend. There are also many ways in which your equity gets diluted over which you have no say.
All this differs to a bonus where that bonus is pegged directly to your performance regardless of anything else.
There is the potential with equity that should the company be sold, you get an equitable portion of the sale price. But there is no way of knowing when or if this is ever likely to happen.... hence 'Bread today, Jam tomorrow'.
A package comprising salary + performance bonus + profit share is a far better approach.
This doesn't always apply of course but personally, my view is that if equity really is a driver for you, then invest money in the company so that you at least get a seat at the table and influence how the company is run. Or set a company up yourself.
There's no guarantee with equity you'll be entitled to dividends, even if they're declared. Depending on the share class you might not even have a meaningful vote as a member on company matters. You'll possibly be subject to drag/tag, too.
As has been said already, 'startup' has a wide definition and without knowing more any advice could be useless.
As has been said already, 'startup' has a wide definition and without knowing more any advice could be useless.
Thank you all for your thoughts on this, some really interesting points.
I purposefully kept it a big vague as you never know who is looking.
In essence the company has been an R&D company over the last 3 years. staff of around 10-15.
With my help (as a contractor) we have managed to get significant orders in for a product that does not yet exist. We knocked together a very quick prototype to win the order. My role would be to oversee the design of a manufacturable product as well as set up the production facility to scale production in a very short period of time. I guess we would end up with a team of around 30 additional people on this project.
It would be quite a leap to move from my current secure job into what will be a very fast pace job consuming more than the usual 9-5.
If I get it right the turnover should be pretty high. Hence why I was curious to gauge what else I should be asking for along with a salary. Mainly a bonus in return for losing more of my hair
I purposefully kept it a big vague as you never know who is looking.
In essence the company has been an R&D company over the last 3 years. staff of around 10-15.
With my help (as a contractor) we have managed to get significant orders in for a product that does not yet exist. We knocked together a very quick prototype to win the order. My role would be to oversee the design of a manufacturable product as well as set up the production facility to scale production in a very short period of time. I guess we would end up with a team of around 30 additional people on this project.
It would be quite a leap to move from my current secure job into what will be a very fast pace job consuming more than the usual 9-5.
If I get it right the turnover should be pretty high. Hence why I was curious to gauge what else I should be asking for along with a salary. Mainly a bonus in return for losing more of my hair
As an employer I'd be offering milestone bonuses to get that project over the line. Personally, with several businesses, I've operated EIS or similar such that key people have received a payout when we've sold the company (eroding my own gain). But I've taken those people with me to new businesses.
If anyone asks me for equity, they'll drop way down the Good List. I've paid decent salaries, with bonuses where appropriate, and provided suitable benefits, in exchange for them doing the job for which they've been employed. As has been said above, the only risk they're taking is becoming unemployed, and they're not automatically entitled to a share of my wealth to compensate for that, but when we win, I want everyone to get a piece.
If anyone asks me for equity, they'll drop way down the Good List. I've paid decent salaries, with bonuses where appropriate, and provided suitable benefits, in exchange for them doing the job for which they've been employed. As has been said above, the only risk they're taking is becoming unemployed, and they're not automatically entitled to a share of my wealth to compensate for that, but when we win, I want everyone to get a piece.
There is also an element of risk in joining a startup, depending upon the cash in the bank and the monthly burn rate, how long could the company last?
I joined a tech startup that had been running just over 2 years, based on how it was doing it could have been bust in 6 months so salary was a 40% uplift over equivalent permie salary, stock options based on the US approach not the UK HMRC approved scheme. 10% on top of salary in-lieu of benefits, etc.
Overall, best job I have had, it was a lot of hard work, it is not a 9-5 job for sure.
I joined a tech startup that had been running just over 2 years, based on how it was doing it could have been bust in 6 months so salary was a 40% uplift over equivalent permie salary, stock options based on the US approach not the UK HMRC approved scheme. 10% on top of salary in-lieu of benefits, etc.
Overall, best job I have had, it was a lot of hard work, it is not a 9-5 job for sure.
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