Lewis Hower connects Silicon Valley Bank and VC/startup communities as a Managing Director with SVB Startup Banking. How to Negotiate Equity Compensation. Stage of Startup. Founders’Pie Getting started correctly is critical! ... especially startup companies. That means equity will be the focus of the conversation. With this in mind, Graham says there are three places where a company needs to focus on compensation and have specific ideas about how to handle it. The equity is typically distributed among the early founders, financial supporters and sometimes employees who join the startup in its earliest stages. Expected Contributions. Y Combinator’s Sam Altman wrote a convincing piece on offering more startup equity to employees, which spurred a healthy debate on the matter. Cash vs. Stock . Startup equity is a lottery ticket—not a replacement for salary. Equity is so dominant as the form of compensation that I don’t see a reason to cover cash-based compensation. by Martin Zwilling. 2. Step 3. If you make the company better, your equity is worth more. If you want to get notified when Part II will be out, you can subscribe to my newsletter and get my top-15 tips on saving more … Explore by role, location, skill, or market. 250. So people ask me “How many shares should I ask for or expect when I join a startup today?” Wouldn’t you like to be one of the lucky people who joined Google and Facebook when these were startups, and now be a multi-millionaire or better? Startup finance can be incredibly tricky, especially when it comes to compensating co-founders and employees, as most startups usually don’t start their journey with money to spend. For a cash-strapped startup, issuing stock or a warrant instead of paying cash is an easy way to preserve limited cash reserves while still growing the business. CASH AND EQUITY COMPENSATION AT MY NEW JOB. SHARES. This is tough to answer without knowing your background and without knowing how much the current company might be worth. Offering equity compensation can be especially valuable for small companies and startups because it offers employees a potential return in addition to their salaries. I’ve decided to continue working as a consultant at Personal Capital because I’m having a lot of fun, learning a lot about the financial tech startup world, meeting new people, and feel like I’m making a difference in helping build their brand online through content. Salary and equity comprise the compensation package. In fact, close to 20% of the jobs ever posted at The Hub offer equity as a form of compensation. Background reading: Founder Compensation: Cash, Equity, Liquidity Fatal Errors in Early Startup Hiring Early Hires: Options or Stock Given how deeply involved we are with early-stage startups hiring their first key employees, I figured it would be helpful to outline a few key principles to help entrepreneurs navigate the topic. If you're looking for more equity, then you can counter with more equity and possibly be more flexible on cash comp. Equity compensation for startup employees is a recruitment strategy where a percentage of company equity is offered as part of the employee remuneration package. Because the company needs to be able to sell the appropriate shares to the employee once the options are exercised, those shares (1) need to exist, but (2) be reserved so that they are not sold to anyone else. General Guidelines for Forms. The equity portion of a startup employee’s compensation must legally be structured so that, if the options were exercised immediately, they would have a fair market value of $0. The earlier a startup can put a plan in place to manage compensation conversations and questions, the fewer problems they’ll have in this area going forward. Startup Forms: Equity Compensation. Originally published February 12, 2014. The bottom line is simply to treat equity for what it is: a lottery ticket in a constantly changing business environment, littered with the corpses of glittering startup opportunities. You want it because it: Aligns your incentives. Make sure they are actually […] Equity is the great compensation equalizer in startup companies—the bridge between an executive’s market value and the company’s cash constraints. Equity Compensation; Events Blog Tool Kit Providing entrepreneurs with today's tools for tomorrow's success. At a typical venture-backed startup, the employee equity pool tends to fall somewhere between 10-20% of the total shares outstanding. It’s worth a read. With your list of key positions in hand, look into salaries and equity norms for those roles. Equity Compensation Rules of thumb, guidelines, conventional wisdom & other considerations Frank Demmler. This compensation offers the potential for a big payout, but it's also much riskier and tax-complex than earning a salary. To help you gauge “market rate” for your equity compensation, there are some free benchmarking resources. Equity compensation helps to attract and keep employees in a startup environment because these companies generally are short of the initial funds to get superior employees. Complete Guide to Startup Equity Compensation. Forms of Advisor Compensation. Answers to these questions I will provide in the next blog post, “What startup equity compensation means for developers: Part II." Cash, Equity or Both. I was at $220K + >=3% at my last two startups. A non-founding CEO of early stage company equity ranges from 5% - 10% typically. In terms of compensation, a new CTO typically sees about $200K and 3% equity. Other C-level execs would receive 1-5% equity that vests over time (usually 4 years). Attorney Mary Russell counsels individuals on startup equity, including founders on their personal interests and executives and key contributors on offer negotiation, compensation design and acquisition terms. But you can't rely on it, or treat it as a substitute for the salary in your compensation package. That means you and all your current and future colleagues will receive equity out of this pool. “The only time that you should be willing to take all equity and no cash compensation is at the very earliest stage of a startup, and only if you are positioned as a founder with similar rights as the other founders, including those putting up the initial funding,” Carney says. Startup Equity as Compensation is a Long-Term Bet. In a post on his SoCal CTO blog, Tony Karrer, Founder and CTO of TechEmpower, Founder and CTO of Aggregage and organizer of the LA CTO Forum and Startup Specialist Network, shares stories based on his experience working with over 30 startups over the past 15 years.. The plan that's the best fit depends on each corporation's circumstances and its objectives. Startup salary and equity data for thousands of startup jobs. Startup equity incentive plans typically allow for grants of both flavors, with the specific situation determining which one is used. The Holloway Guide to Equity Compensation… This article was originally posted as "Equity for Early Employees in Early Stage Startups". Please see this FAQ about her services or contact her at (650) 326-3412 or at info@stockoptioncounsel.com.. Finding and retaining top talent is an everlasting problem all start-ups must go through. Research competitive startup salaries and compensation. If you have a job offer from a startup company, chances are it doesn't include the level of cash compensation you might get from a more established firm. Founders’Pie Conventional Wisdom •Count the number of founders •Divide the number of founders into 100 Equity compensation is non-cash pay that is offered to employees, including options, restricted stock, and performance shares. 3. 4. Here's a quick look at the five most common types of equity compensation plans. However, he says 0.5 percent and 1 percent is a good range to consider, vested over one to two years. 5. For a growing, successful startup, consultants and strategic partners may ask to receive equity instead of cash because they want to … It is seldom a complete replacement of the cash component, rather an addition to the base salary in cash. And while compensating team members with company equity is a potential … Entrepreneur and executive advisor Kris Kelso points out that, like so many things in the startup world, there are no strict guidelines for assigning startup equity compensation to advisors. Vesting Period. There is a tradeoff between these. This is why startups often offer equity instead of salary to their first hires. Cash isn’t a currency that early-stage startups want to use for advisor compensation. Don’t let your startup negotiation partner monetize it - ask for your full market value in cash … Equity payments are common at startup companies. As a general matter, you should not make substantive changes to any of the forms included in the Startup Forms Library without checking with your legal counsel. Facebook Twitter. For example, an ex- Chief Marketing Officer from a different industry to the startup might be an invaluable General Advisor. Equity compensation plans are a valuable and versatile tool for many corporations, from startups to established blue-chips. Having equity, in short, means employees are directly invested in the company’s future. Some CTOs may be in a place and have an interest where they are willing to trade salary for equity, some won’t be. As a rule of thumb a non-founder CEO joining an early stage startup (that has been running less than a year) would receive 7-10% equity. Our analysis shows that the type of advisor being hired influences their compensation: ‍ Compensating advisors: Cash vs. Equity Equity is non-cash compensation that represents partial ownership in a company. Compensation – No matter how employees are compensated with equity, the value of stock options can play an important role in a company’s total compensation package. Moreover, giving out equity also works as an incentive. 15 Oct 2019 • By Dan Eyman • In Start Ups, Stock Options. 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