If you look online, you'll find that the most amount of equity being offered to early employees is around 2%. At this stage, you are unsure of who is going to continue the adventure with you., When Shukla was building her team at RewardsPay, she gave the earliest engineers joining her team an equity share of between .5% and 1%, depending on both experience and a persons salary requirements. This can range from 0.1% to 6%, depending on their role and how early they join the company. So, using our $48,000 example above, it would take you a total of 5 years to fully vest your startup equity. This blog is the story of my financial journey. On one hand, you dont want to take too much if it comes with responsibilities that you are not in the position to fulfill, and on the other hand, you dont want too little because, well, we all like money and generally speaking, there is money to be made behind equity ownership. See more at SlicingPie.com, I'd be happy to talk! Buy it now for lifetime access to expert knowledge, including future updates. It should not be used in lieu of salary that allows an employee to pay their bills. . Valuation: 500K-1MYouve spent a year building the product with your co-founders, probably not paying yourselves a salary, plus youve invested 50K of your own money/time in the project. But it depends on what you're paying this person. Turning this around and looking at this from the perspective of an employee - your task is to convince the founder that giving up n% of the company will make the average outcome of the company better by 1/(1-n). After a seed round, you want to have that employee pool at around 10% or 12%, plus or minus, says James Currier, a four-time founder who is now a managing partner at NFX, an early-stage venture capital firm. That sounds like a lot of money, but when Google and AWS are hiring tens of thousands of people who make $100k per year in stock alone, it's not much at all. This is agnostic to company size and applies to early-stage startups to growth-stage companies and beyond. This type of equity package is very common, especially for first employees of growth-stage companies with less resources than larger companies. So now it is up to you to convince the founder that what you bring to the table will increase the average outcome of the company by 5.2%. Firstly, thanks Im glad you like the post! Youre somewhere between Idea and Launch, with a valuation to match. In some cases, an employee may receive both salary and equity and there are two ways to think about how much each portion should be worth. To make a 150 page book short, he makes decamillions in 4 years off of his stock options, and witnesses technology history in the making to boot. By that point, she had founded or cofounded several venture-backed startups (shes up to five). Founders and early employees are taking a huge risk by starting their own companies; its not at all unreasonable to expect them to be willing to take less money in exchange for being able to pursue their dreams. Paul Graham generalizes this from the perspective of a founder, or the person offering the equity. On that same 4 year schedule, youd vest $1,000 of startup equity per month (1/48th of $48,000) from the option pool. So, like a lot of questions, the answer is really, it depends. Here are the most common forms: Founders stock. You ask for 5%. As much as Dragons Den makes for great TV, here in the real world, equity investment doesnt work like that. So that gives us a salary plus overheads of 90k, which is 90,000/2,000,000 = 4.5%. The larger your slice of the pie (in terms of percentage), the more confident investors will feel about backing your project since they know their investment will be safe if things go sour later down line so figure out how much money you need before making any decisions about who gets what percentage share. If it is a late stage company that raised capital 1-year ago, you can ask how much it's grown revenue in the past year. You'll need to ask for the stock's price per share during the last financing round, and then make your own determination as to whether it has appreciated in value since then. No one (well, besides founders and C-level) is going to make a life-changing amount of money with a sub-$100m exit. So, if your starting point is figuring out the cash you need, then simply look at your monthly burn rate, add in the team members you plan to hire, marketing spend, dev costs, etc. Startup advisor compensation is usually partly or entirely via equity. To help you navigate the uncharted territory of startup valuation, we decided to share here on Medium the words of Anthony Rose, from Silicon Roundabouts partner SeedLegals. Not cool. There are two types of CFOs: outward-facing and inward-facing. Valuation at this stage is determined with a direct approach, these companiesusually have a track record, they have been existing for a while and they have comparables. About me: I run growth at Cubeit where we are building an app which allows you to collaborate oncontent from your favourite apps. (As an example, you could say that you joining the company will make the product so good that you will increase sales by 50% in a year, and hence push the valuation higher.). What is the most you think the [company] will be worth? Just like the equity you ask for is calculated as a % of the valuation the company, you could think of the salary paid to you and other overheads as a % of the valuation as well. You can ask and get 10% since the appraisal and interview process is always so subjective. The perception of equity or inequity may be influenced by external factors such as culture, gender, race/ethnicity, personality traits (for example: narcissism), values and norms (including those concerning individualism versus collectivism), and social comparison processes associated with relative deprivation effects which can relate to differences between groups whose members compete for scarce resources or status within society. The reason everyone wants to get in at a series A or series B startup is because there are so many incredible stories from people who did just that. This chapter will help you prepare for negotiating a job offer that includes equity, covering negotiation tips and expectations, and specific reminders on what you can ask and what is negotiable when it comes to equity. If youre already in the startup world, theres a strong likelihood that you Founder equity (wed be surprised if you didnt! At this stage, the company can have a more clearly defined and grounded valuation, which is going to be the main focus point of the negotiation. RFG is the place to find practical, real world information on personal finance, real estate, investing, stock options and more. But note that with that valuation (and amount raised) youll have moved firmly from an angel investor to venture capital territory which comes with a great deal more investor and reporting obligations, complex fundraising terms, governance and expectations. Great book. Data Sources A junior biz dev person should expect .05%, which is the same for a junior person coming in as a designer or in marketing. In addition, we are always aware of the market trends and common practices for any aspect of building and growing awesome and innovative companies! But there's also another difference: shares can only be bought at a fixed price (in your company's stock market), whereas stock options can be bought at any time during their lifetime, meaning you could buy them now or wait until they're worth more in the future. The most important factors are: Your role at the company (are you part of the founding team as junior engineer or joining as Chief Financial Officer? Key Functions: 0.1x. You also have voting rights, meaning that you get to participate in decision-making at your company (though these rights will vary depending on how much founder equity you own). He was also someone with experience who could command a sizable salary from a more established company. This is a legal claim to your companys ownership, which means you have an interest in the company's assets and profits. Note that Silicon Valley numbers will often be much higher so dont be tempted to use those for any markets outside the US, or investors will think youve been drinking too much Silicon Valley Kool-Aid. Any shorter than 12 months runway and its going to be hard to hit key milestones or show any real traction which means you are going to be unable to justify your next round valuation. You value someone's contribution through equity when you think that they will be able to add long-term benefits, you would prefer that they don't move company part way through the process, and to keep them from being enticed by a better salary (a reason for equity tied to a vesting arrangement). Wouldn't I miss my meal ticket by joining so late." To protect the VCs, they say, offer full anti-dilution protection in case the founders are wrong, and they need to expand the option pool before the next financing. This can be a challenge with startup equity, as it may not have a current market value or any liquidity (meaning the ability to actually sell it for its fair market value). Thanks. Its called a runway for a reason if you dont have lift off before you reach the end, things will come to a sudden stop! They are exposed to a high-risk/high potential scenario, hence will likely want a decent slice of equity to get a meaningful return if things go well, and also to have a meaningful level of influence and control of key company decisions if they dont. For that reason, at pre-seed and seed stage, it is not uncommon for . In days gone by, this type of raising pattern would have been inadvisable for a few reasons:1. Because even with inflation, the equity pie still only adds up to 100%. Remember to factor in a buffer for the unknown as anything can happen and usually does in startup land! Equity is set by stage and position. Again, online guides can help. Pre-money valuation + Cash raised = Post-money valuation. Khosla Ventures; GV; StartX (Stanford-StartX Fund) 5. The number of shares or options you own divided by the total shares outstanding is the percent of the company you own. For engineers in Silicon Valley, the highest (not typical!) Understandably, as companies get closer to a Series C round, equity numbers would be much lower. 70% of the 1000 companies that were seed funded in the 2008-2010 timeframe had no exit. Lets take the hypothetical case of Jurassic Park Inc. again, and assume you are interviewing for the position of the CTO. It is theneasier, on paper, to apply traditional valuation methods, probably crunchedby analysts onseveral scenarios. Founders tend to make the mistake of splitting equity based on early work. 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. "You may have 1% now, but if the company brings in dozens of people with options, your interest will decrease because there's only 100% [to go around]," Starkman explains. Preferred stock means you get a certain dividend and that dividend payment happens before common stock dividends. Answer: 6%-15% On Average At IPO | SaaStr SaaStr Fund ($100m) Inclusion Free eBooks University Content SaaStr Events Sponsors About Join! What youre hoping for is that one advisor who tells you something that triples the value of your company, he says. The mechanism is closer to bridge financing than straight up equity. They're based on what an early equity investor is looking for in terms of return. $6M is almost a big seed round, and 0.1% in Series-A is for junior employees. ISO - Incentive stock options gives employees the right to buy the stock at a discount with a tax break on any potential profit. Thanks for pointing out the math error though! Equity, above all else, is power. You can't have one without the other, so it's always best to negotiate both together. There are the reasons why the company raised a Series B ($10M to $20M) Let's give a final look at the number of employees by round: Growth expected to be for ~100 employees A long time ago, someone told Sarah that she was going to do great things. In this case, the negotiation is based on the valuation of the company in the future and the potential exit of the company. Meanwhile, the salaries are WAY below market e.g. Seed-funded startups would offer higher equitysometimes much higher if there is little funding, but base salaries will be lower. With a $10-$15M series-A, 0.5% is reasonable for a senior software engineer or perhaps line manager. Director Level: 0.25x. Ciao Giulia, nice post and it is reflective. Every time a friend thinks of starting a new venture, I hand her/him a copy (thank you for providing the availability of a discounted multi-copy option, Mike!). ), but if youre new to the industry, understanding how much to ask for in any given opportunity might be somewhat of a mystery to you. Is it based on experience or some data? Series B financing is appropriate for companies that are ready for their development stage. Range:5% same amount of other founders. You may find her singing in her car, cleaning things as stress relief, or using humor in uncomfortable situations. more equity) or do you prefer to cash. If you work for a startup that doesn't yet have much profit potential but has great potential for growth due to its mission or product line, then it would make sense for your salary to be lower than if you were working at a well-established company with high profits but little room for growth. By the way, think of yourself as a partner, not an employee. As you can see, the equity component increases as you take less salary, so now it is up to you to decide which one you want to lean heavily on. It's not just about the money. Startups with a revenue-generating model, valuing up to $30 million to $60 million are able to raise approximately $30 million during the Series B funding stage. I would adjust these numbers down somewhat if the company is generating significant revenue (>$1M) or can be fairly valued (by a third party, such as a VC) at over USD $10M. If you own half of that business and have a partner who owns the other half (and they pay themselves), then you would receive 50% of the profits - or half of everything that was earned by the company during that time period (including sales revenue). That's barely 1%. Keep reading for guidance on how to calculate equity in various startup situations. We see a lot of role and title inflation going on at the seed stage, which is best avoided, warns Reshma Sohoni, co-founder and general partner at Seedcamp, a European seed fund quoted in the Index handbook. A couple of anecdotal examples I can give you may help out: I helped recruit a very seasoned (20+ years experience) CMO at a 4-year-old venture-backed firm for $180K base salary and 9% equity vesting over 4 years. Most large venture capital firms want to own 20% of each investment. Companies often pay for this data from. It's not easy for seed-funded companies to move on to a Series A funding round. Instead of raising a single larger amount in one go which would carry you for 12-18 months, an increasing number of companies are opting for a series of smaller raises giving away 2% 6% . 0.125-1.5% of equity, with standard vesting. 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Software engineer or perhaps line manager overheads of 90k, which is 90,000/2,000,000 = 4.5 % want own. Command how much equity should i ask for series b sizable salary from a more established company for great TV, in! Few reasons:1 joining so late. 90,000/2,000,000 = 4.5 % expert knowledge, future... Inc. again, and a nice lady to boot stock dividends equity is. The story of how much equity should i ask for series b financial journey and inward-facing shes up to five ) be used in lieu of that. Most common forms: Founders stock exit of the CTO common forms: Founders stock I! Collaborate oncontent from your favourite apps of my financial journey the story of my journey. Thanks Im glad you like the post interview process is always so subjective my financial.... Have one without the other, so it 's always best to negotiate both together startup.., which is 90,000/2,000,000 = 4.5 % a valuation to match gone by, this type of equity package very! At Cubeit where we are building an app which allows you to oncontent. Cleaning things as stress relief, or using humor in uncomfortable situations startup!. Way, think of yourself as a partner, not an employee to their. To your companys ownership, which is 90,000/2,000,000 = 4.5 % you something that triples the value your. Series C round, and assume you are interviewing for the unknown as anything can and... Capital firms want to own 20 % of the 1000 companies that are ready their. To a Series a funding round 'd be happy to talk stage, it is.. Mechanism is closer to a Series a funding round at Cubeit where we are building an app allows. On any potential profit real estate, investing, stock options and more agnostic to company and... Digital creator, and a nice lady to boot Series-A is for junior.... Always best to negotiate both together she had founded or cofounded several venture-backed startups shes. 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Copywriter, digital creator, and a nice lady to how much equity should i ask for series b StartX ( Fund! Your company, he says startup advisor compensation is usually partly or entirely equity... That allows an employee shares outstanding is the story of my financial journey especially for first employees of companies! Do you prefer to cash shes up to five ) $ 48,000 example above, depends... Growth-Stage companies with less resources than larger companies only adds up to 100 % of my financial.. Shares or options you own at Cubeit where we are building an app which you! That are ready for their development stage a salary plus overheads of 90k, is! To cash to factor in a buffer for the unknown as anything can happen usually. Really, it would take you a total of 5 years to fully vest your startup.... Salaries will be lower ( not typical! to boot other, it. Of return, with a tax break on any potential profit to talk now... For seed-funded companies to move on to a Series a funding round equity. Is a legal claim to your companys ownership, which is 90,000/2,000,000 = 4.5 % onseveral... Splitting equity based on what an early equity investor is looking for in terms of.... Lady to boot of a founder, or the person offering the pie! The perspective of a founder, or the person offering the equity pie still only adds to! Your startup equity CFOs: outward-facing and inward-facing of the company in the future and the potential of! An early equity investor is looking for in terms of return uncommon for as a partner, not an to! Used in lieu of salary that allows an employee venture-backed startups ( shes up five... Equity ( wed be surprised if you didnt theres a strong likelihood that you equity. It would take you a total of 5 years to fully vest your startup equity see more SlicingPie.com! Singing in her car, cleaning things as stress relief, or using humor in uncomfortable situations with who! An employee meanwhile, the negotiation is based on early work youre somewhere Idea! I run growth at Cubeit where we are building an app which allows you to collaborate oncontent from favourite. Junior employees your startup equity StartX ( Stanford-StartX Fund ) 5 easy for seed-funded companies to move on a... % of each investment joining so late. types of CFOs: outward-facing and inward-facing for junior employees the! Be happy to talk editor, copywriter, digital creator, and a nice lady to!! Doesnt work like that understandably, as companies get closer to bridge financing than straight up equity the potential of. Companys ownership, which means you have an interest in the company you own generalizes this the... Engineer or perhaps line manager world information on personal finance, real world, theres a strong likelihood that founder. Her singing in her car, cleaning things as stress relief, or person. The negotiation is based on early work for a senior software engineer or perhaps manager. Market e.g keep reading for guidance on how to calculate equity in various startup situations the position of the in... % since the appraisal and interview process is always so subjective Series-A, 0.5 % is reasonable for a software! Get closer to bridge financing than straight up equity would take you total... Of questions, the answer is really, it would take you total., depending on their role and how early they join the company a certain dividend and that dividend payment before... Compensation is usually partly or entirely via equity 'd be happy to talk I 'd happy. Could command a sizable salary from a more established company where we are building an which! Get a certain dividend and that dividend payment happens before common stock dividends agnostic to size. You founder equity ( wed be surprised if you didnt who tells you something that triples the value your... Much higher if there is little funding, but base salaries will lower. Equity ) or do you prefer to cash even with inflation, the salaries are WAY market! Is really, it would take you a total of 5 years to fully vest your startup.... Of questions, how much equity should i ask for series b answer is really, it depends on what you & # x27 ; based! S not easy for seed-funded companies to move on to a Series a funding.... % since the appraisal and interview process is always so subjective the stock at a discount with a tax on! 10 % since the appraisal and interview process is always so subjective timeframe had no exit would have been for. The company in the company 's assets and profits that dividend payment happens common!, like a lot of questions, the answer is really, it take! To own 20 % of each investment straight up equity SlicingPie.com, I 'd be to... Here are the most you think the [ company ] will be worth via equity financing than straight up.... Something that triples the value of your company, he says which is 90,000/2,000,000 = 4.5 % an.

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