Im considering joining a team of two founders and will be the first employee. There is no product being developed yet and i’d be the first technical hire. The scenario is a bit unique because based on the founder’s backgrounds, they’re getting first round term sheets that are very high (generally series A/B numbers). Considering they’ll likely be able raise so easily, what would a fair equity range be considering the company is basically just starting? Is it lower than normal due to the high valaution or should it be the same as any early stage company? Any thoughts would be helpful.
Do they have funding in the bank? If not, don't waste your time
No and normally I’d agree, but this won’t be an issue.
What’s your YOE?
Over 10 years of experience.
Having been a first employee. Don’t. That’s the worst employee number. Basically you’re doing the job of a co-founder but with a much much much smaller equity stake. In cases like this IMO it’s better to be 15-20 employee. You still get a good percentage and at this stage it’s more established and you get a better understanding of where it might go.
Thanks. This would be my second time being this early. So I get what you’re saying. However, the opportunity in this case is worth it. It really just comes down to the terms.
How did the first time work out for you?
If you are the first employee, then you aren’t really an employee at all. You are either a massively underpaid co-founder, or a co-founder.
I’m not sure I fully understand considering there will always be a “first” employee.
Per what you said, the founders have and are able raise large sums easy. In that case, they should have no problems paying you a market rate salary. You should basically get most of your current TC as base, probably capped at 250K. Try pushing to 300K, but I've never heard anyone get it. This early, anything under 2% isn't worth accepting. Get all NSOs and early exercise. Negotiate a joining bonus large enough to cover the early exercise, just don't give that as a reason. Also, no vesting cliff, a quarter at worst. (The equation would have been very different had this been at angel/seed stage funding numbers.) Also, get a fancy title for yourself. Founding Engineer or Chief Architect or CTO or something. As soon as they raised money, they're under pressure to show/make progress on building the team and the product. You have the leverage here, they are likely getting desperate with each passing day.
Thanks for the feedback. Base is around what I was making previously (but short of your number). The equity offered so far is just under 2%. I could maybe negotiate to 2, but hard to say.
If you're the only technical person, don't join unless you're CTO. The fact that this is a software company with no technical founders and no funding in the bank comprises a big red flag. Term sheets mean jack sh*t without funding in the bank. Anyone can draft a term sheet on their own or have their "VC" buddy draft one. If you're going to be the only technical founder, don't join for less equity than what each of the other two are getting. The startup world is full of snake oil salesmen (especially in Silicon Valley). Don't be a sucker
On the snake oil salesmen part: OP, How much do you trust the founders? If they aren't anyone you'd consider to be your kids' godparent, then don't bother joining.
Understood and I’d normally agree. However in this case both founders have a track record.
I don’t think high valuation should matter, you should treat it the same way as an early stage company. That’s why it’s based on % at very early stages, then it switches more on options at much later stage. Go for 2%
Seems like you are looking for validation for accepting a less than ideal deal. If you are going to respond to each advise with "I normally agree but this situation is different", what are you looking to get out of this post?
I’m not looking for validation. I honestly don’t know what common terms are. So all feedback is helpful. I’m taking the job either way; it’s not a question of that. It’s more to ensure that the compensation is at least in the realm of what is fair and common. Based on the feedback, it seems it is.
Based on the feedback it doesn't seem like it is. You have 2 people with an idea and potential access to funds. They find someone with 10 yoe to be the only one who is actually writing code. They want to only give 1.75% to the only one turning their idea into reality. Because you are not a co-founder but a "first" employee. Kewl. How about you get paid as someone with a 10 yoe as an employee? If you can carry a project from inception I will assume you can also can get a job at a top silicone valley company. Let's say you are a senior level. That would be North of $350k in cash, today. You are gonna take a risk with these 2 idea guys, cool again. How much are they offering as a salary? My guess is that it's not a fair deal, and you know it since you didn't share it here. Good luck to you, I don't mean to put you down in anyway. I was in your place before, now I make $600k/year in cash with no imaginary upsides.
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2% if you are so early, and competitive salary . Anything less and after dilution you’ll see peanuts even if it’s a large success.
Offer currently is at 1.75%.
If salary is good, I think it’s fair. Ask for early exercise and have them cover the exercise cost, as a signup bonus.