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Comment by brudgers | Hacker News Reader

The value of the equity is the value when you dispose of it. That is more likely to be zero than $1,000,000.

The the information needed to estimate its disposal value includes: the company's plans for future VC rounds, the terms of the 'A' round and prior investments, and the track record of the VC on the board. My opinion is that asking about the finances should not be an issue, since you are being asked to become a shareholder.

My concern is that 1% seems low for the primary technical person in a business which relies on code (assuming that this is) even if it is market rate.

On the other hand, you might want to this from Suster: http://www.bothsidesofthetable.com/2009/11/04/is-it-time-for...

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0.5% is roughly the market price for an otherwise well-compensated engineering role at a company with low financing risk.

Factors that increase equity:

* Founder incompetence, poor negotiating skill, impatience.

* Financing risk (near end-of-runway with no term sheets, &c).

* Sometimes, lack of revenue (at shoot-the-moon startups, revenue isn't expected early on and isn't a factor).

* Below-market salary.

* Non-substitutable technical expertise. Rare. Rails devs may earn a premium relative to the market, but there's still a market for them. SEO, on the other hand, is hard to acquire, because people who can actually do it can almost always earn more freelancing.

* Ownership of relevant core IP; ie, if you came up with the idea behind the company's product, or own an idea that would be key to improving it.

* Frothy talent markets (but, see "impatience" above). If you need someone RIGHT NOW and LOCAL in the NYC startup market, you may pay a premium.

Note that none of these factors are "the primary technical person in a code-based business". That ain't got nothing to do with anything. Yes, that person may be key in proving the business ahead of revenue or funding. But when you got funding and sharply reduced financing risk, you got yourself to a place where you don't have to pay the lead tech person a cofounder's equity grant.

>"But when you got funding and sharply reduced financing risk, you got yourself to a place where you don't have to pay the lead tech person a cofounder's equity grant."

I agree that you may not have to and if you don't you can still be successful. On the other hand, if you are making a hire to fill a key position for the long term, it may make a great deal of sense to do so because a person hired at or close to the market rate can by definition find an equivalent position elsewhere.

1% of the company probably won't amount to much once the risk of failure, liquidation preferences and future dilution are considered. Not to mention a potential lack of technical chops among the co-founders.

In my opinion, hiring a key position at or near market rate is an indicator that the company views the hire as filling out the organization chart rather than as finding the person who creates significant value to the company, i.e. another entrepreneur.

I'm not saying it is a bad offer, only that it isn't structured in a way which will satisfy someone with entrepreneurial ambitions.

Thanks for giving more of a entrepreneur perspective. I agree with you on that it is not a co-founder equity. However, I get the impression that VC would have a heart attack before even considering a better deal.

Considering the deal includes a trigger with very beneficial acceleration mechanism, I don't see them giving in more, on what already seams like an outstanding deal from the VC's perspective (the founders are relying on the VC's expertise on such deals, as they are not that familiar on what is standard and what is not).

Without considering the deal side, an above market salary is attractive from an employee standpoint and if you will be satisfied as an employee the job deserves strong consideration. 1% equity is a nice fringe benefit of the job even if it ultimately pays out very little.

But from a deal standpoint, there really doesn't appear to be one. Acceleration won't trump liquidation preference and it is likely the equity is simply being pulled from the options pool. The slice assigned to filling the position reflects the value placed on the role you are considering. It's not Steve Balmer's 8% as employee #30 and it probably won't cure the entrepreneurial virus if you are infected.

Good luck.

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