My story with a start-up (equity blues) | Hacker News Reader

My story with a start-up (equity blues)

8 pointsdotcoma12 comments

Me: worked in mktg/biz dev for a number of successful European web start-ups.

I meet the founder of a very promising start-up. He tells me salary will be low. I say: great, I'm more interested in equity. Salary is low, but the path to equity is unclear (promised shares in the local company, but with no indication at all of how to judge the value of the local company respective to the total value of the mother company in case of a sale or IPO).

I make a counter-offer: I'll work and get only equity in the mother company. Each month for the first year, I'll get 1/12th (one twelfth) of what each business angel got for the 50,000 Euros they invested in the company just one month before, plus maybe a bonus of some kind. From year-2, only dividends on profits. His reply: no way, I can't treat you like an investor. I though one ought to be delighted to have a country manager who belives in your company so much and wants only equity. I drop out of negotiations.

What do you think?

I don't understand the local company/mother company distinction. A startup doesn't normally have a child company or a mother company. Is this really a spinoff? And there are outside investors? Sounds pretty strange. However, I can see how in a situation like this the mother company might not go for you being an investor, (maybe it isn't the founder). Is the mother company itself large and profitable? If they aren't, why are they spinning off? If they are, why are there outside investors and no salaries?

Profits in year 2? Are you pretty sure there will be any?

This whole thing sounds flaky so far.

Mother company: a UK Ltd company. Business angels invested in this company. Business started less than a year ago and at present almost certainly earning profits every month in one EU country (not the UK) where they already have a local company, which is 100% owned by the UK Ltd. Planning to open a number (let's say up to 4) of other local companies in other EU markets. I would have had shares (say 10%) in one of these local companies. Pretty sure there would have been profits in year-2. Thanks and I hope this clarifies things a bit.

Sounds like you dodged a bullet. If you're being paid below your market value, you're an investor.

Was offered 30% of what I think the position was worth in cash.

The founder is correct, an employee is not an investor.

Furthermore, a 12 month vesting period is far too short, immediate vesting is also a poor practice, and a startup should not be paying dividends or distributing profits in year two - it should be using that money for growth.

In my opinion, your counter-offer appears to be geared for a quick acquisition of equity and then walking away. And that's not the kind of person a founder should provide with equity.

A country manager, in this case, so a person in a position of a certain importance, not just a normal employee.

12 months is too short a period? Possibly. But I received no counter-proposal. And, frankly, I was expecting one.

IMO, your proposal suggested characteristics which might be troublesome within the group of stockholders of a tightly held company.

Among these are a lack of long term commitment due to the rapid vesting schedule and a questionable ability to accept the responsibilities of an employee rather than that of investor.

That's not to say that the owners of the company are beyond reproach - the offer of a low salary combined with stock in an enterprise of dubious purpose certainly raises suspicions.

However, your description of the state of affairs does not make their decision to pursue your services without great zeal unsurprising.

Sounds too complicated and non-typical for the founders, probably told their investors about the offer and got advice that you were more trouble than you were worth.

ok for the non typical. Didn't like the "more trouble than you were worth" part, but thanks for the feedback nonetheless.

Investors are not just a source of money, they are also entry points into their networks and an access to enterprenueral advice and insight. There are plenty of people how can spare 50k, but some are far more valuable than others.

I understand this, of course. But I could have been an important - I think - entry point into an important market for them.

The right move. If you are an employee don't budge on salary one dollar. If you want to work at a startup, just find some people and become a founder with your equity share written right into to the agreement.

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