Deciding on a Startup offer (from a friend) | Hacker News Reader

Deciding on a Startup offer (from a friend)

11 pointsDeathscy4 comments

I am looking for advice on how to value the monetary portion of a startup's offer. I am a programmer in Seattle, 4 years at Microsoft after Bachelors. I just joined a small / mid-sized company about 3 months ago that is bigger than advertised when I accepted the offer.

I have a friend who is in charge of product definition and programming in a start up. It has 4 founders, 2 programmers and 2 business people. They just got seed money so they are looking to expand their programming team by 2 programmers initially. I like their idea and the other guys are pretty friendly and smart.

They gave me an offer of $80K plus 0.3% of their company with 4 year vesting. I am well-versed at the Microsoft stack so I should be able to hit the ground running. I am also making $110K. Another friend gave me the equation of ($110-$80) * 4 / 0.003, which makes $40M as the breakeven point. The valuation seems really high. Is that a good measure of how to value my offer? What should I consider when deciding on my counter-offer?

Thank you very much for your advice.

That offer is worse than you think it is, for a variety of reasons. You're going to get diluted by every subsequent capital raise. The 0.3% you are being offered could be 0.2% or less by the time of exit. 0.2% of a $100 million acquisition is $200k. If your startup does not hit about a billion dollar valuation and then exit at that valuation you don't get a motivational amount of upside out of the equity.

Additionally, there are a variety of ways where an exit can happen but your 0.2% ends up evaluating to 0%. One is liquidation preferences. (e.g. Let's say that your company takes $20 million of investment at a 2x liquidation preference, then you exit for $40 million, which your friend thinks you break even at. You will receive a check for $0. Your four founder friends may simultaneously receive checks from a side-pot, because they actually matter to getting the deal done.)

Then there's just the numerically most common outcome, under which your startup never successfully exits and you took a pay-cut to work overly hard for a few years with no upside but a resume strongly suggesting to your next employer that you enjoy overwork and underpay.

You're an intermediate engineer, at minimum. Salaries in the Valley for people in your bracket are creeping to $140k+ plus (smaller amounts of) equity. Seriously. They're DYING for people right now. Salaries for engineers in other big metropolitan areas, including Seattle, are going up as well. I guarantee you that you can find offers substantially more compelling in Seattle if you love living there. (Including remoting arrangements.)

Seems like the discussion and article at the following link would answer your question.

http://news.ycombinator.com/item?id=923433

How much do you believe in the company? When you talk to the founders, do you get the feeling that they're likely to be successful? Do you like taking risks? Would you be mad if the startup flopped?

Just ask yourself a bunch of questions about how much you'd enjoy the opportunity if you take a pay cut and the options turn out to be worthless. I think that is a better measure than trying to guesstimate the value of the options.

At this stage of your career, you should think more about the experience added by the job than at the numerical salary number. If you work with the right people with right ideas, that $30K (minus taxes) can be compensated in no time.

As another Microsoftie who quit Redmond for startup world at the same stage, I would advice you to consider the following:

1. Is the work they do at the startup quite exciting and promising?

2. Are the founders great people to work with?

3. Do the founders and the investors have a lot of connections?

4. Is there some press coverage around the startup?

5. Do love working at a startup? Do you plan to start one in the future?

6. What is the scope for learning at the startup vs. learning at MSFT?

I found that after a couple of years, there were less things to learn at MSFT and was entering a plateau. In the long run the marginal money matters less than an opportunity to showcase your full potentials and get the right contacts. YMMV.

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