[LRUG] Looking to meet...

[Stevie Graham]

First off, I want to say that this is not a response to the OP, just my thoughts on equity based compensation in general. Given the "e" word has popped up a bit in this thread, I'll weigh in.

Personally speaking, I think equity should be viewed as a nice sweetener, and not as compensation in lieu of salary. We've all heard the lore of Google, Facebook, et al making overnight millionaires out of engineers. It's important to remember that those are outliers and not the norm, but even so it's easy to be sucked in by the notion of becoming rich from option grants. 

Equity options are a useful way to get people to behave irrationally. A company I previously worked for decided they couldn't afford the wage bill and so mandated a 25% pay cut across the board. Everyone accepted and I suspect a large reason behind this is because employees already had unvested option grants they would have had to walk away from if they didn't take the pay cut. We're innately wired to be loss averse, and so when we have already made sacrifices for a possible greater gain in the future (anticipated pay off from equity options in lieu of salary) we're less likely to walk away and cut our losses, a.k.a the good old sunk cost fallacy.

The funny thing about this anecdote is the option grants had not been formalised insofar that not only were the actual grant amounts still undefined, the entire options scheme existed only as a vague verbal agreement. Cue excuses of  "It's too expensive and time consuming to sort out now, we need to focus on customer acquisition and series A". Remember, equity options are a useful way to get people to behave irrationally.

Equity options are basically deferred compensation, so you should think about "what is the minimum outcome that would make me happy sacrificing salary today?" Consider the following: 
- You accept a salary £25k less than your expectation.
- You are given a 1% grant (although I have seen as low as 0.1% offered in lieu of "market" salary) , vesting over 4 years with a 1 year cliff

You have to stay 4 years for your grant to vest, and your position is also extremely weak to negotiate a better salary when the startup is well funded or profitable. That's a cost of £100,000 to you, and the startup has to exit for £10,000,000 just for you to BREAK EVEN. Have a good think about the product, the team, etc and ask yourself the questions "How common are £10MM UK exits?" and "Do I think there is a realistic probability that this company will exit for £10MM+?" 

Please spare for a thought for how impossible it is for the chap that accepted 0.1%. In examples such as these you might have to consider that as money you'll never fully recoup and assess the offer based on other factors, e.g. the engineering team, stack, interesting engineering problems, etc. Having said that if you don't mind sacrificing money for these other factors, then maybe consider doing your own startup.

You're taking a huge risk by taking equity in lieu of pay, Most startups fail, and working at an early stage startup is a bit like being in the wild west; don't be surprised to be let go for some bullshit reason when traction doesn't happen and the startup needs to slash costs to stay alive. You won't get your unvested options in this case, you've wasted your time.

You're basically investing £100k of your own money in the company. What terms would an angel investor get for that? 10-20% probably. Think of it that way and it starts looking like a huge scam.

S


On 14 Sep 2011, at 18:07, Paul Robinson wrote:

> On 14 Sep 2011, at 15:18, Paul Battley wrote:
> 
>> You probably won't get 50K, a company car, a gym membership, and a
>> pension working for a start-up, but it doesn't have to be slavery,
>> either: even below-market-rate salary for a programmer is way above
>> pot noodle destitution - even in London.
> 
> 
> I'd never expect that. I've worked for startups for most of the last 10 years and never asked for (or got) gym membership, a car or a pension.
> 
> But I'd expect market rate.
> 
> Or if preferred, I'd take below market rate + equity and view it an investment I'm making.
> 
> If it's a "you can learn a lot here" position, mark it as a call for paid interns. It's not for professionals with experience of start-ups. If you are reading this as a professional with experience of start-ups and you're taking gigs without equity and below market rate *you are a moron*.
> 
> Sorry, but asking a professional to work below market rate with no equity just for giggles, is frankly unprofessional, nice guy or not, period.
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