This is a good article, but a lot can happen between your option grant and an exit. I'd keep in mind that startups are generally for making founders rich, not employees, and that no matter how hard you push on equity, the chances of you getting meaningful money from your options is pretty minute. You may want to optimize your base salary instead.
That said, the most important concept in the entire article is "[i]f they won't tell you, go work somewhere else." Founders who are open with their employees up front are less likely to take advantage of them later.
I can vouch for this from personal experience. If you aren't getting a percentage comparable to one of the founders, then you shouldn't settle for anything less than near-market salaries.
Startups bring on employees for their expertise. You should be compensated appropriately for it...especially if you're facing as much uncertainty and risk as the founders without the potential for a big payout.
Also, when negotiating and judging a compensation package, remember that few startups have successful exits. Most of the time - statistically speaking - those options will end up being worthless. Salary (i.e. cash) has little risk associated with it.
This is good advice and a good indicator of why starting your own startup is the only sure fire way of making off like a founder.
I was offered to join the team for an early stage startup a few months ago and they offered 1% with salary upon funding. According to this article, all that risk and working for nothing for a few months until they got funding would have been a waste - I now have a few contract gigs that are paying me above market value (adjusted for sole proprietorship expenses like health &c...) for my work.
I basically work for a few months, then take a few off and do what I want - much more ideal than 9-to-5 and/or a high risk venture in which I'm not a founder...
> This is good advice and a good indicator of why starting your own startup is the only sure fire way of making off like a founder.
'Sure fire' and 'startups' do not go together.
As a counter example, there are plenty of early Microsoft and Google people who were probably much better off with their options at those companies than doing their own thing. Sure, they're outliers, but lots of things about startups in general are kind of outliers...
There's still a big advantage to holding employee-level stock during an acquisition. Even if you've only ended up with 0.5%-1.5%, that's still enough to pay off a good chunk of your mortgage and put you in a spot where you can start your own business.
In terms of a reasonable retirement plan, it can set you ahead by a decade.
There's also advantages to coming in as a non-founder. You significantly reduce the risk of failure by coming into a startup that's made it to the point where it's hiring and you can chop off a year to a year-and-a-half on the timing of an exit.
0.5% - 1.5% is where a lot of _founders_ end up, in terms of equity ownership. Depending on how many rounds of financing, how long it takes, how desperate for the money, and, how long it takes to get to profitability, it's not uncommon for a founder to own 2-3% of the company.
Employees, even at quickly growing startup, and having been hired on in the first year, may be lucky to own as much as 0.1% of the company.
A startup where founders end up < 5% is going to be one with serious issues. Assuming a two-person startup where everyone starts at 50%, you'd have to go through three really low-value rounds (say taking in 1M on a 3M post-money valuation) to get the founders below 10%. Either you are burning cash way too fast or your idea just isn't taking off.
Regardless, everything is a tradeoff in a startup - if you ever get to that point, your employees are probably either staying because they are getting equivalent salary to a non-startup position and enjoying the environment or they are expecting a massive payoff (0.1% of a $500M exit is still $500k).
If you've made it through a few rounds of dilution as an employee and don't hold a lot of stock, you should probably be weighing whether it's even worth staying.
Yep. PayPal isn't necessarily an average case either. It was the merger of a company with four founders (Confinity) with a company with a single founder (X.com).
Elon Musk, a sole founder of one of the original companies, ended up with 10.7% in that sale:
Thanks for filling in some details. I think you strengthen rather then weaken the case that founders might end up with what sounds like a small percentage though.
Why would they have to be low value? Doesn't taking $50m in a $150m post-money valuation have the same effect as taking in 1M on a 3M post-money valuation?
That said, the most important concept in the entire article is "[i]f they won't tell you, go work somewhere else." Founders who are open with their employees up front are less likely to take advantage of them later.