Ask HN: What should I expect in equity discussions?

https://news.ycombinator.com/item?id=2013010

by someproduct • 16 years ago

3 3 16 years ago

news.ycombinator.com

I'm coming into a startup as a member of the founding team. The founder (+2 others) have been at it part-time for about 2 years.

Not sure of my official "title," if that matters, but I'm their UI person with the value-add of product mgmt experience. My work will help the company get funding (design is the main hurdle for investors). Also potential patents for what I've been working on.

Just wondering what I should be aware of going into equity discussions. Percentages, voting rights, and that kind of thing. I've never been involved in equity discussion before.

The company has solid adoption in its local market, but little traction elsewhere. Solid technical founder, but no revenue and no funding.

jeffmould• 16 years ago

First, are they bringing you in as a "co-founder" or an employee? Makes a big difference. If they are bringing you in as a "co-founder" then you should expect a little more in terms of equity and what rights you have. If they are bringing you in as an employee then you most likely will be subject to the stock option plan they have.

Either way you will want to know how many shares are issued, outstanding currently. It may be helpful to know who has what percentages, but they may not be willing to discuss with you depending on your relationship with them. Also knowing how much funding they are seeking and at what percentage they are looking to give up. This way you can determine how much dilution to expect when they do.

If they are bringing you in as a "co-founder" it's hard to say what to expect in terms of percentage. If they are considering you an equal and you are 3rd co-founder than you may see as high as 1/3 of the company. Most likely though it will not be this much.

On the other hand if you are under the option plan, you will see a very small percentage compared to the overall outstanding. For example, they may have set aside 10% of the outstanding for the stock option plan to cover all employees. You will see a small sliver (under 1%) of that.

Voting rights, well unless you are a co-founder and are on the board your "voting rights" will be minimal at best.

You will want to know what the vesting period is. That is how long before you actually own all the stock. You will want to know what the strike price is (that is the price at which you will have to pay for the stock/options).

Personally, unless I truly believe the company is going to take off and see a acquisition down the road, I don't look to equity to get rich. Your chances of making millions on stock/options in a startup are minimal at best, especially in the case of options. Not to discourage you, but that is just a fact of the matter.

someproduct• 16 years ago

"Member of the founding team" is the verbiage that's been bandied about, but not entirely certain what that means yet.

Your response has been very helpful. Thank you.

maxawaytoolong• 16 years ago

Expect to get 1% of the existing options if you're lucky.

Ask HN: What should I expect in equity discussions?

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