How I negotiated my startup compensation (with numbers)

http://blog.keen.io/post/29904565692/how-i-negotiated-my-startup-compensation

by wetzler • 14 years ago

261 220 14 years ago

blog.keen.io

peacemaker4• 14 years ago

Interesting post, though $70k to live in San Francisco? That's going to be pretty tough, honestly it's crazy expensive here.

colmvp7• 14 years ago

Honestly not that hard, especially if you live in a shared apartment. Plus if you look at his benefits, it looks like they cover some living, food, internet, and gym expenses. I grew up with friends who lived in NYC earning less than 35k a year with no such benefits. Now THAT was tough.

cellis• 14 years ago

NYC may have been high then, but it isn't near SF now.

http://www.wallstreetoasis.com/forums/nyc-cost-of-living-is-...

bitcrusher• 14 years ago

I was thinking the same thing. The negotiation was interesting, but 70K in the city, even with a rent subsidy from the company is tough.

Hopefully they don't have a lot of overhead beyond eating.

ChuckMcM9• 14 years ago

Did you miss the rent subsidy part? It was listed at $12K, so $1K/month. But lets step back from that for a moment.

$70K gross income. Lets say you put $2K into an IRA (no 401k) so $68K after that. Estimated federal tax is $10,592 [1], Another 6.2% goes to Social security so $4,340 [2], estimated state income tax (CA) is about $3,922 so rolling that up, $68K - $18,854 in taxes thats not quite $50K left over ($49,146) so that is about $4095 a month.

So if you're living on $4095 a month you're looking at spending $2K on a studio apartment [4] minus the rental subsidy of $1k making it $1k on the Apartment. Call it $500/month on food, $250 / month on subscription services (cable / phone / internet) and maybe $75 /month on rental insurance so maybe half your monthly on recurring costs. Leaving you $2K/month for dynamic costs. If you don't own a car (and I wouldn't recommend it) then you're basically able to move what is left around for things like the occasional furniture or clothing purchase. Going out to eat occasionally and saving for a rainy day. It should be possible to put away $500/month of that into savings on typical month.

The bottom line is I don't see $70K/month as 'pretty tough' :-) but I can certainly see it not giving you a luxurious lifestyle.

[1] http://www.calcxml.com/calculators/federal-income-tax-estima...

[2] https://www.socialsecurity.gov/OACT/COLA/cbb.html#Series

[3] https://www.ftb.ca.gov/forms/2012_California_Tax_Rates_and_E...

[4] http://www.mynewplace.com/city/san-francisco-apartments-for-...

peacemaker4• 14 years ago

Honestly, I missed the rent subsidy part which makes it a bit easier. Still, thanks for the breakdown! I guess I waste a lot of money or something because I somehow manage to spend a lot more here! Although saying that, I prefer to put a lot more away towards savings and retirement and like to travel a lot too.

Daniel_Newby• 14 years ago

The rent subsidy is ~$600/month after tax.

codenerdz• 14 years ago

Its 2 people sharing an apartment(Im assuming from them being engaged), so that is easier). Also rental insurance is fraction of what you mentioned, especially if its part of your auto insurance coverage.

encoderer3• 14 years ago

While I agree with your sentiment about frugal living, in the spirit of being realitic, $500 a month for food is awfully low.

At 3 meals a day, that's $5 a meal.

No easy feat unless you go for processed, preserved and packaged, which is hardly a good way to live and eat.

nandemo• 14 years ago

OP also mentions $12k worth of rent subsidy. Not bad, I think.

I believe there's an implicit "keep up with the Jones" factor here. Surely there are plenty of non-programmers living with less than $70k in San Francisco.

In Japanese companies, you need to get to senior level (implying at least team lead but more likely project manager) to earn $70k a year. And it's not like Tokyo is a cheap place to live. I told a Japanese coworker that in the US new grads get U$70k right out of the school and he thought that was crazy.

colmvp7• 14 years ago

Sometimes even more. I know of recent graduate engineers at some of the bigger giants (like Facebook, Google) who get large stock options, signing bonuses, and a six digit salary... right off the bat.

crag2• 14 years ago

"rent subsidy"?

Are you kidding? Man, I must be living in the wrong town. In Florida, the fact that we offer medical insurance and matching 401k sets us apart from most business here.

Though we do have a few other perks.. you cell service is covered by the company. Also everyone gets an ipad (it's yours once you past 6 months). But really though, these "perks" help us (the company) more.

But this just proves, bubbles exist.

louhong• 14 years ago

As someone else mentioned there was a $12k housing subsidy. Since she disclosed that she's engaged to the co-founder, and assuming they are living together, and assuming that he's getting a similar subsidy, they would have $2k a month which is doable for a 1 bedroom apartment. She's also got some expenses (food, internet, gym) taken care of so it is very possible.

mjn2• 14 years ago

That's almost exactly the median household income for the city, so it's pretty normal to live in SF on that salary. Mostly among people not in tech or finance, though, so may depend on one's social circles (it's easier to live more cheaply if your friends aren't making six figures).

fratis3• 14 years ago

A tip for people writing on corporate blogs: let us know who you are up front. Whether there's a byline under the title or a short intro sentence/paragraph preceding the article, knowing who you are gives the reader a way to frame what your story.

Because the tech industry is so heterosexual male-dominated, when I read that the author was engaged to the CEO, I first assumed I had misunderstood, then I thought the author was a gay man. Only upon reading further did I find that the author was a woman.

That confusion could've been cleared up in the first paragraph in which Michelle writes, "I’ve picked up quite a bit just by being around our CEO, Kyle, for the past few years." Why not tell us here why she's "been around" Kyle for so long? Further confusing the point, she mentions later that she's "friends with all of the founders." And engaged to the CEO might've been a helpful addition.

This kind of information completely changes the context of the advice – negotiating with a stranger is a completely different dynamic than negotiating with someone you (I assume) share a bed with.

Simucal• 14 years ago

That bit of information about them being engaged was just kind of sprinkled into the middle of the article as if it was of no significance.

nutjob123• 14 years ago

Yeah, it completely changes the dynamic of the situation. I can't imagine many other people are really going through a salary negotiation with their fiance as the other party.

Judson• 14 years ago

I came here to say the same thing. I had to do a CTRL+F to search for "Michelle" to see if I had missed where "Me:" and "Kyle:" turned into "Michelle:" and "Kyle:".

jere• 14 years ago

Also, Michelle mentioned that she was "friends with all of the founders of Keen." No small detail there.

wetzler21• 14 years ago

Thanks for the feedback. I realized the article was confusing so I added an intro.

However, I feel no need to mention my gender or sexuality when introducing myself. If I didn't have a clearly female name, should I have said "Hi, I'm Pat, and I'm a female in the tech industry"?

fratis3• 14 years ago

Ahh, yikes. Sorry. I should've been clearer.

I didn't mean (though it certainly sounded that way) that it's necessary for the reader to know your gender. Looking back, in fact, I realize that I weakened my position by even mentioning it (especially in the vague, imprecise way that I did).

I brought up gender because it was confusing (and I, along with other readers here, felt misled) when you – very casually, I might add – mentioned you were engaged to the CEO, up until which point I'd been under the false impression that you were a man.

So, to answer your question: no, you wouldn't have needed to inform the reader of your gender if you had an ambiguous name because what's really important here is not that you're a woman but that you're engaged to the CEO. Whether you're a man or a woman is irrelevant: all that is relevant is that you have a close personal history with the guy you're negotiating with, a fact which, again, completely skews the context of the article.

boomzilla• 14 years ago

I wish good luck to all involved with this company. I am not sure if it's a good idea to work so closely with your fiance/wife/husband in a start up. If things don't work out, there will be more than a job that's lost.

philwelch• 14 years ago

Yeah, there will be both jobs lost.

While I can see hedging your bets by having your spouse work a normal job (and possibly get you on their health insurance), if a failed startup is going to doom your marriage, your marriage is already doomed.

troels2• 14 years ago

That makes little sense. If the domain is dominated by heterosexual males, it's quite obvious his spouse must be a woman.

troels2• 14 years ago

I assume, I missed something obvious here. Just curious - What?

sync• 14 years ago

Does 1.25% seem ridiculously low to anyone else? It seems to me like she should have negotiated to be a co-founder instead of employee #1.

peacemaker4• 14 years ago

I agree... no-one wants to be the first employee, instead push for last co-founder. It is an interesting insight to what some startups get away with though - a way below average salary and a tiny speck of equity. She must truly believe the company will sell for hundreds of millions of dollars (unlikely) in order to see a decent return.

riazrizvi2• 14 years ago

It feels like her role is an auxiliary function, like Office Manager or QA, so I think her generic analysis works. If her role was central to the business, then I don't think she would be valuing her contribution with a one-liner like 'Employee’s value-add to the company (I used 15%, which I think is pretty low!)'. Instead the question of her value-add would be the starting/central point of the negotiation.

tptacek18• 14 years ago

Huh? Nobody offers .5% equity to an "office manager" or "QA". She says in the post her role is "Director".

Michelle is an enterprise software consultant with an engineering background.

taybin2• 14 years ago

Her twitter account says she's an engineer. What makes you think her role is Office Manager or QA?

wetzler21• 14 years ago

It'd be pretty strange for a startup's first hire to be an office manager ;-)

tptacek18• 14 years ago

If you're receiving a W-2 salary that's in the ballpark for your field, absent some other contribution (marketability of your name, unique and non-substitutable skills or rolodex) you're not a cofounder.

wetzler21• 14 years ago

It just occurred to me that I should have posted this on HN before finishing the negotiation. Would have been great to get this input then.

textminer2• 14 years ago

Shit, that's what I got as a first employee at a company that has <$1m in VC/angel investment. Market-rate engineering salary, too.

wetzler21• 14 years ago

Keen also has <$1M in investment. My salary isn't quite market-rate for an engineer, but it's not too far off when you include perks (proximate living bonus, lunches, healthcare, etc). If we do raise series A (or become profitable quickly), we plan to adjust salaries toward market rate.

jwoah123• 14 years ago

Is this in line with expected salaries/equity for a #4-6 employee of a pre-series A startup in SF? What about NYC? For some reason I thought equity would be a bit higher for the first few employees.

balloot2• 14 years ago

That's about right. One of the biggest surprises to me as I learned more about how startup equity works was the HUGE dropoff between cofounders and employee #1 in terms of equity.

diminoten• 14 years ago

Wait, this line confused me:

> Another thing that made this situation complicated was that Kyle and I are recently engaged.

So, your fiance is Kyle, who is the guy you're doing negotiations with for her salary?

The methodology is extremely useful, but I feel like that makes this story extremely specific. Like you said,

> I told him that, if I got this offer from any other company, he’d be the first person I would ask for help.

wetzler21• 14 years ago

OP here. You're right - it was confusing! I tried to evaluate my offer objectively and wanted to share the tools I used to do that (as well as get feedback on the approach). My relationships with the founders were a key part of the story that I didn't mention until late in the post. I added an intro which hopefully makes it more readable now.

chasing2• 14 years ago

Wait, what? Firstly: She's engaged to the founder. Secondly: This is on the company blog (which indicates she might not be 100% forthright). (And what am I supposed to learn about Keen.io, here?)

Finally (and most importantly): Did she run the numbers about what that 1.25% might realistically be worth? She compared the offer to her current position and (without the equity) there's a ~$55,000 difference. That's a shit-ton! How much of an exit would Keen.io have to have in order for that to pay off if she's on a reduced income for, say, four years? She'd have to get a couple hundred grand off of that exit. Will her share of equity get her that?

Anyway. This isn't a negotiation. And she didn't fully run the numbers.

[Edit]

I also wrote up my experience negotiating with a start-up [http://auscillate.com/post/238]. I'm pretty naive about this stuff, but at least I attempted to answer some of the issues of the value of equity.

tptacek18• 14 years ago

I'm not sure what this critique has to do with the point of the article. This is, I think, a more careful (and lucrative) negotiation process than 99% of engineers are apt to us. The point of the post was to explain that process, presumably in the hopes of benefiting other startup employees.

Do you disagree with the methodology? How? Let's talk about that, and not what you think about the blog author's personal life.

chasing2• 14 years ago

I think she used a valuation of $5mil when doing her calculations. What are the odds the company will exit at that number? What are the odds it'll exit higher? What are the odds that it'll flame out and be worth nothing? Will her shares dilute? How much more does she feel she should earn to make up for all of this extra risk she's assuming?

She doesn't appear to consider any of this. At least, I don't see any numbers that take this stuff into account.

rprasad2• 14 years ago

His point is that the methodology is flawed because of the unique circumstances of the author being engaged to the CEO. This skews the inputs upward in her favor.

rdl19• 14 years ago

I think her methodology was sound, and knowing to use it at all was great. I just question the CEO/founder for low-balling to begin with, and I'm not sure if the whole thing raises the perceived awesomeness of keen.io as an employer (which is what you'd want on a corporate blog).

ruby_on_rails• 14 years ago

On a similar note, I would have preferred if she had posted something like this on a personal blog and not the company blog, because I think it looks tacky (especially when you are sharing your actual salary).

I thought the analysis was generally quite good though and she seems to be quite intelligent. Please don't take my critique to mean that I thought the point she was making was incorrect.

shasta• 14 years ago

No really, this article was total nutso. "Another thing that made this situation complicated was that Kyle and I are recently engaged" was almost at the half way point. After reading about how she had received an email from "Kyle", one of the Keen founders, to meet for coffee or beer to discuss an offer, I had to assume they were both recently engaged to other people.

I finally realized that, no, in fact they are engaged to each other, but that was after she'd started referring to herself in the third person:

  Michelle: “What should I do? ..."

I hope that someone else wrote this article on her behalf.

wetzler21• 14 years ago

hopefully I cleared up the confusion with the intro I added to the entry.

wetzler21• 14 years ago

I modeled the cap table and various financial outcomes to figure out what 1.25% might be worth. In fact, we reviewed those numbers as a team (this was in my post).

The founders also set expectations that we'd adjust salaries to market value in the event of a Series A, though that isn't something I relied on as a part of my decision.

kine• 14 years ago

Some great advice I got when someone comes back to you and says "We'll give you 16,000 shares" is essentially to ask "shares of what?"

One of the best questions to ask is "What percentage of the total outstanding shares does this represent?" Since 16,000 shares could be out of 100K, 1M, etc.

corin_• 14 years ago

I read that in the article (she mentioned learning that same lesson), and can't believe anyone would ever not do this. Would you really not have thought of finding that out had you not been given this advice?

dorkitude9• 14 years ago

(Full Disclosure: I'm Kyle, the CEO mentioned in the OP)

I actually had this issue bite me in the ass at my first startup, where I was offered a flat # of shares.

I was pretty much fresh out of college, but for the record, I did realize it was important to find out what percentage I was actually getting. When I asked what the total # of shares outstanding was, the company snaked its way out of answering the question directly. The job had a lot of perks (a big title, very respectable pay, work-from-home, greenfield development), so I took the offer rather than press the issue.

Eight months later, we were acquired. I was the only engineer. You could say I was a bit peeved to learn how little of the company I really owned.

efields• 14 years ago

I'm going through this right now, sorta, tho I decided I need to be paid more at the start-up I work for. I'm paying for health out of pocket so my left-column is more like $80k. I'm basically looking for a raise to market value+ to cover out of pocket health costs. In my case, I feel like the stock options exist in lieu of company-paid health insurance and a bonus.

I know a few people that cashed out at successful but sanely-priced acquisitions (nowhere near silicon valley levels), and those vested options are never more than low-to-mid 5-figures. In other words, 4-5 years worth of bonuses at a consulting firm or agency.

The reality of a profitable acquisition is slim. You're better off getting paid market rate and treating the options for what they are: just a really good perk.

tptacek18• 14 years ago

I think Michelle's methodology here is great, except for the fact that she applied it without a goal number; in other words, she took the offer number and tried to "reconcile" it to the model. The mechanic of running your offer through a model to justify a counteroffer is a great one that more nerds should adopt, but she's missing an input: what does she want the model to say? Your goal as a prospective employee is to maximize the number.

The offer side of this post makes my head hurt though.

    70k with .5% equity or
    60k with 1% equity or
    50k with 1.5% equity or
    40k with 2% equity

This offer says that 1% of the company is worth $20k. The company is worth $2MM. Late note: this analysis is silly, see comments below.

Later:

    Inputs:
    -        Employee’s market salary 
    (I used my current salary, plus bonuses)
    -        Salary offered by the startup 
    (I used my offer, plus benefits like rent subsidy)
    -        Company’s valuation 
    (I used $5M, the cap for Keen’s seed note)

No, it's $2MM, the CEO just told you so, right?

Frankly, an offer with a .5%->2% spread between possible equity stakes is a red flag. Those are wildly different equity grants for the exact same role.

Also:

Our expected net worth after a few years in our existing management positions was, by any practical estimation, the most financially sound outcome – and a very good one, at that. Even if things went great at Keen, with a big Series A or early profitability, we’d probably make less.

What does "a big Series A" have to do with your long term financial outcome? The A-round money goes to the company, not to your family. How many companies with "institutional" VC rounds fail? Answer: most of them.

sallen2• 14 years ago

I thought she mentioned it was a 4 year vesting for that equity, which means 1% = $80k. But then that values the company at $8M, which also doesn't match the asserted $5M.

tptacek18• 14 years ago

I'm not following how you're drawing a 4x valuation from vesting, but I'll admit that my head is in an SSL3 negotiation bug I'm grappling with while posting, so maybe I'm crazy.

rdl19• 14 years ago

It's pretty common to subsidize employee equity because employees having equity are incented to work, and because common generally is discounted to preferred by a larger factor very early in the formation of the company. It's reasonable to simultaneously treat employee equity as $2mm valuation and investor equity at $5mm valuation, especially with a note.

In this case, though, I think the way to win the negotiation is to walk. A competent engineer is more like $150-200k total comp in the bay area, and doing that as $100k + 100k of equity/yr in a real company is pretty plausible.

A more plausible story is offering $50-100k and then equity levels which ramp up rapidly as you go down to $50k. Someone taking $50k vs. $60k should get more than $10k x 4 of extra equity. Maybe something like 100/0.10 90/0.15 80/0.25 70/0.40 60/0.6 50/1. Then, if you need to prioritize candidates, absent other factors, the 50/1 people have a plus mark.

tptacek18• 14 years ago

I'll admit: my issue here comes down to hating sliding equity/salary scales like this one. The rough amount of skin you want a team member to have in the game should be a part of the role definition, not a detail of the comp plan.

There have to be better ways to account for sub-market salary than a salary/equity scale multiple percentage points long. Ick.

ricardobeat2• 14 years ago

Higher equity is always the most rewarding option in the best possible outcome. But it's hard to leave safe money on the table. Four years from now the company could be worth way more than the current $5mm, then those $20k/year would look like scraps.

I agree with tptacek; 100/0.1 and 50/1 suit very different persons, the company should decide which type it's going after and limit that range.

dchichkov2• 14 years ago

I think that 50k/1% should be considered only as a 'hobby occupation'. Or, if one is trying to change a field of work.

Because this early employee 1% is a) going to get diluted; b) it is over 4 years; c) most likely will result in $0 - $5000 cash-wise. And 50k (without benefits I assume) is.. well nothing.

wetzler21• 14 years ago

Thanks for the thoughtful response! (I wrote the post)

I tried to take the approach you recommended and arrive at some numbers completely independent of the offer. I don't think I made that clear in the post, though.

Calculating the company's worth based on the offer is a cool idea, wish I would have thought of it at the time.

A big Series A is important because we discussed adjusting salaries to market value in the event of a Series A.

dorkitude9• 14 years ago

To be fair, it's actually like saying 1% equity converts to roughly $20k per year, since salary is annual.

ajross• 14 years ago

But one year is about the horizon time most of these startups are looking at. At that point either they'll get real funding and the salaries will get rescaled to market values or they'll fail. Either way they're looking at saving about $20k total in the immediate term.

jongraehl• 14 years ago

re: CEO just told you it's $2MM, yes, but perhaps he'll instead tell you it's actually $5MM but he wants to incent you to take a larger equity stake (the other options trading off expected reward for additional financial security).

rdl19• 14 years ago

Rent subsidy makes no sense to me. It's a fully taxable fringe benefit (at least in the US, if it's not for the benefit of the employer like at a mine), and basically the same as salary, but people don't include it in the salary calculation. It's just stupid for the employer to offer it instead of the same amount of extra income.

bencpeters• 14 years ago

In this case, numerous things in the article seem to imply that Keen was/is working out of the house, and that the author was living with the CEO (and possibly other founders?).

Given that, it seems like the most straight-forward way this "rent subsidy" is working is that Keen is paying for the house where they live/work out of company money, and that's probably where the different category comes from, at least conceptually. (apologies for assuming if that's not correct)

dkador8• 14 years ago

Disclosure: I'm one of the founders of Keen.

With respect to the housing subsidy, you've got part of it right. We do work out of a big house that some of us live in. But the rent subsidy was put in place for one main reason: one of the main drivers of employee happiness is commute time. They're inversely related, and the rent subsidy is our way of incentivizing employees to live close to the office.

rm9992• 14 years ago

Agreed. My theory is that people irrationally value free stuff. I spend about 3,000 dollars a year on work-time food (250 work days * 12 dollars for lunch/an afternoon snack). The way people talk about free food at some tech companies you'd think it's worth way more than a few percent of a typical developer's post-tax income.

rdl19• 14 years ago

Food onsite is a special case. It's tax-advantaged for the employer (if offering meals onsite is "for the convenience of the employer, and for a business purpose"), and food has a high search/storage/etc. cost. Similarly, I'd value a 30" monitor at about $1k/yr salary.

tedunangst• 14 years ago

The lunches I used to get were usually worth more than $12 (though the company paid quite a bit more than that). But there's more to it than money. There's not having to decide, which is something you can't buy as an individual. There are other cultural benefits, which I'd argue both the company and individual benefit from.

dorkitude9• 14 years ago

I'd like to clarify a bit here. Inside Keen (I'm the CEO), our name for this (what Michelle's spreadsheet terms "rent subsidy") is the "proximate living bonus". To qualify, you have to be within a short commute of the office.

Our reasoning:

All else being equal, people often choose a longer daily commute, usually to save money. But, as research* has shown time and time again, once basic needs are met by compensation, the factor which correlates most strongly and consistently with unhappiness is commute time.

What we're attempting to do with the proximate living bonus, then, is to incentivize happiness: We're intentionally designing our bonus structure to incentivize the better decision, which employees might otherwise neglect for a number of (irrational) reasons.

*Here's a good intro into the research on this topic: http://www.huffingtonpost.com/kirsten-dirksen/happiness-rese...

rburhum• 14 years ago

>"Another thing that made this situation complicated was that Kyle and I are recently engaged"

Even if she got double (or even four times) the equity, does nobody else think this is a disaster waiting to happen?

lucian303• 14 years ago

“I think there are some pieces missing from your calculations. What’s the value of the experience you’re going to get from building a company? And you’re underestimating the value of the relationships you’re going to build, and the mentorship you’ll have through our investor network. And if it doesn’t work out, your experience here will make you even more valuable to the Amazons, Facebooks, and Googles of the world. I’m confident this is the best move you can make for your career.” -- Kyle (CEO)

If I had $1 for every time I heard that about a startup, I'd actually have a lot of real money instead of the worthless monopoly "money" a company offers you as equity. At least you didn't get common stock so it could be diluted to nothing later when the VCs and angels come in and eat up the company.

Then again, if you're sleeping with the CEO, you actually get that option. You also get the option to create a place full of nepotism that's doomed to fail. Just my experience.

usea• 14 years ago

Then again, if you're sleeping with the CEO, you actually get that option. You also get the option to create a place full of nepotism that's doomed to fail. Just my experience.

It doesn't seem fair to insinuate that the author's offer was a result of her sleeping with the CEO, or that their relationship will doom the company. What are you basing that on? Honestly it sounds like sour grapes from some experience you've had.

mjbellantoni• 14 years ago

I wrote a tool a while ago to do this math:

  http://options-vs-salary.com

This is based on various blog entries I've read on the subject.

balloot2• 14 years ago

I actually just accepted an offer at a startup, and like the idea of a tool like this because I had to approximate it. However, it's simply incorrect to compare your startup job with an VC investment, and the numbers given by your tool would create a situation where you would turn down almost any realistic startup opportunity.

For example - let's play with the offer given in the article: 1.25% + $85k salary (I'm including all extras in both salaries). Given that the author made ~$142k before, the tool says that if she expects a valuation of $100M on cash out with a 1% stake (after dilution), she should have been offered $117k. That's simply not money you'll get at a 5 person startup under any circumstance, even given the very generous valuation estimate for a startup with $800k funding.

Alternately, if you join as employee #15 or so, you're probably getting closer to .1% of the company, and the calculator says that you should take a $3k deduction off market rates on a $100MM expected valuation. That's also not even close to what really happens.

The problem lies in the comparison to a VC investment. Because for a job seeker, the real comparison is "take a job with standard salary". Your calculator claims that if you could make $600k over four years at a "normal" job and $400k over four years at a startup, you would be upset at a $1MM stock payout because it wasn't 10x the $200k "investment". That is just totally asinine.

In reality, a rational decision would take any salary/equity combo that has an expected value (in the statistical sense) of $1 more than the market rate. There is no multiplier.

dangero• 14 years ago

Cool tool, but unfortunately it doesn't always autoupdate when I change numbers. I'm using Chrome on Mac.

alexcharlie• 14 years ago

Call me crazy, but I think people should not be compensated better because they're good negotiators.

colmvp7• 14 years ago

I don't think you're crazy.

Learning about salary/equity disparity can be very demoralizing, spreading bad team chemistry like a virus. This is especially true in cases where people who happen to be good negotiators earned more money than the workhorses who provided some of the biggest benefits to the company.

citizens• 14 years ago

Salary negotiations are [partly] about knowing the value you'll bring to the company. If you aren't able to explain your value how are they supposed to compensate accordingly?

at-fates-hands• 14 years ago

I'm actually surprised she gave up her 141K gig to go to a startup. If there's one thing I've learned, you need to make your money when you can.

I don't know I would take a 50K reduction in salary as well additional benefits to go to a startup.

wetzler21• 14 years ago

Thanks for reading my post :) I wrote about my decision to make the jump in a previous blog post: http://blog.keen.io/post/26096112831/why-i-left-consulting-a...

Some things to consider: 1. Consulting work is still there if I need to return to a higher salary. 2. My salary in the startup will be adjusted if the startup does well. 70k will not work out long term in SF, but it's ok for a year or so.

colmvp7• 14 years ago

'1. Consulting work is still there if I need to return to a higher salary.'

Couldn't you technically do that same consulting work at your old job, specifically after work or on the weekends?

I agree with your second point though.

richcollins2• 14 years ago

Another idea: Contract for $200 an hour for 6 months and make $200,000. Invest that into the company, get 5 - 10%, and join as an employee to influence the outcome of your investment.

Even better idea: Do the same but invest it into your own company. Keep 99% and convince someone else to take 1% + pocket change to work for you for a few years.

osxwm• 14 years ago

Go read about investor qualification and why taking on an unqualified investor at an early stage can hurt your company.

richcollins2• 14 years ago

You're right, you'd have to wait 2 years:

have made at least $200,000 each year for the last two years (or $300,000 together with his or her spouse if married) and have the expectation to make the same amount this year."[1] This rule came into effect in 1933 by way of the Securities Act of 1933.[citation needed]

You wouldn't for my "even better" option.

rdl19• 14 years ago

It's different if you're actively involved in the business, vs. soliciting people for investment. It's fine for someone who makes $25k/yr as your security guard, who inherits $50k and doesn't know what to do with it, to buy an extra $5k of equity if he wants.

rdl19• 14 years ago

joezydeco4• 14 years ago

I'd like to hear more about the insanely vague "Health Insurance" on both sides of that spreadsheet. Looks like a complete match and no problem, right?

I went from an established company that offered an awesome family PPO plan ($0 monthly premiums, 95/5 coverage, $750 family deductible, paid vision/dental) to a startup that offers a way worse one: ($780 monthly premiums, 90/10 coverage, $3000 family deductible, no vision/dental).

You can list "Health care! Woo!" on both sides of that offer, but I bet it's way more detailed than that or completely missed in the equation altogether. My personal difference in line items is over $14,000 annually.

sbov• 14 years ago

Agree - this could be a huge difference in total package value and it's glossed over.

At my company we have what I call dental "insurance". As in, it covers about 0-10% of any given procedure.

rhizome• 14 years ago

Maybe better pronounced "insure-ish"

potatolicious2• 14 years ago

The relevance of health care in this negotiation is contextual. For young, healthy, child-less people, their usage of health care is going to be minimal at best - and really amounts of catastrophic insurance against accidents or major illnesses.

This changes dramatically if the individual has children, chronic illnesses, or other persistent conditions that will require regular use of the medical system.

And also, ouch, $780 monthly premiums - is the company any of your premiums?!

joezydeco4• 14 years ago

Yeah, they're fronting the other $1400 of the premium. We're a very small company and getting completely dicked by Blue Cross / Blue Shield. Doesn't help that most of the principals are senior people with families. I also chose the PPO over the HMO and FSA plans. I've btdt with those two and will never go back.

Which brings me back to your first point. Yes, the healthcare aspect (especially in the US) is contextual. Which means startups can favor younger/inexperienced/childless early employees over older experienced/family people.

And remember, anyone's situation can change on a dime. Doesn't matter where or when you work.

wetzler21• 14 years ago

I authored the post and you're absolutely right. It was a lazy approximation. My healthcare in the startup isn't quite as good now, but I'm also very fortunate in that I don't have any healthcare-related expenses.

Thank you for bringing it up here, it could be a significant differentiator for some folks.

endeavor• 14 years ago

Despite strangely subtle mention of the fact that the CEO and author are engaged, I think it's worth noting that has a material impact on a common sense analysis. In the likely event that this start-up fizzles out, it's reassuring that your spouse has a stable corporate job. Sure, engineers are in very high demand RIGHT NOW, but in a few years the bubble could burst and your family could be in trouble. Do you really want to put all your eggs in a single, very risky basket?

dorkitude9• 14 years ago

Actually, we did that split for the last 5 years (I'm the CEO from the post).

If you're curious about Michelle's reasoning, check out one of her other posts, "Why I Left Consulting and Joined a Startup": http://blog.keen.io/post/26096112831/why-i-left-consulting-a...

wetzler21• 14 years ago

Great point. To sum it up briefly: we have no kids, no debt, and some savings. Now is the best opportunity to try and do this together. It's something we've talked about for a long time.

I'm pretty sure consulting work will still be there if the startup doesn't work out. I have SAP and Salesforce.com experience; both are widely implemented across the US.

lancewiggs• 14 years ago

The way this was played out at arms length and in an open style was very smart considering the relationship between the two negotiating parties and the rest of the team. The primary goal should and seemed to be making sure those relationships could sustain, doing so by being fair and reasonable.

The discussion around hedging the risk and cash returns between the fiancées was a good start. I would suggest that the idea of a contract (a series of emails at least) between the 2 would be good to agree and record expectations.

Good fortune

gadders2• 14 years ago

It must be very strange negotiating salary with your fiance.

1) Supposing they low-balled you, and you found out. Awkward..

2) Presumably at some stage, your finances will be joint, or at least interlinked. Does that not mean it is in your fiance's best interest to make sure you get as much as possible? Is that not a conflict with what's best for the company?

//edit// Not being mean, btw, I hope they do really well and make millions. It just seems a bit.. strange.

wetzler21• 14 years ago

Totally strange. I did most of the negotiation with Dan, our CTO, though Kyle (my fiance) is the person who gave everyone the first verbal offers. I just updated the blog post to make that more clear.

I think in the end being friends made the negotiation much easier. I am confident we all wanted what was fair for the business and each individual, and were able to talk at length about that until everyone felt comfortable.

gadders2• 14 years ago

Fair enough. Good luck to you both!

alttab3• 14 years ago

I too find it incredibly strange and most importantly dangerous.

1) You are intertwining your MARRIAGE with work. Rule #1 is don't shit where you eat.

2) You make matters worse because your husband is your boss. This will screw up the relationship dynamic, and that's not necessarily a guess, Im 99% certain it will be hard to separate, especially with longer start-up hours. Good luck, you'll need it.

3) You are putting all of your eggs in one basket. Sure its convienent, but if the start up fails, you are BOTH out of work.

4) Putting all of this on the company blog, with screenshots of e-mail correspondence and even prices is very strange, and either you don't know what you're compromising by doing this or it is a veiled attempt at advertising compensation packages on HN.

Generally, I don't think you or your husband's strategy will play well for either one of you in the long run. Others have said your finances will be joint, so why does it even matter what you get?

Seriously, this is really weird. I'm sure you're confident it will work, but I know first hand that mixing friendship (and in your case MARRIAGE, jesus) with work is dangerous and rarely ends well.

Good luck. My opinion is you both have made a very big mistake.

Kilimanjaro• 14 years ago

Submarine. Sunken submarine.

Everybody will discuss about the author and the CEO being engaged and nobody will remember the startup's name.

dorkitude9• 14 years ago

Luckily, HN comment sections are not the alpha and the omega.

A lot of people merely clicked the "up" arrow and refrained from comment, and so far about 3000 of the post's readers have clicked through to our main site ;)

webjunkie2• 14 years ago

I somehow can't take people serious who still think it's a good idea to use 'here' as a link text.

dorkitude9• 14 years ago

You might enjoy reading this. http://www.dustincurtis.com/you_should_follow_me_on_twitter....

webjunkie2• 14 years ago

Oh no... noooo... don't let that be true. Now I have nightmares.

textminer2• 14 years ago

Interesting post and thought process. In the experience of HN readers, what's the typical salary/options/benefits package you've seen given to first employees of SF startups?

carmaa• 14 years ago

She forgot to factor in the dealbreaker; the fact that engaging in a startup (or any other intensive work if you ask me) with your significant other is a major risk in itself, and a bet where not only your career is at stake, but also your relationship.

marcamillion2• 14 years ago

I love this. Congrats Kyle, Michelle and the whole team for:

a) Going through these types of negotiations with your loved ones (not just close friends) and trying not to water it down - or give favors. There are many people, that I imagine, might want to get an extra few pts of equity just because you both are going to be married soon. So Kudos on keeping it professional.

b) Making this entire transaction as transparent as you did. I am shocked at all the details you guys laid out.

The only thing I would have loved to know is what Michelle was being hired to do.

Is she a developer, business development, graphics person, what?

wetzler21• 14 years ago

Thank you!! I describe myself as "hard-working generalist". I'm good at coordinating teams and getting things done. I've been working on short and long term goal planning, customer dev, testing, documentation, and I wrote a rails dashboard that uses our API. I'm also involved in our design and strategy discussions. Lots of early startup stuff :)

marcamillion2• 14 years ago

Nice!

temphn• 14 years ago

  Another thing that made this situation complicated was 
  that Kyle and I are recently engaged.

This is a cute article but for obvious reasons completely inapplicable to anyone else seeking a job at a startup.

wetzler21• 14 years ago

I wrote this article because I wished it existed when I was going through this. Even something as simple as an example of a early employee's salary at a seed-funded startup is helpful. I also think the links I shared are pretty good. I'm shocked that my post got over 150 tweets today -- many of them saying "read this if you're considering joining a startup" or "great read". I thought some people might take interest in the story, but I'm completely surprised by how many did. There have been over 16k unique visitors since I posted it this morning.

danenania• 14 years ago

I think that regardless of how much influence your friendships and relationship had on the process, your analysis was thorough and very interesting, so I personally got value out of reading it. Thanks!

markokocic• 14 years ago

Sorry, but I just can't take this article seriously. It's all fine and dandy that all of them try to act professionally, but they all live in the same home-office-appartment, are close friends, some of them in serious relation or engaged, and then they all pretend that they are doing some real negotiations based solely on numbers? I mean, negotiating salary and equity with future husband. That's not negotiation, especially not in business sense.

I don't want to underestimate their competence, or prospects of their startup success, but this is not how negotiating in the real world works. Next time someone apply for a startup, you can't expect that your roommates are there, that startup is located next to your kitchen, and that your fianacee will negotiate about salary with you.

RMacy• 14 years ago

Most of this didn't make sense to me, what resources could I use to get a better idea of the topics discussed in the post? Book recommendations?

How I negotiated my startup compensation (with numbers)

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