Startup Forms: Equity Compensation. The equity portion of a startup employee’s compensation must legally be structured so that, if the options were exercised immediately, they would have a fair market value of $0. It is seldom a complete replacement of the cash component, rather an addition to the base salary in cash. Wouldn’t you like to be one of the lucky people who joined Google and Facebook when these were startups, and now be a multi-millionaire or better? Background reading: Founder Compensation: Cash, Equity, Liquidity Fatal Errors in Early Startup Hiring Early Hires: Options or Stock Given how deeply involved we are with early-stage startups hiring their first key employees, I figured it would be helpful to outline a few key principles to help entrepreneurs navigate the topic. Stage of Startup. Attorney Mary Russell counsels individuals on startup equity, including founders on their personal interests and executives and key contributors on offer negotiation, compensation design and acquisition terms. Startup equity incentive plans typically allow for grants of both flavors, with the specific situation determining which one is used. Expected Contributions. Finding and retaining top talent is an everlasting problem all start-ups must go through. by Martin Zwilling. There is a tradeoff between these. How to Negotiate Equity Compensation. If you have a job offer from a startup company, chances are it doesn't include the level of cash compensation you might get from a more established firm. The earlier a startup can put a plan in place to manage compensation conversations and questions, the fewer problems they’ll have in this area going forward. Complete Guide to Startup Equity Compensation. 3. Having equity, in short, means employees are directly invested in the company’s future. Cash vs. Stock . General Guidelines for Forms. ... especially startup companies. 250. I’ve decided to continue working as a consultant at Personal Capital because I’m having a lot of fun, learning a lot about the financial tech startup world, meeting new people, and feel like I’m making a difference in helping build their brand online through content. With your list of key positions in hand, look into salaries and equity norms for those roles. CASH AND EQUITY COMPENSATION AT MY NEW JOB. Step 3. Salary and equity comprise the compensation package. For a cash-strapped startup, issuing stock or a warrant instead of paying cash is an easy way to preserve limited cash reserves while still growing the business. SHARES. Compensation – No matter how employees are compensated with equity, the value of stock options can play an important role in a company’s total compensation package. However, he says 0.5 percent and 1 percent is a good range to consider, vested over one to two years. Equity is so dominant as the form of compensation that I don’t see a reason to cover cash-based compensation. Originally published February 12, 2014. The Holloway Guide to Equity Compensation… 2. Founders’Pie Getting started correctly is critical! Startup Equity as Compensation is a Long-Term Bet. Equity payments are common at startup companies. As a general matter, you should not make substantive changes to any of the forms included in the Startup Forms Library without checking with your legal counsel. Offering equity compensation can be especially valuable for small companies and startups because it offers employees a potential return in addition to their salaries. If you're looking for more equity, then you can counter with more equity and possibly be more flexible on cash comp. Vesting Period. For example, an ex- Chief Marketing Officer from a different industry to the startup might be an invaluable General Advisor. That means equity will be the focus of the conversation. Make sure they are actually […] In terms of compensation, a new CTO typically sees about $200K and 3% equity. Equity is non-cash compensation that represents partial ownership in a company. Facebook Twitter. Equity compensation for startup employees is a recruitment strategy where a percentage of company equity is offered as part of the employee remuneration package. Equity Compensation Rules of thumb, guidelines, conventional wisdom & other considerations Frank Demmler. Some CTOs may be in a place and have an interest where they are willing to trade salary for equity, some won’t be. But you can't rely on it, or treat it as a substitute for the salary in your compensation package. Answers to these questions I will provide in the next blog post, “What startup equity compensation means for developers: Part II." Don’t let your startup negotiation partner monetize it - ask for your full market value in cash … Cash isn’t a currency that early-stage startups want to use for advisor compensation. If you want to get notified when Part II will be out, you can subscribe to my newsletter and get my top-15 tips on saving more … 4. Please see this FAQ about her services or contact her at (650) 326-3412 or at info@stockoptioncounsel.com.. This compensation offers the potential for a big payout, but it's also much riskier and tax-complex than earning a salary. Y Combinator’s Sam Altman wrote a convincing piece on offering more startup equity to employees, which spurred a healthy debate on the matter. Because the company needs to be able to sell the appropriate shares to the employee once the options are exercised, those shares (1) need to exist, but (2) be reserved so that they are not sold to anyone else. Lewis Hower connects Silicon Valley Bank and VC/startup communities as a Managing Director with SVB Startup Banking. Equity compensation helps to attract and keep employees in a startup environment because these companies generally are short of the initial funds to get superior employees. Our analysis shows that the type of advisor being hired influences their compensation: ‍ Compensating advisors: Cash vs. Equity Startup equity is a lottery ticket—not a replacement for salary. 5. Equity compensation plans are a valuable and versatile tool for many corporations, from startups to established blue-chips. And while compensating team members with company equity is a potential … In a post on his SoCal CTO blog, Tony Karrer, Founder and CTO of TechEmpower, Founder and CTO of Aggregage and organizer of the LA CTO Forum and Startup Specialist Network, shares stories based on his experience working with over 30 startups over the past 15 years.. With this in mind, Graham says there are three places where a company needs to focus on compensation and have specific ideas about how to handle it. Other C-level execs would receive 1-5% equity that vests over time (usually 4 years). If you make the company better, your equity is worth more. Cash, Equity or Both. This article was originally posted as "Equity for Early Employees in Early Stage Startups". Moreover, giving out equity also works as an incentive. 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