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Equity-only employees at a startup?

X

What do you think about joining a startup that pays no salary or significantly under market (like 1/3) as a non-cofounder? What would make the promise of generous equity and a bump to market rates after funding worth the trade-off of even an early stage startup that pays slightly under market but still gives meaningful equity?

Just interested in the reaction these offers engender as I'm seeing them more often.

38 Replies

Linda Marshall-Smith
5
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Linda Marshall-Smith Entrepreneur
Marketing Consultant, Ambassador, Silicon Beach at CoFoundersLab
For me, it depends on the project and how far along it is. How much skin in the game the founders have invested, etc. As a visible person in the start up community in the Silicon Beach area, I am hit up quite frequently by start ups who invite me to join on either an equity only, or greatly reduced salary + equity arrangement. But even an offer of 50% ownership in a company, when the founder only had a product idea that was not validated or market tested in any way, is 50% of zero. Bottom line, no one should be expected or asked to work for free. Whatever you decide, make sure you get a founders agreement in writing so that all parties are clear on what's expected and what's to be received from the get go.
Eros Resmini
11
0
Eros Resmini Advisor
VP Marketing and BD at Hammer & Chisel
From what I've seen the only folks that can truly afford equity only offers are 1. just out of school / able to live on ramen / bootstrapping types or 2. folks that have had some level of success in the start-up world and don't need a salary to survive. The first group is great if you have a bootstrapping culture with a team that absolutely believes in the product. The second group is likely just conserving equity for a large, more favorable raise in the future. Taking below market salary is a must in my opinion if you are serious about joining a start-up. Everyone should be contributing and sacrificing to conserve runway in the early stage. If you expect otherwise, you're prob not start-up material.
0
0
X
Entrepreneur
Thanks for your answer-- I'm sorry I forgot to specify that I meant as a NON-cofounder.
Janine Davis
1
2
Janine Davis Advisor
President & Co-Founder Fetch Recruiting & Fetch Advisors
I'm surprised you are seeing these more often, since I see this sort of equity-only offer dying on the vine. In fact, it died a few years back, at least in Silicon Beach, and at least for tech. Most of my clients have to make offers which involve a bump in salary, along with decent equity. There are a few exceptions, but very few clients expect people to take a pay cut for equity, simply because they can't get anyone on board without the cash money. Too much demand, too little supply.
Michael Barnathan
2
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Michael Barnathan Entrepreneur • Advisor
Co-Founder of The Mountaintop Program, Google Alum
I've actually been seeing people wising up more to this recently. The best answer is "if you'll do anything to work there". But economically, compute expected dilution and exit, multiply by probability of success, and amortize over the vesting period. Compare that against the salary you're giving up.
Sef Kloninger
0
0
Sef Kloninger Entrepreneur
Engineering Manager at YouTube
I could see this for a pre series-A company where your equity would be significant, say 1% for an IC. But the market for engineers in the valley is hot. Post A companies are offering very competitive salaries these days, and that sets expectations for the rest.
Nathan Terrazas
0
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Nathan Terrazas Entrepreneur
Community Development at Everfest
Kimberly-

It depends on the role as well. People who are more passionate about daily tasks, like engineers, may be more willing to join for mostly equity. Sales/marketing who work for commissions, not so much.

For me, joining a startup means my equity, regardless of how much initially, will grow over time. So a balance of salary and a little equity is okay. And unless you're a founder or one of the first 10-15 employees, AND work at the company for a healthy term, chances are you won't cash in any equity anyways.
Chris Carruth
4
0
Chris Carruth Advisor
VP/Director. Strategy | Business Development | Operations | Product | Solutions

I still see some VCs saying "if you are a co-founder your equity is your pay". Don't know how that works if you live in America and want to eat, have shelter, or support a family. Of course, as pointed out in other responses, if you came off a good exit or have other means there is more flexibility. Even so, given the great majority of startups do fail, pure equity, to me, puts all the risk on one side. Don't see that.

In my last startup engagement I joined as a part-time consultant.to keep the costs down and to allow me to work on other projects.When they started to look at staffing, I pushed for them to offset the low wages by offering a betterbenefits package and,if necessary, for certain functions, the abilityto work from home. We did end up getting several candidates whom were absolutely great, actually more than great. Somaybe this approach did work...

Linda Marshall-Smith
9
0
Linda Marshall-Smith Entrepreneur
Marketing Consultant, Ambassador, Silicon Beach at CoFoundersLab
I like to use this analogy:

A plumber comes to your house to fix a leaky pipe. He does a great job and the pipe is fixed and working properly. You say thank you, I will pay you when I sell my house.

That's what offering only equity equates to for me.
John Petrone
2
0
John Petrone Entrepreneur
CTO at LaunchPad Central
I generally view these kinds of offers as primarily of benefit for those who cannot get a paying job performing these specific duties. It can be a path towards getting the experience you need so that you can command a paying gig in the future.

Keep in mind that a startup that cannot pay it's non-founder employees is a rather risky source of equity to being with. If it's a great, validated idea with the right execution team then it should get funded and if not, how likely is the equity going to be worth something? Particularly non-founder equity which I take to mean significantly less than a founder would get.

As a founder with a solid, validated idea, why trade the equity for an employee when I can trade that same equity for some investment now, potential investment in the future and the validation that having outside investment brings when viewed by customers, partners and employees? The answer frequently is that they can't get funded now. And that alone should be something of concern to that employee considering an equity only offer.

Are there exceptions to this? Sure there are, but for most people with solid experience of value to a startup there are better risk/benefit deals out there -
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