🔎 How You Should Negotiate Equity at Startups (#71)

Here's how you should negotiate equity at your company:

Recent high valuations have left many with "underwater" or worthless equity. Say your startup was valued at $5B. Now it's $1.5B.

Investors get preferred stock. You get common stock, so you're SOL. Here's how to change that...

Critical framework: 4 Levers of Startup Compensation

If you can understand what levers you have to pull, you can negotiate more.

1. Cash vs Equity

Equity is used in startups to attract better talent with bigger upside. Cash is guaranteed, and equity is a bet. You need to negotiate both.

2. Fixed vs Variable

Fixed = salary

Variable = equity, performance rewards, etc. (where the real money is made)

3. Short-term vs long term

Short-term: incentives that pay out the year you hit the targets.

Long-term: incentives that are deferred to pay out in future years (usually in the form of equity, profit share, or revenue share)

4. Individual vs group

“I” rewards when you’re solely responsible. “We” rewards when compensation is tied to the team or company goals.

In an ideal world where your startup wins big and you are a high performer, variable equity compensation is best if it's properly aligned with that success. But we're not in an ideal world. So if you are negotiating startup compensation, here's what I'd do:

👉🏼 Secure your stock

If possible, get your stock grant secured at the time of hire, or as fast of a vesting schedule as possible. I like to tie mine to performance, not time.

Prioritize double trigger vesting so you have an out if there's an acquisition.

👉🏼 Ask about the financials (and cap table)

It's a bold question, and you might get a no. But you are betting on their financial health.

I'd want to know: Who gets what terms, who is superior to you, and how far down are you in the stack if something goes wrong?

👉🏼 Research (or meet) the investors

Meet with investors if possible, and research them if not possible. Investors might want to meet top-tier prospective talent.

For a low-tier job, this will be harder to swing. Look for investors from recognizable VCs, or check the financials.

👉🏼 Get promises in writing

If you're already in a startup and your equity is out of money...? Ask to realign your incentive pay to compensate for it.

Examples:

Engineer - “If I hit X product milestone by X date, I’d like X in pay.”

Sales - “If I hit my quota by X date, I’d like X increase in pay.”

You know your worth. Get it documented. And whatever you do...

👉🏼 Don't wait and hope your company climbs back to previous levels.

👉🏼 Don't just take the first offer.

👉🏼 Don't be afraid to ask for information.

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