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.
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"?
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:".
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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?!
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
[+] [-] fratis|13 years ago|reply
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|13 years ago|reply
[+] [-] jere|13 years ago|reply
[+] [-] wetzler|13 years ago|reply
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"?
[+] [-] Judson|13 years ago|reply
[+] [-] boomzilla|13 years ago|reply
[+] [-] troels|13 years ago|reply
[+] [-] chasing|13 years ago|reply
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.
[+] [-] tptacek|13 years ago|reply
Do you disagree with the methodology? How? Let's talk about that, and not what you think about the blog author's personal life.
[+] [-] shasta|13 years ago|reply
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:
I hope that someone else wrote this article on her behalf.[+] [-] wetzler|13 years ago|reply
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.
[+] [-] ruby_on_rails|13 years ago|reply
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.
[+] [-] tptacek|13 years ago|reply
The offer side of this post makes my head hurt though.
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:
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.
[+] [-] rdl|13 years ago|reply
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.
[+] [-] sallen|13 years ago|reply
[+] [-] wetzler|13 years ago|reply
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.
[+] [-] dorkitude|13 years ago|reply
[+] [-] jongraehl|13 years ago|reply
[+] [-] joezydeco|13 years ago|reply
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.
[+] [-] potatolicious|13 years ago|reply
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?!
[+] [-] sbov|13 years ago|reply
At my company we have what I call dental "insurance". As in, it covers about 0-10% of any given procedure.
[+] [-] wetzler|13 years ago|reply
Thank you for bringing it up here, it could be a significant differentiator for some folks.
[+] [-] gadders|13 years ago|reply
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.
[+] [-] wetzler|13 years ago|reply
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.
[+] [-] rdl|13 years ago|reply
[+] [-] diminoten|13 years ago|reply
> 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.
[+] [-] wetzler|13 years ago|reply
[+] [-] richcollins|13 years ago|reply
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.
[+] [-] rburhum|13 years ago|reply
Even if she got double (or even four times) the equity, does nobody else think this is a disaster waiting to happen?
[+] [-] markokocic|13 years ago|reply
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.
[+] [-] temphn|13 years ago|reply
[+] [-] wetzler|13 years ago|reply
[+] [-] sync|13 years ago|reply
[+] [-] tptacek|13 years ago|reply
[+] [-] peacemaker|13 years ago|reply
[+] [-] riazrizvi|13 years ago|reply
[+] [-] peacemaker|13 years ago|reply
[+] [-] ChuckMcM|13 years ago|reply
$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-...
[+] [-] nandemo|13 years ago|reply
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.
[+] [-] colmvp|13 years ago|reply
[+] [-] louhong|13 years ago|reply
[+] [-] mjn|13 years ago|reply
[+] [-] bitcrusher|13 years ago|reply
Hopefully they don't have a lot of overhead beyond eating.
[+] [-] jwoah12|13 years ago|reply
[+] [-] mjbellantoni|13 years ago|reply
[+] [-] efields|13 years ago|reply
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.
[+] [-] alexcharlie|13 years ago|reply
[+] [-] at-fates-hands|13 years ago|reply
I don't know I would take a 50K reduction in salary as well additional benefits to go to a startup.
[+] [-] kine|13 years ago|reply
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.
[+] [-] carmaa|13 years ago|reply