We are a startup with some initial commercial success. We have committed to negotiate some shareholding % with our first employee who was an important developer to get the product off the ground. How should we approach and prepare for this negotiation?
Hello I am Priyanka.
I can give you more information about it as I have a similar situation right now.
If you're negotiating salary, here's how I would approach this discussion:
Ask what other people at the same position are being paid in cash, equity, and benefits. I would first ask whoever has extended you the offer, framing it in terms of wanting to understand what the range on these items are. As you interview employees about the position, ask them as well. People may not want to give you the information, but (1) they shouldn't lie – if they do, I would think twice about working there – and (2) if you explain that your goal is to ensure you are compensated reasonably, compared to others at the firm, you may have a better chance of getting the information. Your position should be, "Look, we're going to be a team, and I want both the way we decide on compensation and the compensation itself to let us function well together."
Do background research to understand industry norms. Look at to start off, and ask people in similar roles who joined companies at similar times to get a feel for what is reasonable.
Realize that the equity compensation of current employees in a similar role is often a ceiling. If you're applying for a PM position, and other PMs have been in place for 1-3 years, they were more critical and faced more risk upon joining than you do, so whatever they own will be a ceiling. The exception is if the company has had a major strategic development that makes things riskier or makes you more critical.
Understand the company's business model, milestones, and fundraising plan. You should know what assumptions the company is based on, how much cash the company has, how the company is investing that cash to prove the assumptions (in other words, to mitigate risk), and when (in terms of time and milestones) the next fundraising round will be. This lets you position yourself in the overall narrative of the company – for example, you might realize that there has been little progress in strategic milestones / risk mitigation since the other PM joined 1 year ago, and advocate for the same equity stake.
Decide whether you prefer cash or equity compensation. Look for ways to create performance-based compensation. For example, if you really believe in the company, offer to take a lower salary in exchange for equity. For example, if you're joining a seed stage company, you can advocate taking some of your salary in convertible debt (or an equivalent vehicle) to save cash, maximize equity, and demonstrate your passion and commitment.
Look for other options. As in any negotiation, your best strategy is to create other alternatives. Find jobs that promise better economics (salary, equity, benefits) and better growth opportunities (you get to run a team, manage people, etc.). You can also look for "better startups" – i.e. those with less risk or greater value if successful – but I'd only focus on the economics or career growth in your negotiation. No one wants to hire someone who thinks another startup is a better opportunity.
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