Symmetrical Investment June 2012

When working for a startup, you get a lower salary than you would get working for an established company. You also have to be a total self-motivated badass and completely on top of your shit. All that, and you don’t even have job security. In exchange, you ask for equity. The industry standard hovers around a percent, though it ranges from half a percent to four.

This equity will then vest over a few years – usually four. More than likely, your CEO will be a better negotiator than you. You’ll probably get a good, but minimal offer. That’s how negotiation works. There’s an asymmetry here, though, that typically gets unnoticed.

You should negotiate for more equity than you are presently worth to the company. The reasoning here is that you are investing in the company: you may or may not ever see a dime from those company shares. The company could fail, or there could be complications with an acquisition that leave your common stock worthless. Hence, the investment should not be one-way; the company should be investing in you too – especially if you are young. You might be a good employee now, perhaps worth half a percent of equity. But over the four years that the equity invests, you will grow with your company. You will become better connected, wiser, more experienced, and more expert in your field. You may soon find yourself managing employees, leading projects, and making game-changing decisions. You need to negotitate based on your potential value at the end of those four years.

Just as you are taking on risk because you believe in the future of your startup, they should too be taking on risk because they believe in the future of you.