Same story again

A friend of mine just told me about his exciting new opportunity:
He met two guys who are opening a new startup. They are known in the community and already had a small exit before. For the past half year they have been working on a startup, got some code and are now just finishing with a 500K$ seed raise.

And, they are looking for their first employee with significant equity !

After some interviews and f2f meet ups, they decided to offer him a job. Of course, they can’t afford to pay market salary just yet but they are willing to give significant equity, a chance to influence the company’s direction and become a core member of their team !

And he was just about to sign up.

Me: “So tell me more, what kind of numbers are we talking about.”
Him: “Good ! Half my normal salary and 1% of the company”

Now this might sound very reasonable and exciting, but perhaps its time for…

A bit of… math !

Taking the optimistic route
– In one year the company does series A and can pay full salary
– They raised 500K at a high 2M (pre-money) valuation, giving away 20%
– His normal 100K/years is cut to 50K/year.

From the looks of it, he is pretty much saving the company / putting in 50K.

What does an investor get for putting in 50K:
– 2% of company shares
– Priority on exit
– Invest small part of his capital

What does employee get for putting in 50K
– %1 company shares (options)
– 4 year vesting plan
– Exercise price
– No priority
– No control or rights of information
– Invest large part of own capital

Strange numbers, and yet people agree to them every day.
Because their 1% will turn into a million.
And as working for half their salary(or less).. hey.. its just for a while.

How low did you compromise ?

EDIT – 14:00:00 UTC
Interesting discussion on HackerNews