Startup Equity For Employees

The re-heating of the venture funded tech market has pushed a heat up of the hiring market, and I’m getting more calls from friends asking for help understanding startup stock (equity) offers. More than one friend has suggested writing the advice down, so here it is.

Important disclaimer: I’ve got experience negotiating stock compensation packages from both sides of the table. However, I’m not a tax accountant or attorney; my notes here should not be a substitute for real tax or legal advice.

UPDATE: If you’re a founder or near-founder, your equity terms are likely defined by the funding terms negotiated with the investors. For a very good summary of investor terms, see Brad Feld’s writeups on term sheet terms.

This is a good overview of Stocks, Stock Classes, Options, and similar related items.

One hot topic at the last meeting was if local hires will be interested in options. Perhaps we can discuss this below as well.

My two cents is that it seems like people that are fresh out of college are looking for a modest salary. It seems like it might be possible to keep them beyond the CNY turnover a year or two out by giving them vested options on top of that minimal salary.

For those that are on the other end of the spectrum, it seems that if someone believes in what you are doing, they will attribute a high value to the options as well, giving you a good incentive for them that is effectively free for you if they are building the company up with their work.