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What do you think is a fair amount of equity for a first developer of the team?

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Medior Software Engineer at Taro Community2 months ago

Right now I am helping out at a startup with 0 revenue. It's a fun group to work with, hence I am helping them out.

There's a CEO and CTO. CEO has been working on it for 1.5 years, CTO for like half a year. I have just started out for about a month. The company has 0 revenue and 0 investors yet. CEO is just giving a projection of equity sharing. There might be a CMO joining soon.

CEO is suggesting following equity share:

  • Founder 1: Himself 57%
  • Founder 2: CTO 16%
  • Soon to be Founder 3: CMO 8%
  • Investors Seed / Series A: 13 %
  • Options Pool: 5%

I am like the first developer, and he's suggesting like 0.5% of the option pool. They claim it to be a fair amount since he and CTO have made way more sacrifice so far. Right now I make sacrifices too. I am spending my nights and time in my weekend on it without any pay. And I don't have the knowledge of CMO.

I don't know much about reasonable percentage for this kind of stuff it's new to me.

But right now we're not getting any profit and I am sacrificing nights and time in the weekend on the project so I think it would be fair for founder 1 and 2 to give me some of their percentage and give me like approximately 10% or something.

So far it's been fun: Thinking if things go well, we can all become millionaires. But this 0.5% percentage doesn't fit in with that. It's a rather demotivating percentage.

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Discussion

(7 comments)
  • 4
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    Tech Lead/Manager at Meta, Pinterest, Kosei
    2 months ago

    0.5% is too low. IMO the "fair" amount is somewhere between 2-10%, but obviously it depends on the specifics.

    This is a question of (1) how much value you're bringing and (2) how much they need you.

    • What is their projection for getting revenue?
    • How senior are the other founders, and how good is their network to find other devs?
    • How much time is each person is putting in?

    In general, I've seen people over-value ideas and under-value execution. Based on what you're saying, there's literally zero traction now: no revenue, no customers, etc. Since you're taking on way more risk, you should get more reward in the form of equity.

    The other element to consider is your involvement in the company. Will they value your opinion about the company's direction, and will you have access to information like company revenue, investor updates, customer feedback, etc?

    This early on, you should not be a code monkey who just executes on well-defined projects. (It's fine if you do want that, but then you should demand a fair wage, and not take equity of dubious value.)

  • 4
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    Tech Lead @ Robinhood, Meta, Course Hero
    2 months ago

    0.5% is too low but 10% is too high. I think something like 1-5% is fair. It's true you're working hard on this, but 1 month is far shorter than 1.5 years and 0.5 years. Seniority is also a factor. An earlier-in-career engineer like yourself will get less equity than say a Staff Engineer hire.

    The advice for YC is to distribute 10% among your first 10 hires with it being very front-loaded. So Hire #1 could get 5% and Hire #10 could get 0.2% with the 8 hires in between filling in the remainder.

    Zooming out, I would personally be quite worried about something that's been worked on for 1.5 years and has 0 revenue, especially in this economy. I would push the team towards first revenue ASAP. Since you're at an early-stage startup, you should feel empowered to express your opinion and effectively act as another cofounder.

    Here's our advice on entrepreneurship as well: [Taro Top 10] Entrepreneurship And Tech Startups

    Best of luck! Startups are fun 😊

  • 1
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    Entry-Level Software Engineer [OP]
    Taro Community
    2 months ago

    @Alex Chiou

    @Rahul Pandey

    CEO said if he'd give me like 5% no investor would invest money.
    And that it has to be explainable to the investor, like I'd need to be an expert in AI or something. I am doing something with an AI Chat Assistant. For the AI Chat Assistant we don't need an AI expert though.

    I don't get this, can't he just say there's like 10% Options Pool for first hires.
    Without getting too much into specifics.

    As for added value, I take ownership of the AI Chat Assistant and also help out the CTO with some software issues they got stuck on with React Native (main product is an app). So in that sence the CTO is not so Senior. AI Chat Assistant is a feature that could add lot of value. I am integrating in into the app and further enhanced it's functionality in AI (instructions, actions, etc). CEO done most work on building the Chat GPT Plugin Assistant's functionality AI wise (the instructions) and gathering material for file retrieval.

    I think that once the product would start producing Revenue and have some User Traction that's what investors really looking for results.
    This argument didn't achieve much traction with the CEO.

    I'm looking for convincing counter arguments for "the no investor would invest money" thing.

  • 4
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    Tech Lead/Manager at Meta, Pinterest, Kosei
    a month ago

    I think he's using investors as an excuse to shortchange you. A good CEO should be more concerned about the core business rather than the optics from an investor.

    One proposal you could try is to work on a 1 month paid contract to show how valuable and productive you are. After the one month, you both have more data on the business and then can have a more productive conversation about equity.

    In general, when it comes to a very early-stage startup, my approach would be "hell yes or no". If there's doubt, you probably shouldn't take it. (Unless, of course, you can do it part time or you feel like there's tremendous learning.)

  • 1
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    Tech Lead @ Robinhood, Meta, Course Hero
    a month ago

    CEO said if he'd give me like 5% no investor would invest money.

    5% is definitely high for a junior engineer, but as Rahul mentioned, it seems like they're using the investors as an excuse to be cheap. You have already shown your commitment with a month of free labor, and I think 1-2% is easily deserved at the minimum.

    After you shared more information about the business, I'm now even more pessimistic about the company's future. The AI space is insanely crowded, especially the immediately obvious chat bot market. To be frank, I would actively bet against this company's survival.

    I think you should try to get paid at least minimum wage. Take the money and don't worry about equity. I hope the learnings you get from the CTO are also valuable.

  • 0
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    Mid-Level Software Engineer [OP]
    Taro Community
    a month ago

    Does it take 3 years to get the shares. CEO says it will 3 years before anyone ever gets shares

  • 3
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    Tech Lead @ Robinhood, Meta, Course Hero
    a month ago

    Does it take 3 years to get the shares. CEO says it will 3 years before anyone ever gets shares

    No.

    The standard for stock vesting of any sort (RSUs or options) is a 1-year cliff. That means that after 1 year, you should be able to exercise and purchase some amount of shares. Anything more than that is not competitive and anti-worker. Check out our in-depth explainer of stock options here: The Most Misunderstood Part Of Tech Pay - Stock Options

    It is so weird to be stingy with shares when you have a startup that's effectively a pile of nothing (no funding, no revenue). If the startup takes off and becomes worth $100 million, there isn't a huge difference between you owning 80% of shares vs. 65% of shares from short-changing your employees - You have more than enough money to live an incredible life either way.

    It seems like they're using you just for your labor. I recommend not trying to stay with these folks long-term, especially the CEO. I'm sure there's better places to channel your hard work.