I think Michelle's methodology here is great, except for the fact that she applied it without a goal number; in other words, she took the offer number and tried to "reconcile" it to the model. The mechanic of running your offer through a model to justify a counteroffer is a great one that more nerds should adopt, but she's missing an input: what does she
want the model to say? Your goal as a prospective employee is to maximize the number.
The offer side of this post makes my head hurt though.
70k with .5% equity or
60k with 1% equity or
50k with 1.5% equity or
40k with 2% equity
This offer says that 1% of the company is worth $20k. The company is worth $2MM.
Late note: this analysis is silly, see comments below.Later:
Inputs:
- Employee’s market salary
(I used my current salary, plus bonuses)
- Salary offered by the startup
(I used my offer, plus benefits like rent subsidy)
- Company’s valuation
(I used $5M, the cap for Keen’s seed note)
No, it's $2MM, the CEO just told you so, right?
Frankly, an offer with a .5%->2% spread between possible equity stakes is a red flag. Those are wildly different equity grants for the exact same role.
Also:
Our expected net worth after a few years in our existing management positions was, by any practical estimation, the most financially sound outcome – and a very good one, at that. Even if things went great at Keen, with a big Series A or early profitability, we’d probably make less.
What does "a big Series A" have to do with your long term financial outcome? The A-round money goes to the company, not to your family. How many companies with "institutional" VC rounds fail? Answer: most of them.
The offer side of this post makes my head hurt though.
This offer says that 1% of the company is worth $20k. The company is worth $2MM. Late note: this analysis is silly, see comments below.Later:
No, it's $2MM, the CEO just told you so, right?Frankly, an offer with a .5%->2% spread between possible equity stakes is a red flag. Those are wildly different equity grants for the exact same role.
Also:
Our expected net worth after a few years in our existing management positions was, by any practical estimation, the most financially sound outcome – and a very good one, at that. Even if things went great at Keen, with a big Series A or early profitability, we’d probably make less.
What does "a big Series A" have to do with your long term financial outcome? The A-round money goes to the company, not to your family. How many companies with "institutional" VC rounds fail? Answer: most of them.