The Equity Conversation
Transcript
This week I got a phone call from one of our founders and it was similar to phone calls I get almost every week. She had an urgent request. How much equity should I offer my new CFO? And I just sighed. You see, most of the time the founder is looking for a precise answer, that right answer. And there is no one right answer. You have to understand the context and you have to look at the big picture. See, in a perfect world, employees and companies would match so well with the company.
that the employee would think this is an amazing company.
They have a mission that I love, people that I want to work with, and people I can learn from.
You don't even need to compensate me.
But that's not reality.
See, we do have to compensate our employees.
And in startups, we compensate them generally with two things, cash and equity.
And you can't talk about one without talking about the other.
It's a package.
Just like in prior videos when we've talked about term sheets,
You don't talk about valuation without talking about all of the other terms in the term sheet.
It's a package.
There are trade-offs.
And the same thing goes here.
See, what I used to do at Sure Payroll is I would make offers to people without telling them the actual units.
What I'd say is, we're offering you a position.
You're going to be director of marketing, blah, blah, blah, blah, blah.
And the compensation is $150.
Notice I didn't say dollars.
because that 150 was a number that was the sum of your annual salary plus your number of stock
options. So if you were someone who liked a lot more risk, you might say, oh, I'll do an $80,000
salary and 70,000 stock options. I'll have more upside. If you were someone who was risk averse,
you might say, I'll take $120,000 in salary and 30,000 stock options. I would always put
limits on it, a max and a min for salary, because I didn't want anybody to have no
options and I didn't want anybody to have no salary, but that way they could
decide where they were on the continuum of risk and reward. It made the company
a better fit for each personal individual, but most importantly it
underscores how inextricably connected salary and options are. You can't just
pick up the phone, call someone and say how much equity should I give a
particular employee without having the conversation about the rest of the compensation.
So now hopefully you see how asking the question, how much equity should I give my CFO, requires
a lot more work and a lot more thought.
But if you do it thoughtfully and put together a great package and hopefully have a match
where they love your company, they love your mission, you have great people that they want
work for and can learn from you'll have an amazing employee for a long period of time
I often get the question, “how much equity should I offer my new employee?”, from our founders. Unfortunately, there is no one right answer. You have to take a step back and think about the context and bigger picture. In a perfect word, employees and companies would match so well that the employees would be so content with their job that they wouldn’t even need compensation. In reality, you do need to offer compensation, and in start-ups that comes in the form of cash and equity. If you find and employee that is a good match and can put together a compensation package that satisfies both parties, you will have an amazing employee for years to come.
Originally published on the MATH Venture Partners blog.