Re 2), you should make sure your salary is at market-level and more or less ignore equity. Chances are you'll be let go or the company will collapse before it's worth anything.

If you have a reasonable salary, equity is just a cherry on top, but if an employer tries to get you to trade cash today for a startup lottery ticket, say no.

This is especially important early in your career given the time value of money. An extra $10k/year in the first five years of your career, properly saved, could add north of $600k to your retirement when you get to that stage in life. That's an almost-certain payoff against a roll of the dice on a sliver of ever-diluted equity.

Great insights, can definitely recommend not taking big equity gambles in your earlier years.

Although perhaps north of $600k is a bit too optimistic, you'd need a solid 6.4% inflation & fee free ROI on that.

In any case it's important to look at it in 'today's dollars'. For example, the S&P 500 did 20x in the past 40 years (roughly the length of a solid full-time professional career), so $10k could have turned into $400k if following that index. But in the 80s inflation went up to 15% causing devaluation, that 1975 dollar is worth about $4.5 today, meaning that $10k turned into perhaps 9x more purchasing power. Of course that's before all the fees get involved. Even if you'd get $600k by your retirement age, it likely will be the equivalent of less than $200k today.

But yeah 6% per year isn't crazy. If you manage to scrape together $50k in your fund by age 25 and work until 65, 500k is very doable, north of 600k perhaps optimistic but who knows what we can expect. Perhaps we'll see gigantic returns once we get 4 billion people on cheap mobile computing, free wifi in the sky, access to modern education, 3d printers, drone deliveries, digital money and a graphene industry haha. But historically speaking $600k is tricky!

Either way, doesn't change the fact this is great advise.

You're right, those numbers were simplified and don't take into account fees or taxes. As you say, the basic assumption still holds: 50k saved in the next five years will be worth significantly more 40 years from now when you retire. Whether that's 500k or 600k is immaterial to the central point: sacrificing salary early in your career means sacrificing huge financial gains over the course of your life.

Agree this is good advice a lot of the time. But just to offer an alternative possibility, there are other things that can affect the equation too. For instance, if you end up at the right startup you might learn a lot more than you would in the same amount of time at the alternative company. If you gave up $20k over 2 years by making, say, $100 instead of $110k at the startup, but then are able to jump to a job making $200k (which would have taken you much longer to work up to at the alternative company), you're a lot better off.

It still comes with some risk obviously, the startup could end up not going anywhere and you not learning much. But it's not nearly the risk of rolling the dice on equity.

I agree in broad strokes, in that I did exactly that with my last company. My first full-time programming job was as hire #1 as a tech startup (I was fired last month after two years) and while I'm now consulting, the full-time offers I'm receiving amount to a 50% pay raise, partly because I was able to build up so much experience in hot areas like Akka and Docker.

Excellent point and I will heed your advice.

I'm well aware that:

a. Startup equity is a lottery b. As an early employee and the accompanying biases, I'm especially ill equipped to judge it's value.

With that in mind, I'm negotiating salary first. Equity with a vesting schedule is something I would treat purely as an incentive for continuing to stay with the company and not as a replacement for salary.

This sounds very sensible. I would note though that equity % points are much easier to negotiate early on. If you have an opportunity to secure options at a low valuation now, even with a great big cliff / vesting term, take them in case the company is a success and use the cliff / vesting to persuade the current owners that it's a win win.

> That's an almost-certain payoff against a roll of the dice on a sliver of ever-diluted equity.

This is excellent advice. Cold hard cash is much, much better than a bet of the startup you are working for will take off.

Since L_Rahman didn't mention "startup" per se....

The Equity / RSU package from many big (publicly-traded) tech firms can be as much as 30% of total compensation. I generally account for this portion the same as "cash with a discount" -- when negotiating for my current role, I used a 30% discount on the present share price.

For startups... it's a mixed bag (as saryant mentions).

L_Rahman may not have used the word "startup,", but he did say "first hire" so it's reasonable to assume we're discussing a startup.

Obviously the negotiation will go differently if we're talking about, say, RSUs at ExxonMobil which are as good as cash once they vest.

Most comments have responded assuming that it is a startup, and it was a correct assumption.

But it's helpful to know that large publicly traded tech companies can offer as much as 30%. If or when I do choose to work for one, I'll keep that in mind.

Also remember that the first non-founder employee is the least desirable position to be in. Usually you have very similar risk to the founders with _significantly_ less equity. Don't take the job unless you get market rates or significant equity (10%+). If they already have funding the former is much more likely, if not then latter makes sense considering the stage -- you're effectively a founder, even if you're not leadership.

> How do I ask for equity and how much should I ask for as the first hire (technical employee of a non-technical founder)?

That may not be a bad deal, but there are some warning flags that it raises:

* What does the non-tech guy bring to the table? Do they have hard evidence of their ability to make a company successful?

* This is well worth your time to read: http://jacquesmattheij.com/first-employee-or-cofounder

For 2, if a reasonable salary is $X, and the company offers you $X-$Y, you're essentially investing $Y per year into the company (at worse terms than actual investors). How much equity do/did investors want for $Y?

> if the company tanks, the investors lose every dime

If you choose a $90k job + equity over a $130k job, and the company tanks 2 years later, you've lost every dime of that 80k.

It's a bit different since your "investment" consists of 24 tranches, but that's more than balanced by the vesting schedule which gives you nothing for a year (despite accepting your investment immediately), and takes it all away if you stop investing.

Actually, as an employee, you're actually risking more, as your total wealth is (most likely) significantly less than an investor's, so according to the economic theory of diminishing marginal utility of income, $10k/year is a significantly greater loss for an employee.

> are not risking your own money, you are just losing some opportunities for cash

Those are exactly the same thing. Pretending otherwise is asking startups to rob you.

Opportunity cost, how does it work?

http://en.wikipedia.org/wiki/Opportunity_cost