Start Up Stories

Working for a Start-Up for Low Pay – Part 2

Posted in Uncategorized by Devon on May 11, 2009

After some feedback on last week’s post, I am reminded that lots of people without financial backgrounds work for start-ups so, it’s probably worth reviewing a couple of pay-related ideas again, to help people understand how to think about pay and start-up equity or stock options. First off, your labor is valuable – assuming you can get a job somewhere else, and ought to be valued at market rates. Secondly, it’s likely that you’ll be offered common stock or stock options in return for being paid below market rates. The question of whether it’s stock or stock options, and whether the options are qualified or non-qualified, is largely a tax question and the subject of a future blog entry. So, the main idea that I want to drive home here is that you’ve got to make sure that your below market wages are reasonably compensated with equity so that you are, in effect, making market rates. Make sure you have this compensation discussion knowing your market wage rate and the valuation on the firm. We’ll talk about firm valuation in a future blog.

1. Do you know what your labor is worth on the open market?
2. Do you know the fair market value of the start-up you are planning to work for and how many shares are out in fully-diluted equity?
3. Can you do the math to make sure that you are being compensated competitively?

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