Although it’s not quite as hard as negotiating cab fare, negotiating a startup job offer can be pretty tough, too.
The good news is that you can learn from 4 of my past negotiating mistakes to help you quickly reach agreement on your startup job offer.
Optimizing for cash rather than equity
If you’re going to work at a company that’s raised a seed round or an initial convertible note, chances are they can’t afford to pay you what you’re currently making at BigCo.
And that should be OK with you — because if your heart (and head) are in the right place you want to work at a startup to learn, not earn.
However, in exchange for less cash compensation, you should expect that you’ll receive an equity grant. There are many ways to calculate how much equity you should expect as an employee of a startup, and various smart folks have posted guidelines on how to determine what’s fair and reasonable.
Now, I wouldn’t suggest you optimize on equity to the point where you’re not making enough money to make ends meet. Be really honest with yourself as to what cash compensation you need to be financially comfortable.
Working at a startup is stressful enough without piling on financial worries!
Focusing on MBOs
If you have an offer from an early stage company, don’t bother to negotiate incentive based compensation (MBOs) into your offer.
You may be used to this kind of compensation scheme at larger companies (where it is quite common), but it just doesn’t work well at an early stage startup.
I spend way too much time reviewing comp plans and trying to help CEOs get a decent alignment between an elusive and inaccurate “plan” (which – especially in a rapidly growing company is never anywhere close to correct), bonuses driven off of company performance, and then bonuses driven off of individual performance. It’s just really hard to get right and feels like an enormous misallocation of time for a young company.
Which leads to my next mistake…
Negotiating on anything other than cash compensation and equity
Soon after I received my offer, I had lunch with someone who had been a CFO at a VC backed company that had a very big exit.
During our lunch we talked about an offer I had on the table and he suggested that I should negotiate one of the terms in the option agreement. Specifically, he suggested that I ask to retain the right to exercise options for 12 months after leaving the company (the offer on the table was 6 months).
I remember thinking that this was an awesome idea. It would give me more time after leaving the company to see how the company progressed before writing a check to exercise the options. And I couldn’t think of a reason why the extra 6 months would mean much to the company.
But in reality this was a terrible idea. In the grand scheme of things this term would have added little value to my options (I didn’t run Black-Scholes to price ‘em, but just trust me) and was yet another thing to negotiate. Another thing to negotiate — which contributes to…
Not moving fast enough
Time kills all deals, including employment negotiations. And the more stuff you negotiate, the longer the deal takes to close – if it even closes at all!
To keep things moving, I like the idea of pursuing a ‘1-2-3′ negotiation strategy. The company makes you an offer (1), you counter if it has major flaws (2), and then they counter one more time or accept your counter (3).
If you can’t get to an agreement after 3 turns of the crank, it probably makes sense to walk away instead of burning more of your and the startup company’s cycles.
As they say, there’s always more fish in the sea!