3 Steps to Negotiating a Start-up Job Offer
You’ve always wanted to live the #startuplife, and now, that reality is closer than ever: You have an offer from a start-up.
You’ve done your research, have a passion for the company, and know the risks. But now, you have to weigh the compensation. Is there any leeway with an early-stage company? Can you get a little closer to your current value in the corporate marketplace?
Sure—if you negotiate.
Every offer is negotiable. It’s all in the strategy and how badly you want the job you’ve been offered. But this isn’t your standard Fortune 500 negotiation. You’re not angling for more vacation time or the corner office by dangling mad skills in front of the recruiter. And you won’t do well by comparing the start-up offer to your fancy corporate job, either.
Instead, put yourself in those #startuplife shoes and negotiate an offer that’s fair and makes sense for the type of business you’re about to join. Start-up job offers are meant for candidates who are willing to take the risks—salary, career, and benefits—for a long-term pay-off.
On that note, here’s what to consider before you open those negotiations.
1. Know the Numbers
As a job seeker, you likely researched the company before interviewing, but you didn’t have the data an offer provides. Now that you know, you’ll want to validate the package you’re being offered.
Start-up compensation varies widely, so do some research on how it compares with salaries for similar positions at similar firms (i.e., if you currently work for a big company, don’t compare the offer to what you’re making now). You can also use AngelList’s new salary feature for comparables.
Here's another trick: Find visa data. The government requires that companies submit salary information for visa holders, so you can search companies by name and see the salaries for different positions at a specific company (assuming that the company has hired international employees). For example, you can get a full list of Google salaries with one search.
As part of your research, you should also consider data about the company's financial potential—a great salary won’t mean much if the company goes under next year. Start with understanding the basics by doing some pre-IPO research to get a sense of performance averages. Sites like CrunchBase provide data on company valuation and financing so you can verify a company's amount of financing and rounds of investment to date. This will help you determine its viability and potential.
Don’t forget your personal research, either. You have a life to live! Confer with your spouse, partner, or key family members to set a bottom line. How low are you willing to go? Know your baseline before you even begin negotiating.
2. Dig Into the Equity
If the offer comes with equity, you’ve got some more digging to do. (And if it doesn’t, it’s definitely worth asking if there’s potential for equity in the future. This is definitely one of the big upsides of working for a start-up.)
It’s important to determine both what the equity is worth and what percentage of the company that value equates to. For example, if you are offered .025% equity, the value of that equity will vary based on the value of the business and the shares outstanding. Simply put—you can't take the percentage at face value. Its value is correlated with the value of the company.
If the company is post-IPO, it’s a little easier to determine the value. Pre-IPO is a different story—there are no less than 40 models to calculate equity, including the well-known equity equation. There’s no one perfect way, but you can try several models to estimate the value of the equity you’ve been offered.
You can also ask the company’s founders directly. They don’t pull equity out of thin air (and if they do, you’ve got a bigger problem). Ask them for the formula they used and the compensation value they attribute to the shares or options for a sense of perceived value. Knowing the number of shares, the total number in the pool, and their plans to expand the pool will be invaluable.
It’s also helpful to consider the company perspective: Where are they on funding? How did their deals get made? Venture Deals is a great perspective on start-up funding models. Knowing the amount of investors, the number of rounds, and the growth potential can help you determine if your equity offer is fair, as equity can become diluted as more investments are made and more employees join.
3. Negotiate What Matters Most
Go into the conversation (and yes, it has to be a live conversation—no email or direct messaging allowed) with your focus on raising the salary or the equity. But not both. If you’re taking a big pay cut and you’re somewhat risk-averse, go for salary. But be prepared to make a case for why—including your value in the market and peer salaries.
If you see real potential in the company and are willing to give up some salary, negotiate your equity instead. Same thing goes, though—be prepared to make your case for why. Reiterate your commitment and your motivations. And don’t forget the data.
Don’t spend time on silly things either, like titles or vacation time. Sure, perks are great, but they don’t deliver much long-term value, and angling for them won’t demonstrate your commitment to the company. #startuplife is about being committed to the company’s purpose, so arguing over superficial items won’t win you value or popularity points.
And don’t make it personal. It’s not a good argument to negotiate based on personal or family needs. Make it about the business and the value you bring.
There’s no doubt joining a start-up is a serious decision. But don’t get into a negotiation with yourself. The most important piece of the puzzle is your commitment. If you don’t have that, the negotiation’s a lost cause. If you do, a little data, research, and prioritization goes a long way. And you might just come out feeling like you've won.
Photo of negotiations courtesy of Shutterstock.
About The Author
Susan Strayer LaMotte is the founder of exaqueo, a workforce consultancy. She builds cultures, employer brands and talent strategies for startup and high-growth companies and shows them the real bottom-line value talent plays in company growth. The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.