QuirkyNoodle

ESOPs in early stage startups

I’m considering joining as a founding engineer at an early stage startup who is just about to sign a $4M seed round.

They offered to match my current base and a $20,000 in ESOPs.

When joining at such early stage companies, how should I think of ESOPs so that I can better negotiate. I’m banking on this idea going big and I want to get as much ESOPs as possible to maximise my returns in the future.

15mo ago

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BubblyRaccoon

Stealth15mo

20k in esops on top of market pay is great IF you do believe in the startup (founders, market, solution)

4mn raise would likely be a 20 mn valuation. If the startup provides any exit in 100mn to 1bn range (low probability but it does happen) - thats a really neat stack of cash on top of your pay. If you can negotiate for more esops - why not. Just ensure strike price is negligible

Just dont count on it. I personally have similar range but the company isnt doing well now at series c 😅 if anything comes of it though, it will be a happy surprise

PerkySushi

Stealth15mo

$20k is pretty impressive that too for this early, I'd say if you want to go for more ESOPs straightaway they can then potentially change certain terms, I've had this issue once and it backfired on me when I was leaving the organisation.

A better way over time, is to stitch certain milestones maybe during your joining agreement and then getting additional allocation after those milestones are hit

As an ex-founder, I believe this goes on to show how confident you are on your performance metrics and founders appreciate that because they feel you're looking more long term.

As an employee the benefit for you is, you can end up accumulating more ESOPs than you would have at the beginning.

To give you an example, while I was running a revenue vertical at a fairly established org, I stitched my year end revenue milestones with a high esop component, I'd negotiated a 45L additional esop component for 80-85% hit, 55L on 95% hit and then a solid 88L if I deliver anything above 110% or so. While I hit the goals, I had left the org early but they were okay with offering this when I negotiated.

FluffyBoba

Headout15mo

The thing with ESOPs is that you can only actually get it's worth in cash when there's a buyback.
This can sometimes happen in the Series A or B round and usually only after a startup reaches some definition of PMF and shows continuous growth in revenue (can take 5-10 years).

While you can bank on the idea getting big, do try to think pragmatically and try to get a higher base salary. At the end of day it depends on how much you believe in the business (not only the idea) and how important money is in your life rn (loans and investments)

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