Ask HN: Am I getting hosed by a CEO?
I've been working for a startup for about 7 months now for free. I was on board at the first day, with the other founders, and before any execution on ideas had begun. By most yardsticks, this would make me a founder. I'm a technical one (engineer), and yet I'm treated as an employee, with 3% equity, and stock that vests over 3 years. Just to get this, I had to push pretty hard and negotiate with the CEO and COO.
I've gone back recently to try to change the equity share I get, as I understand that most founders on board when I was typically receive anywhere from 10 to 30%. The CEO tells me that I'm the only one with any kind of agreement, and that makes me far better off (?!). Apparently, no one else has anything in writing. When I ask the CEO about this, he not only seems to hint that people will be very tied to the company (executives will have a 6 year vesting schedule...what?), but he seems to think that if anyone gets any equity now, it will turn off investors. He wants to maintain majority control in the company so no investors can come along and "steal" it from him, AND he wants to set aside a monstrous chunk of equity for these investors. He hints that employees will get some "down the road", but that this is an effective way to get investment. He tells me I'm too "9 to 5" security focused (which, honestly, I do tend to be. I'm working at a full time "real" job while doing this near full time).
He keeps telling me that I need to trust him and that he'll reward people down the road based on their performance.
I'm all for tying incentives to actual performance, but this is just so loosely defined.
Am I being overly rigid not trusting this guy while proving my worth? The more I read, the more it seems this is a bogus deal. Is there any merit to this idea that having employees with equity will turn off investors?
Does this make any kind of sense, or am I completely a chump?
Thanks Yes, and your CEO is clueless. That's not how equity or investment work (you don't "reserve shares" for an investor, new preferred shares are issued and everyone holding common gets diluted). Good investors want to see founders with roughly equal shares; a large discrepancy indicates that some founders are insufficiently incentivized and probably won't be around long. The best way to maintain majority control of the company is to be profitable - percentage ownership means nothing if you're about to go bankrupt and the only way to save the company is to negotiate a deal where the investors get control. Stop hanging out with this loser, build up your technical skills so you have a track record of projects built from scratch that you can show people, and then partner with someone who'll actually value you like a partner. Four year vesting and one year cliff is a market term for founders and employees in funded and pre-funding startups. Vesting over 3 years is totally reasonable in your situation. 3% though? Not in bounds. If you're the technical guy there on day one and you don't receive a market salary or reasonable facsimile thereof every two weeks, you're a technical co-founder whether you want to be or not. Your deal is exploitative. You will likely not successfully negotiate a non-exploitative deal. (Presumption should be 33%, not 30%, and very definitely not 10%. No difference between the cofounders is meaningful as T approaches 5 years from now; if there is a meaningful difference, that person probably shouldn't be a co-founder.) Everyone in this conversation is a businessman. They've underbid for your services. I strongly advise turning in your two week's notice and washing your hands of this. Your equity, whether or not you've actually been issued it, is equity in a company run by operators who are not dealing fairly with their technical co-founder and who are either comfortable with lying or clueless. No fact which I've just recited would cause me to think "This equity is worth more than typical startup equity", which is worth nothing. >> He tells me I'm too "9 to 5" security focused This is a common line. It is just that: a line. It gets cynically deployed against engineers on a regular basis by people who are not willing or able to pay market wages. You should interpret this line as nothing other than "I am unwilling or unable to pay market wages" and act accordingly. >> He keeps telling me that I need to trust him and that he'll reward people down the road based on their performance. 99% of the people told variants of this line will be screwed by the people offering this term. As a direct consequence, entrepreneurs who are presently cash-poor but who want to incentivize employees/partners/etc do not say this; they say variants of "Here's a third of the company" or "I will commit to consequential cash payments in writing contingent on us achieving milestones together." "I will pay you a number amenable to me, at a time of my choosing, if and only if I feel like paying you" is not an offer. I will close with the observation that now is among the best times in the history of ever to be an engineer capable of shipping projects. You have better options. Exploring them for two weeks ROFLstomps the value of continuing to work for this company. Thank you everyone for your views. They confirm what I think I've known for a while, I just needed some experienced perspective to validate these thoughts. I think what's made me re-think many times is that I'm surrounded by 5 other people in this company, all of whom are about 10 years older than me except one, and they seem more than eager to step up and offer this guy their near full time allegiance unquestioningly. It makes me pause and say "am I not seeing something here? Am I just naturally more distrusting than these other guys I started with?" So I've slowed down and quadruple re-thought every time I was ready to walk, trying to see it from a different angle. Still, the nagging discomfort remains. Glad to know I'm not too off base. Update: yesterday, CEO tells me he will offer the guy who started 2 weeks ago the same equity I have, because he's done "such a good job". He has been kicking it hard, it's true, and he does really well, but he's fresh, and the CEO's perspective is so skewed based on what's bright and shiny in front of him at the moment that he totally disregards the contribution of people working for him 7 months for free who got him to where he's at now. The sad part is I think he knows this damn well, and his strategy well may be to operate a company on a string of trusting people who he will continue to cycle in as the disenchanted ones before them leave. What's the track record of the CEO? Have they had multiple previous successes? Have people followed them from their last success to this new company? How much do you believe in the idea? Do you love working with the others at this company? Are they top tier talent?
If the answer to all of these is yes, maybe it's worth staying. I think the reason people are so willing to stick around is 1) I don't think they really know what the norm is for compensation in a startup, 2) the others seem to have been friends with him previously (usually a bad idea to go into a startup with friends, but I digress), and 3) to your question, he was once the CEO of a company that made the same product, so he has connections in the industry, relationships with distributors, and quite honestly, he's a sales animal. He has already pre-sold a shipping container of the product (far, FAR before us engineers will have it ready - a pending potential trainwreck of its own). In that previous CEO role, as I understand it, he left on bad terms over some kind of compensation disagreement (ironic?). A red flag in the beginning was that one of our engineers still runs an authorized service center for that former company's returns. Yet, when the CEO started our company, one of the first things he went about trying to do was to smear the last company in the press (which would have been technically hurting part of the business of the engineer I mentioned, who still made income servicing that company's products). The guy just doesn't think about other people, yet he's good at bringing in the dollars. I think people are seeing the sales and letting that put off their concerns (if they have them) about whether they will be compensated and when. I have to be honest - I have seen him get us out of some sticky situations by pivoting at the last minute. He used his industry experience to do that, which also contributed to the ability to even do that. It gives him a perception of knowing way more than anyone else, and so they are inclined to trust him when he says this compensation strategy will be acceptable. With this experience, he has an aura of wisdom that makes people feel almost foolish for broaching the subject of pay (I know, I've tried it). What's doubly ironic is that he insists on air-tight contracts with suppliers and customers, and mentions it being okay to "bend them over" once in a while, since we're paying them and they're locked in. Yet, for an employee, I had to fight tooth and nail just to get the lame contract I have with him for pay. Cut your losses, leave, and make sure the deal makes sense next time BEFORE you do any work. I get offers every day from people that want me to do 90% of the work of their startup for no pay and 3%. Passssssssss. > am I completely a chump? It's human nature to trust people, until proven otherwise. Your CEO might even have magnetic charm on par with Richard Branson or Steve Jobs. Their gift for words hit the right buttons. Who wouldn't want to go into partnership with those guys? Time reveals if they actually make good and deliver. We should all think in terms of highest & best use of our time. Relative to proving your worth-- imagine what this position might have yielded had you been paid at contractor rates. You've invested your time in the CEO. Has he proven his worth back to you? Wow Johnny! You are being taken advantage of. First, how would the company fair if you weren't there? Do you have any documentation (i.e. emails, text, etc.?) that eludes to what they promised you. If so you may have an opportunity to visit with your attorney to see if their is a way to get back compensation? Good luck, I hope everything works out. > He keeps telling me that I need to trust him and that he'll reward people down the road based on their performance. I heard, and believed, that for years. I got nothing. You're not being treated like an employee, employees get paid. You're being treated like a useful idiot. Trusting other people is not a flaw in your character. The character flaw is in people who take advantage of that trust to your detriment. Good luck. "He'll reward people down the road based on their performance" -> you're being taken advantage of. Cut your losses, get a paid gig right away. Sounds very dodgy to me. I hope these comments give you the reassurance you need to assert yourself. Your partner isn't respecting you or your contribution. Sometimes you just have to walk. I've been chumpier than that. Get out while you can. Hey man I'm in roughly a similar situation, I didn't really know either and it just sort of happened. I was just excited to be doing real work, you know? Here's to hoping what ever decision you make works out. Just gonna say +1 to what everyone else has said here (particularly nostrademons & patio11). You are not getting a fair deal. You should leave. You're being screwed.