July 25, 2019
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When I learned about HRs and getting a job: how to negotiate for equity


From what most people around me can tell, I'd always had a knack of coding. And design. Thus, I decided to try my luck getting a job as a Creative Design Lead for UI / UX development at one of the local startups around. I'd been running an architectural design firm Ansh Sharma Architects for a while now, so I wanted something that could take my mind off.

I'd heard from a good friend of mine that working at startups was super-cool and fun, and some of them even offered equity along with a stipend, which could really pay off if the startup took off. I only had a month long break at hand, so although I dropped the idea of bagging an equity, here's what I've to share:

The equity equation:

One of the earliest entrepreneurial minds at Silicon Valley, Paul Graham, laid out an equation which could help you estimate how much equity you could ask for while being hired.

1/
(1-n)

You should give up n% of your company if what you trade it for improves your average outcome enough that the (100 - n)% you have left is worth more than the whole company was before.

In the general case, if n is the fraction of the company you're giving up, the deal is a good one if it makes the company worth more than 1/(1 - n).

HRs always look for making a profit on your hire. Let's suppose you've read Graham's article and are asking for 5%. And so, if you could convince the founders that you could bring to the table what could increase the average outcome of the company by:
1/
1-0.05
≈ 1.052, which is 5.2%, you win.

We, however left out the salary that you're going to get paid, which we could think as a trade off against equity. So, let's assume the company you're interviewing at is valued at INR 2 Cr., and you're asking 600000 per year. Let the amount the company spends on you be 1.5 times your salary (which includes any overheads). That gives us salary and overheads to be 900000.

900000/
20000000
equals 4.5% and so you should just be asking for 0.5% to reach your target of 5%. As you can see the equity component you can take increases when you decrease your salary, so it is up for you to decide which one you should lean heavily on.

As for me, I went in for salary. I'll be posting an article the following week about negotiating salaries, so make sure you enter your email address to subscribe to my blog. It's free.