I am in negotiations of bringing on the first employee, pre-revenue. We have met a few times, and she seems like a great fit.
That said, we both understand it may not work out, and she is okay with a vesting schedule (standard 4-year vesting schedule).
She wants to focus on marketing and soon business development (her main area of interest).
She says perhaps there could be milestones for incentive.
I have worked on the content portion part-time for 1.5 years and invested around $30,000. Each week I work about 25 hours on the site (still have a full-time job). She is able to commit 10 hours a week and can't put in money (or very little).
I would love to hear advice on what sort of equity I could offer and milestones. Would it make sense to include a % of business she brings in.
I also read a website varying opinions pertaining to first employee equity.
From Sam Altman of Y Combinator:
Founders certainly deserve a huge premium for starting the earliest, but probably not 100 or 200x what employee number 5 gets. Additionally, companies can now get more done with less people."
He also states that the default 4-year vesting with a 1-year cliff is not the best choice and proposes a 6-year vesting schedule with above market grants, arguing that it will help filter for employees that really believe in the company's mission.
Paul Graham has said this too:
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."
Suppose that employee will work for you in return for 3% of your company. In this case, n is .03 and 1/(1 - n) is 1,031. If you believe that employee can improve your outcome for more than 3.1%, you should pull the trigger.
How do you determine this figure?
VentureHacks stated this:
There has been a heated discussion in the valley about founders vs. employees value. This discussions revolves one question: are founders 100-1000x more valuable than early employees? Should they keep almost 100% of the company while employee #1 only owns a few percent?
Their answer is yes, because at first, founders aren't fundable. Their business value is approximately $0, while employees start with stock options worth at least $100,000.
I am bombarded with so much information and just don't know what to make of it, what is fair (and how to explain my thought process) and how to provide incentives. Also, is there a different thought process if you bootstrap vs. raise money?
Any insight would be appreciated.