A friend was offered a job at a startup, which right now only has both of the co-founders, so he would be the first developer on the team. He is being offered a salary below market rate for his area and no equity. He asked me for advice because he thinks this start-up has a lot of potential, should he negotiate for equity? He does not want to ask for too much because he does not want them to take back the offer, but at the same time he is not sure how to evaluate if this is a good start-up compensation, or if they are just taking advantage of him.
This is not a startup offer. Your friend is being suckered by an offer of employment opportunity at less than his previous take home. If he is currently out of job, he might take it. But sooner or later frustration will set in. This rarely ends well.
I won't hire a single employee if I cannot pay them better than prevailing market rate and have a waterproof contract. I would rather find a partner who can chip in with sweat equity. In my experience capable people are a busy lot and they don't come cheap. A startup cannot survive without capable people, and in such early stages can not pay capable people. So there must be equity to on-board talent.
No. You don't negotiate to get equity. Startup employees are given equity to align their financial benefit with company success.
By both taking less than a standard salary and having no stake in the company, your "friend" has no incentive to help them succeed. Tell them to stay far away from these people- they have no idea what they are doing.
Thats called being greedy after knowing complete story , one should not take salary if looking for equity,Thanks
Work in a startup is insecure and often requires much more participation than a similar role in an established company. So the salary in a startup in general should be higher. To workaround startupers often take risk and hire someone without experience hoping that they will choose the best. That was Elon Musk's strategy when he was hiring for his SpaceX company and paying below market rate. However as other noted, equity is a must if they want employees to be committed for a number of years, not just until a better offer comes up or hard times hit the company.
If he has another job lined up that pays the market rate, then its a no brainer..ask for equity and take the higher paying job if no equity is offered. Any initial employee should ask for some equity though because its still a risk of a short lifespan if the company fails.
If you need a service then hire developers for money.
If you are looking for a commitment then involve people for equity and let them voted.
Experience can be great. Does that has some value to him? Most people only look at money pay and forget different forms of pay. Equity is also some sort of money pay.
If money is important let him simply say it. "Hey guys, really like to work with you but it is below market what I make now. So I would like to have some compensation if we do all well. We make it a success together and we profit from it together"