How to Avoid Getting Cheated When Negotiating for Equity
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As a startup veteran, I have fairly strong feelings about equity as relates to compensation packages.

In my opinion, equity is worth less than the digital paper it is not printed on.

In other words, while large equity grants are used to lure people to work forstartups, they very rarely are worth anything at all. 75 percentof venture-backed startups fail prior to a liquidity event, which means that all the hard work for low pay and theoretical equity was worth nothing. This statistic isn’t new — yet for some reason, wide-eyed entrepreneurs keep joining up hoping to be part of the next Google.

I’ve personally worked for seven companies that offered me stock options or equity as part of my overall compensation package, and all initial grants were tied directly to my salary. Out of those, only two have had liquidity events, which isroughly average.

In general, it works like this: a prospective employee is given a grant based on the salary they are hired (at a multiple of your annual salary in equity) at the current valuation of the stock. If you know how much stock has been issued, and how strong the company is, you can make some fairly good assumptions as to how much that equity may eventually be worth.

There’s an interesting phenomenon, though — as the equity is based on salary, there is a marked gap in equity grants among women. Unfortunately, as employee option pools are only a subset of a company’s stock capitalization table, women tend to have a much smaller percentage of company stock overall than men — creating a chasm wider than the pay gap.

How wide?

35 percentof all employees with equity are women, however they hold only 20 percentof the equity overall. Additionally, female founders retain only 39 cents to each dollar of equity owned by male founders.

These stats may come as a surprise to some, but it shouldn’t.

Time and again, the number one reported cause of the wage gap is the lack of negotiation by women during hiring. The majority of women simply accept the offer they are given and don’t see it as an opportunity to gain an advantage. Another contributing factor is that with items like equity, there is no baseline to go by.

What can you do to avoid falling into the same trap?

1.Bet on winners.

No matter how passionate someone is about their idea, there is no greater indicator of success than past success. Try to work for founders who’ve succeeded before, and only join companies after they have closed series-A – but before they close series B.

The success rate among seeded companies is too low to offset the lower exit values.

2.Get the full picture.

Know how much of the company you are actually being granted, how much money is in the bank, and what the cash flow situation is.

All of this should be available in your paperwork and when you ask – and if it’s not, that’s a warning sign.

3.Negotiate for salary, not equity.

Most of all, understand that a stock option is a lottery ticket. You will most likely never see a return on it, so negotiate for what you actually want, rather than the promise of a future return.

I personally negotiate for preferred shares (instead of common) for a greater return potential, as well as benefits that are important to me.

While this may not ultimately change the equity or wage gap, it may serve a different purpose: the more educated people are about their options, there will be fewer “victims” of it.

And perhaps that’s all we need.

Oct 19, 2018
Afton Vechery, co-founder of Modern Fertility.
Afton Vechery, co-founder of Modern Fertility.

For Modern Fertility’s Afton Vechery, the biggest adjustment to going remote during the coronavirus crisis has been minor but symbolic: “I’ve had to switch from contacts to glasses because of all the screen time and video calls,” she says. Vechery co-founded her home-fertility-test startup, which has $22 million in funding, in 2017. While many now have plenty of time on their hands for, well, fertility, Vechery is busier than ever. Here’s how she stays productive.

Climb Every Mountain

The alarm clock buzzes at 6:30 a.m. “A lot of founders have these amazing morning productivity hacks, like meditation,” says Vechery. “For me, the single greatest motivating factor is to just be doing something I love. And so, uh, that translates to emails in bed when I wake up.” After that, Vechery typically bikes to work. During the crisis, she’s swapped her commute for an early-morning ride to the top of San Francisco’s Twin Peaks. It doubles as me time. “It’s really helpful to understand what’s going to bubble up from your subconscious when you’re not being stimulated sitting in front of a computer,” she says.

Face Time

Vechery’s days in quarantine include more one-on-one meetings than they did before, but that’s the cost of keeping information flowing. Modern Fertility has implemented daily meetings at which employees can check on current and upcoming projects. And the staff has organized optional virtual lunches and happy hours, which Vechery will drop into when she can. Whether at home or in the office, she and co-founder Carly Leahy generally eat dinner while working and wrap up around 9 p.m.–though they encourage staffers to leave earlier.

Clear Screen, Clear Mind

Vechery relies on an app called Captio, which lets the founder email a note to herself with one click. But you won’t find the Captio icon on her iPhone’s home screen, which is clear of everything but three apps: Calendar, Clock, and Notes. Manually searching for apps lets Vechery ignore distracting notifications. “As a founder, there’s constantly something else you could be doing,” she says. “But when you have space to think through what you’re working on, you’re a better leader.”

Portion Control

When she makes time for a TV show, Vechery starts with the season finale and views the episodes in reverse order. The strange habit helps prevent the urge to binge. “I have an incredibly addictive personality,” she says. “So this is better for everyone.” Vechery also unwinds by playing the trumpet. “It’s a total break from everything else in life,” she says. “It lets you process your thoughts in a really different way.”

May 13, 2020

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