Does this sound normal/fair?

Jtek

Hi I have been offered a job with a startup and, as I have never had anything to do with startups before, I have no idea if what I am being offered is normal/fair. Gut feel is that it is, but would love some opinion from the market before I go ahead. I don't want to put a load of work in only to resent it down the line, so just checking..

The company is a media agency and has been going for a couple of years. They have decided on a particular growth strategy whereby they will create some separate companies under the existing company as a holding company. So I have been approached to start a new specialist company within this structure. 

The main company is largely funded/started by the CEO, and there are 3 other board members whose equity ranges between 5-10%. 

I would be the MD of the new company and equity would start at 5%, vested for 3 years, but would rise to 7.5% and then 10% but based on turnover/growth milestones, which are a stretch but not impossible. A further jump to 12.5% is possible but with pretty tough targets. I am not investing/funding anything. 

This equity is only a % of the subsidiary I am founding, not the whole wider company. The remaining e.g. 90% equity goes to the holding company to be split between those founders according to their percentages (which are of the whole company)

Does this sound normal? 

Whether the turnover targets are achievable is another matter; I think they are - but it's kind of a new area (nothing very much to benchmark against) so it's a bit of a leap of faith. 

Ryan O'Bleness

Hi, @Jtek. Are you strictly being offered equity, or will you have a salary or hourly wage as well? 

Jtek

Thanks @Ryan O'Bleness - yes there is a salary as well, which is a slight pay cut on what I earn now, but good and competitive for the location. In addition I get 15% of the profit I make as bonus. 

Ryan O'Bleness

I don't have a ton of experience with offers like this personally, but the one thing that would concern me is that you're only being offered equity off of the subsidiary and not the already established company, and since it is a new venture, it could be a while before it turn any kind of profit. But since you'll also be making salary then I think those concerns could be mitigated a bit. That's why I asked. 

Jtek

Thanks @Ryan O'Bleness - yes that has been the part which I have been thinking over the most. I was initially concerned about, for example, what happens if my subsidiary generates business for the wider group, when I have no equity in that - however I have agreed commission/kick back structures for all these scenarios. 

The more I think about it, the more I realise that it is actually be a good job and career move even if there wasn't any equity. 

I guess (?) if the whole company gets bought before the subsidiary has generated enough turnover to make the equity worthwhile, at least I could get employed by the new buyer to continue the growth, and possibly a new equity deal - do you have any idea how that usually works? I also imagine in that situation it would be possible to command a higher salary in order to stay on??

Ryan O'Bleness

I think that is the right mindset to have, but I do not have any personal experiences similar to that. But if you've thought it through and you think this is a good career move, then i say go for it. Good luck!