This question originally appeared on CoFoundersLab: A venture wants to hire me with founder status- the catch no salary or benefits for two years. How?
Answer from Mike Moyer, author of Slicing Pie and Adjunct Lecturer, Northwestern University and the University of Chicago Booth School of Business
You survive by draining your savings, reducing your living expenses by living on your friend's couch, eating Ramen Noodles, and taking on freelance work. Many people (including me) have lived this way on the path to success (and it sucks), but it gives you a good origin story and a little grit. If you believe in the company, then go for it.
Now, to elaborate on your situation: You need to make sure you are getting your fair share of the equity in exchange for your commitment. There is only one way to do this and it's called "Slicing Pie." It's a formula for determining a perfectly fair equity split and it is the only formula on the planet that exists (if there was another formula, it would have to yield the same result because there is only one right answer).
The founders are making a classic start-up mistake by trying to predict the future. No salary and benefits for two years? Says who? If you raise money tomorrow, then will you get salary? What if it takes three years? Nobody has any idea what's going to happen in two years — not even an entrepreneur! Because the future is unknowable, any possible equity-split decisions the team makes at this point will always be wrong.
This happens all the time, but it's always wrong. Always.
Think about it this way: When someone contributes to a start-up and is not paid, they are, in effect, "betting" on the future profits or sale of the company. The value of the bet is equal to the fair market value of their contribution.
People contribute all sorts of things including time, money, ideas, relationships, supplies, equipment, and facilities. Everything has a fair market value.
What's clear is that you are going to forgo salary for an unknown period of time. You may even incur some business expenses for which you will not be reimbursed. This is your bet.
Betting continues until breakeven or Series A. In other words, you will only know the amount of your total bet when you no longer have to bet because you are getting compensated.
Your percentage share of the equity should be based on your percentage share of the bets. The same goes for anyone else who made bets, including the founders. This is the essence of the Slicing Pie model.
If you use this model you will get what you deserve to get no matter how long you go without salary. If they don't use Slicing Pie, then do not join this company. They will take advantage of you!
Read more from CoFoundersLab.com:
- How Do You Motivate People Beyond Money?
- Why Did Kodak Fail And What Can We Learn From It?
- Where Do Great Pitch Decks Come From?
A venture wants to hire me with founder status- the catch no salary or benefits for two years. How? originally appeared on CoFoundersLab — the place to connect, meet, and collaborate with like-minded entrepreneurs.