Fresh off the rousing success of their Term Sheet series, the guys at AskTheVC have begun tackling the issue of compensation at VC-backed companies. This is must-read stuff for any entrepreneur in the process of raising venture capital, or who already has raised venture capital. After all, who else are you going to ask if you’re getting screwed over? Your own VCs?
A few highlights from what’s been posted so far:
Compensation Before Raising Money: “Don’t be greedy on cash compensation. There is nothing that turns off a VC more than seeing a pre-revenue, pre-funded company where the employees are making market salaries…”
Deferred Cash Compensation: “Be careful about expectation setting here – while some VCs will respect this arrangement, if this deferred compensation number starts to grow, as a condition of the financing the VCs will often require some or all of the deferred comp to be converted into equity…”
Equity Compensation Terms: “The standard vesting terms for a venture-backed company are typically a four-year vest with a one year cliff. For example, let’s assume you are granted an option for 10,000 shares of stock as part of your compensation package. A standard vesting plan would have you vest 25% of your options (2,500 shares) after one year (“the cliff”) and the other 7,500 monthly over the next 36 months (or 208 shares / month)…”
What Percentage Will You Own at Exit: “The range is so broad as to be meaningless…”