What is a good cash/equity mix for a 1099 programmer and/or designer for 4 to 6 month term?
We have been coding now for about 6 months on our startup. Up until now, we have bootstrapped the entire project on pennies, being cash poor. Fortunately we were able to raise a small friends and family round of about $50,000, which is great because it has become increasingly clear that we need to bring on at least one more coder, and a good designer.
For now, we would like to offer a 1099 position with a cash/equity split. The job should last for about 4 to 6 months, with the possibility of full time employment soon thereafter. Since our cash reserves are still low, we are offering equity to keep the hourly compensation reasonable.
My question: What is a good cash/equity mix for the above scenario, including vesting options, and possible future employ? Open to all and any suggestions.
FYI...we are located in Sacramento.
Thank you in advance for your help...as it is very appreciated!
Equity Independent Contractor Compensation
1 Answer
There is no standard formula here, it's all about what you're willing to offer and what they're willing to accept. To make this simple enough, here is what I would do:
- Give the person you're getting on board enough money to properly spend on themselves during that 4-6 months period. The amount should be enough for them for their basic needs, and a bit more for their recreational activities.
- The equity depends on how much valuable the company is. Since it's still starting, I suggest you get into an honest discussion with whoever you're hiring, and reach an agreement on how much the company will be worth once it starts generating income. After that, you can give them equity accordingly.
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Thank you for answering. Can I ask you if you have done this before? And if so...how have you done it, or seen it done? – Derek 11 years ago
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I have been on the employee's side twice. Once I was given 25% equity with no salary, so I couldn't continue working for a long time since I had no cash reserves at that time. The other time I was paid very well with no shares. The latter was better, but ideally I would have preferred a combination of salary and shares. – Samer Bechara 11 years ago
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Awesome...thank you! What amount cash/equity split would have made you happy? – Derek 11 years ago
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Our contract will only last for 4 to 6 months, so I was thinking about offering something like 1% to 2% equity with 1 or 2 year vesting, plus $25 an hour. If we are able to give them a true employment contract after that...then we would negotiate an additional standard equity/cash agreement. So in essence, they would end up with more equity. Am I somewhere in the realm of feasibility, or am I way of base? – Derek 11 years ago
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If you feel that $25/hour is sustainable enough to live on for the next 4 months, then it would be good. Put yourself in their shoes. As for the equity, it really depends on the value of the company, and how you can demonstrate it to your contractor. I would accept 0.01% in the future Google, if you can demonstrate it. :) – Samer Bechara 11 years ago
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Good point. I appreciate it...thank you! – Derek 11 years ago
