How much equity should I ask as a C-level executive in a new startup ?

The business is basically expanding the "brand" of a celebrity chef. I was a cheerleader for the chef and have been part of various negotiations. He now has a television show overseas that is successful. We are ready to expand the brand to other countries, as well as diversify into product, with the ultimate goal of a restaurant chain. We are looking to formalize our business relationship. The chef has virtually no business background; but he is both product AND spokesperson. We have a handful of functional employees...I will be taking on role of CMO, CGS and CBDO; creating both strategy AND marketing for the brand in addition to creating the relationships needed to succeed.


As you may suspect, there really isn't a hard and fast answer. You can review averages to see that a CEO typically becomes a major shareholder in a startup, but your role and renumeration will be based on the perceived value you bring to the organization. You value someone's contribution through equity when you think that they will be able to add long-term benefits, you would prefer that they don't move company part way through the process, and to keep them from being enticed by a better salary (a reason for equity tied to a vesting arrangement). Another reason is when the company doesn't have salary money available but the potential is very strong. In this situation you should be especially diligent in your analysis because you will realize that even the best laid plans sometimes fall completely short. So to get the best mix, you have to be very real about the company's long-term growth potential, your role in achieving it, and the current liquidity necessary to run the operations. It should also be realized that equity needs to be distributed. You cannot distribute 110% and having your cap table recalculated such that your 5% turns into 1% in order to make room for the newly hired head of technology is rather demotivating for the team. Equity should be used to entice a valuable person to join, stay, and contribute. It should not be used in leu of salary that allows an employee to pay their bills. So, like a lot of questions, the answer is really, it depends. Analyzing the true picture of your long-term potential will allow you to more easily determine the correct mix.

Answered 6 years ago

I've hired and negotiated several top level execs at startups. On both sides, this is one of the trickiest negotiations that will have to be made at any stage of a company's life, since the value of the equity is highly uncertain.

This is tough to answer without knowing your background and without knowing how much the current company might be worth. As a rule of thumb a non-founder CEO joining an early stage startup (that has been running less than a year) would receive 7-10% equity. Other C-level execs would receive 1-5% equity that vests over time (usually 4 years).

I would adjust these numbers up somewhat if you have significant experience in the space or a track record of building and monetizing a brand.

I would adjust these numbers down somewhat if the company is generating significant revenue (>$1M) or can fairly valued (by a third party, such as a VC) at over USD $10M.

I would also adjust the numbers down if the company has received professional investment from a venture capital firm or a strategic partner. Also remember that salary and equity are both exchangeable and negotiable -- you may be able to get more equity for less salary and vice versa.

A couple of anecdotal examples I can give you may help out:

- I helped recruit a very seasoned (20+ years experience) CMO at a 4 year old venture backed firm for $180K base salary and 9% equity vesting over 4 years. This person was previously a CMO at a Fortune 500 company.

- A firm that I was involved in founding hired our Head of Business Development with 25+ years experience for $100K salary plus 2.5% equity.

- A personal friend of mine with 10+ years in the Sales and Marketing space just got hired (last week) as the Head of Sales & Marketing at a Series A venture backed Financial Technology firm for $100K salary and 1.5% equity.

Hope this helps -- I'd be happy to discuss further on a call to discuss your personal situation or answer any questions that you may have.


Answered 5 years ago

I hear of a chef who is pretty much product manager and spokesperson as well as another person who is brand manager.
Who's the CEO ?

Answered 6 years ago

1 - 1.5% equity would only be beneficial for a multi-million/billion dollar company. What is the most you think the chef will be worth? Let's say it is $4M tops. 15% would give you $600,000. I say shoot for no less than 15%. You may have to settle for less, but the chef has to know that without a reasonable percentage, motivation would drop substantially for most startup partners. By the way, think of yourself as a partner, not an employee.




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Answered 5 years ago

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