Negotiating Private Equity: How Women Startup Founders Can Ensure Their Fair Share

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I often find myself surrounded by strong, intelligent businesswomen who are more than comfortable with tough negotiations. But the truth is that many women are new to the business world, and negotiating equity is often a mystery for even the most experienced of us. It boils down to the fact that many startup founders think they have more equity than they really do.

As more and more women begin to populate CEO and founder-level positions, and we get closer to income equality between genders, I feel it’s increasingly important that we not only understand our merited assets, but more importantly, we learn how to ink them into our contracts upfront.

With this in mind, here are five guidelines that I feel will help ensure the highest possible stake in your company.

  1. Fight for the Title You Deserve

    You may have heard that it’s not a good idea to be hung up on a title during negotiations, but in my experience, titles are important. This is especially true in regards to how you are treated as an employee both internally and externally, and they’re important for your next career move as well.

    Your title costs the company nothing. If your role is going to include getting the company on the map, shoot for C-Level or Founding Partner. It doesn’t matter if it’s not your idea. If you have been hired to a) create demand for a new product, b) define a new product or c) turn an idea into a revenue-generating company (or all of the above), then you are absolutely a founding partner.

    If you don’t go for that top title, you are leaving room for someone else to swoop in and nab it. I can’t tell you how many times this has happened to entrepreneurs I know (men and women).

    You can point out that with a woman on board at a founding level, the company may in fact be in a better position for success. A study released last April shows that companies that have more diverse teams (gender-wise as well as cultural) in their C-Level and executive roles perform notably better financially and on equity returns.

    Once you’ve defined your value in the company and your business card reflects that, confidence to negotiate a higher financial stake in the company will come much more easily.

  2. Up the Salary Ante With Raises and Bonuses Tied to Performance

    Many times when negotiating at a startup, particularly prior to Series A, you will be told they can’t pay you at market rate, but that you’ll be given equity to make up for it. That may be true at the time you start, but it shouldn’t remain true throughout your employment.

    Begin negotiating pre-A to get you where you want to be post-A. If you are willing to put skin in the game and take a risk in joining a startup, you should also benefit along the way by virtue of your performance. So one way to get to your market rate is to take a lower base salary, but request additional equity grants upon completion of specific (and clearly defined) objectives throughout your employment. This is a great way to pull in more equity at a later date and also keep you motivated to hit pre-defined milestones. There’s less risk for both of you in this case.

  3. Ask for Earlier Vesting Shares and Options

    Vesting arrangements and rights can also be a little tricky to navigate within a startup.

    The industry standard vesting period is four years, with a one-year cliff. The cliff means you are waiting a full year for a percentage of equity to vest (typically 25 percent), and if you leave before one year is up you get zip. Generally after the cliff, you vest on a monthly or quarterly basis for the remaining three years.

    Four-year vesting is not an absolute. Ask for some of your shares to vest earlier, so that you have ownership earlier. I recommend asking for two years post the initial year, meaning after three years your stock is fully vested, rather than four. That ownership is empowering and motivating.

    You should also strive for the ability to “early exercise,” which essentially means you exercise your options prior to vesting. Negotiate a certain percentage of equity to vest early, or start vesting on day one in order to avoid that one-year cliff.

    In my experience, the tax treatment for this is the same as restricted stock, and you’ll only pay on your gains rather than income tax.

  4. Don’t Forget About Anti-Dilution Protection

    If you are coming in as a C-level hire, you will be key to any capital raise. Your reputation and experience will be a vital component that VCs will evaluate during their decision to invest. So ask for an anti-dilution clause for, at the very least, the Series A. If you don’t, you’ll be in for an unpleasant surprise post-A. It’s possible to find yourself with only two-thirds (or less) of what you originally thought was your percentage share in the company once you have closed that first round of funding.

    Companies often throw out a share number that sounds appealing, but you really have no way of knowing its true value without some context. Ask for the percentage their number represents out of the total shares outstanding. If they won’t tell you, then it’s not a lot!

    Once your stake in the company is clearly defined, the anti-dilution clause will protect you from getting washed out in every capital raise. It’s not an easy sell, but you can push for it through the first round of funding. You will not get this indefinitely, however.

    If you are joining post-A, ensure your options are on a “fully diluted” cap table, so you know what you are really being offered.

  5. Have a Plan for Your Exit Strategy

    As with most phases of the startup life cycle, “the exit,” whether it is yours personally or the exit event of the company, almost never goes as planned. Of course you want (and hope) that everything will be great at your new startup, but the reality is that the startup ecosystem is a landmine for unforeseen events and obstacles. It’s important to protect yourself upfront from events you can’t always predict, like mergers, joint ventures, new management, changes in company direction, the product not working, crazy CEOs and so on.

    You are taking a risk with your career to join a startup, so try and avoid “at will” employment. Establish a minimum term of 6-12 months guaranteed employment or 3-6 months severance.

    If you depart “due to good reason” (for example, an unfavorable change to your job title, compensation or role) before that term is over, you will still get paid your base salary. Also, try to get some percentage of unvested options to vest upon your departure.

    Protect yourself in case you are terminated “without cause,” and negotiate into your contract full or partial acceleration on options as a condition of an early/unforeseen exit.

Keep in mind that it’s likely you won’t get everything you ask for. But if you aim high, you should find yourself in a much better place in terms of equity, incentives and material wealth.

Kathy Leake is co-founder and president of the highly successful intent targeting network, LocalResponse. Kathy comes from a long background in startup entrepreneurship, particularly in the ad tech space (prior to LocalResponse she co-founded Media6Degrees), and as the only woman at the board table for 25+ years, she’s learned a thing or two about tough negotiations and standing up for the title, salary, equity and respect that she deserves.


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