[I posted this on the LinkedIn discussion, but figured it might be useful here too].

Glad you’re bringing this into general awareness. One of the biggest issues I see is too much optimism. Entrepreneurs are optimistic by nature, which cause them to inflate the potential when hiring new employees. It’s easy to buy into the 1% of a $1B company and you’re rich argument. But it’s useful to keep in mind the probability of that happening.

I have a risk-adjusted spreadsheet I use for basic analysis that handles basic equity dilution and liquidation preferences and evaluates the deal in terms of three different scenarios (best case, worst case and expected case). That can help get a sense of what you’re actually negotiating for from a risk perspective (e.g. if I give away $X in salary for Y% in equity, does that make sense). Too often even if we’re negotiating, we negotiate based on the best case scenario that we’re given.

This post inspired me to make my spreadsheet more generic. You can see it at http://fastfedora.com/resources/planning/Compensation%20Analysis.xlsx

This spreadsheet isn’t a complete compensation analysis. The original was done to analyze specific portions of a specific deal and I just cleaned it up a bit. But it’s a start for those who haven’t ever done an equity compensation analysis.

Finally, negotiating isn’t a single event that happens in a startup; it’s a continual discussion. If you prove you’re savvy upfront, you set the expectation that if the assumptions change and the outcome doesn’t look as rosy, there needs to be more compensation to keep you.