The document provides guidance for executives considering quitting their corporate job to join a startup. It outlines the key risks and rewards to consider, including lower cash compensation but potential high equity upside. It also summarizes what to expect in terms of compensation structure for mature, growth-stage, and early-stage startups. Specifically, equity compensation depends on the company's valuation and stage, with early stage startups posing higher risk but greater reward potential.

1. Quitting a cushy corporate job to join a
start-up venture.
A guide for executives
Shyam Kamadolli
Entrepreneur, Venture Capitalist and Private Equity
Investor

2. Guiding principles: generally speaking, balance risks/rewards
Carefully consider the risks and rewards of quitting that cushy Fortune 500 (or
similar) position for Chief Bottle Washer at a shiny new start-up with an
unpronounceable name and/or an indecipherable business model
Rewards: Be clear why you want to make the transition
Reward 1: making an impact, moving beyond a small cog in a massive wheel
Reward 2: scratch that itch to be a real entrepreneur (let us face it,
“intrapreneurship” is not all it is made out to be)
Reward 3: get recognized
Reward 4: make a play for compensation alpha (a.k.a. stock options)
Risks: Do not join a start-up if you are not comfortable with risks
Risk 1: your cash compensation will most likely be lower
Risk 2: your career trajectory may see a discontinuity
Risk 3: your equity upside is possible but improbable
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
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unless explicitly ascribed to them.

3. Compensation: what to expect
Cash: base salary and bonus
This cannot be addressed well here so I will make only a cursory attempt to guide you here
Seek guidance from others who have made the leap before you in the same geographical /
vertical market
Recruiters are a good source of cash compensation standards
In general, expect to make less than you are at the large corporate job, however it is a myth that
it pays a LOT less than your job today (generally speaking
– The closer the company is to an exit (IPO or sale) the lesser your haircut on cash compensation
However, all in, you will be giving up on a few other things
– Health benefits at start-ups are generally competitive but expect some losses here too
– Statutory contributions to pension and retirement funds are common but matching schemes for voluntary
contribution schemes are almost unheard of
– Other frills like sweet group insurance deals are generally foregone
– Vacation periods are usually not as long and even then cannot always readily be converted to cash
Equity: that is what represents the monetary reward for your leap of faith so let us spend
some time on this
Three scenarios: mature start-up, growth stage start-up, early stage start-up
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
3
unless explicitly ascribed to them.

4. Mature start up
Context: the company is on track to ~$100M of revenue
Has been profitable in the recent past, expected to exit in 12 to 18 months
Has been through several rounds of financing
Between investors, founders/promoters and employees there are tens of
millions of shares outstanding
The stock option pool is in single digit % of total equity share capital of
the company and is mostly spoken for
Remember why you are making the transition
Primarily for job satisfaction, to make an impact and to enjoy the upside
Cash compensation:
More or less in line with industry standards for a mid-cap/small-cap listed
company
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
4
unless explicitly ascribed to them.

5. Mature start up: equity compensation
Equity:
The valuation of the company established at the most recent round of financing is probably in the range of
$100M to $1B+
Depending on the role you play, you can expect a few hundred to few thousand shares
If you are joining senior management, have your recruiter help you figure this out
Expect to get the equivalent of your haircut in cash compensation for one or two years in equity at a minimum
with an expectation of upside from the stock price going up at exit
The questions to ask before you sign up but perhaps after you are well into discussions:
– What is the current fair market valuation of the company and hence the per share price? Use the latest
investor valuation if available. Else get a copy of the financials and determine the valuation yourself using
DCFs (rarely works) or discounted comparables
– What is your strike price? determine if your options are “in the money”
– What are you working for? Establish the total value of options granted to you and the vesting schedule.
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3
10 Typical capitalization table at a mature start-up
Investors
Founders
Allocated options
Unallocated options
85
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
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unless explicitly ascribed to them.

6. Growth stage start up
Context: the company is between $5 to $50M of revenue
Has been profitable in the recent past, expected to turn profitable soon, expects to
exit in 36 to 48 months
May have been through one or two rounds of financing
Between investors, founders/promoters and employees there are millions of shares
outstanding
The stock option pool is in single or double digit % of total equity share capital of the
company and some of it is still available to new hires
Cash compensation:
Expect a haircut to your current compensation but the amounts vary.
An expectation of 50% is not unreasonable.
Remember why you are making the transition
Primarily for job satisfaction, to make a big impact and to possibly make some
money
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
6
unless explicitly ascribed to them.

7. Growth stage start up: equity compensation
Equity:
The valuation of the company established at the most recent round of financing is probably in the
range of $20M to $80M+
Depending on the role you play, you can expect a few thousand shares to hundreds of thousands.
Establish the amount of money you COULD make AT EXIT
– The key number to note is the % of fully diluted share equivalents that your options represent
– Perform an exit scenario analysis: what is the likely exit for this business? $300M? $1B?
– Get a copy of the financials and determine the exit possibilities yourself using discounted comparables.
Discount potential exit values for risk as a function of time to exit (roughly 15% for every year that you will
have to work there before you see an exit). This expected value multiplied by your share of ownership is
what you are working for
– Do not forget to factor in dilution for any future rounds of financing the business may need before exit.
– Strike price may make a difference for a suboptimal exit but is usually not much to fret over at this point
5
Typical capitalization table at a growth stage start-up
10
Investors
20
Founders
Allocated options
65
Unallocated options
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
7
unless explicitly ascribed to them.

8. Early stage start up
Context: the company is pre revenue or in early revenues
Expects to exit in 48 to 60 months. Anything longer and the team is likely to burn out
May have been through one round of financing (joining before financing would make
you a founder or close to it and this guide may not apply).
Between investors, founders/promoters and employees there are hundreds or
thousands of shares outstanding
The stock option pool is up to 30% of total equity share capital of the company and
most of it is still available to new hires
Most corporate executives are NOT made for roles in this stage of the evolution of the
business
Cash compensation: forget about your current cash compensation!
Compensation is set by regional standards and not by what you make.
Investors typically have a view on how much they want to pay a CEO, a VP, a director
and a senior manager.
Variances from the standard are only for exceptional situations
Remember why you are making the transition
Primarily for job satisfaction, to make a big impact and to possibly make some money
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
8
unless explicitly ascribed to them.

9. Early stage start up: equity compensation
Equity:
The valuation of the company established at the most recent round of financing is usually established by the VC
method (the investors set valuation to establish a certain ownership based on expected returns at exit).
Terms like $5M on $5M mean a pre-money valuation of $5M for $5M round of financing yielding the investors
50% ownership. (Typically 40% to 60% is owned by investors for Silicon Valley style investing)
Depending on the role you play, you can expect a few thousand shares
Establish the amount of money you COULD make AT EXIT
– The key number to note is the % of fully diluted share equivalents that your options represent
– Do not forget to factor in dilution for any future rounds of financing the business may need before exit
– Strike price may make a difference for a suboptimal exit but is usually not much to fret over at this point
17
3
Investors
50
Founders
Allocated options
30
Unallocated options
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
9
unless explicitly ascribed to them.

10. If you did decide to take the plunge…
Explore tax efficient structures like restricted stock for your equity
compensation
Do not forget to file appropriate paperwork with your income tax
authorities if indeed such structures are available to you
Realize that failure rates are high among those making such a
transition
Do not burn your bridges, have a plan B
Your new job entails, in addition to what the job description says:
Answering the phone at reception until someone is hired to do so
Cleaning up the mess you (or someone else) made in the kitchen
Flying coach on red-eye fares
Taking cabs and not car services
Etc. etc..
However, you are in for a very exciting ride… enjoy it
© 2010 Shyam Kamadolli. All opinions and views expressed here are my own and not those of my employers, investee companies or others
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unless explicitly ascribed to them.