I’d be considered an employee as I’m not funding the company. How should I structure my compensation package to the startup? They can’t afford a full time salary. I’m currently not working full time. It’s a SaaS product that targets small/med sized companies.
There's not much you can do.
They'll offer you some equity, but B2SMB SaaS startups virtually never have a liquidity event. Which means your stock won't be worth anything in practice. I wouldn't trade salary for stock.
They may promise you big raises in the future, but don't expect those to materialize.
I think you should negotiate for flexible working conditions. Creative freedom. Basically anything that improves your quality of life but doesn't cost the startup much.
Mostly though you should be getting a ton of experience of out of this. Then you can do your own startup a few years down the road.
If you aren't a co-founder, you are an early employee (like #1 or #2?) If you want salary+equity then you could expect 1-3% or warrants) but you have to balance what you get for equity with what your salary needs are. It's considered reasonable to set aside 10% in an early stage company for talent acquisition- ALL talent. You have to establish how this company sees your contribution. Are you a key early employee or are they trying to get an extraordinary value by recruiting you?
Definitely worth taking some equity, for both you and the company. You have to be compensated for lack of earnings. If there is only one founder or two of them, also worth asking to join them with a board seat.
If the company has limited revenues and is not well-funded. It may be worth offering to do a longer time without pay for more equity, but clearly define what period you could do that for and what salary you would expect.
As mentioned above the experience is great, but try to be treated as much an equal as possible.
Things I'd consider doing:
1) See if you can get some sort of equity in lieu of salary comp - perhaps a fixed amount up front that vests and additional grants every quarter so that if it takes a while for them to raise capital you're at least earning more ownership in the business for the risk you're taking on
2) If you're in a sales-type capacity, commissions.
3) If you're effectively paying for experience by making little to no salary, then I'd be making sure this org is going to give you the experience you want. There's a crap load of unfunded and underfunded startups to choose from. Feel free to be choosy in this scenario. Choose an organization in which the product and team really speak to you and where you think you'll have an opportunity that really aligns with your goals.
SAAS companies targeting SMBs will have a hard time getting traction. Does the founders have experience with selling into SMBs? Do they have some strategic advantage to get deals done?
I've heard this pitch one too many times and it makes me weary that they cant afford to pay you. Dont get tempted by a equity based compensation. A company thats not worth anything is zero.
If you really believe in it, you can get creative like deferred 90-day payment on your hourly rate with interest. However, if it fails before it gets any revenues, you'll get screwed whichever way. Just looking out for you.