How to Protect Yourself with Startups?

JustAin'tFair asks: "Last year, I took a chance on a small but promising startup. When they approached me, it was a 3-person operation (all involved were investors) with a functional website, a viable piece of technology, and a problem. Their prototype was just that -- a prototype. They were experiencing serious maintenance and scalability problems, and had exhausted their own technical knowledge. I agreed to come on board as their first employee, in return for a decent salary and a nice vesting schedule." To make a long story short:"My old boss & his partners netted a very nice payday, on the backs of their former employees. What would you do to protect yourself? I got a fair salary, but in the end, they got far more out of me than I got out of them. Would you contract? Get a parachute written into your contract? What have you done?" "In 6 months, I rewrote and redesigned most of the key subsystems, built new servers, hired new staff, and got the company rolling on a serious path. Serious senior architect-level stuff. Then it all fell apart: one day, out of the blue, they fired all of us, claiming shortfalls in funding, and so on. It sucked -- it always does (I watched my own startup fall apart in the dotcom 1.0 days). So the other day, I saw they were bought out.

Sucks twice.

In the end, that's their right. At-will employment, and all that. However, it chafes me to get screwed like that."

Comments

How to protect yourself....

[ivan256]

1. Have zero expectation of monetary compensation beyond your salary.
2. Don't take a job for less salary than you would be satisfied with in exchange for equity.
3. Don't sign on to a vesting schedule you know you won't stick around through.

If you hadn't vested at all yet, you either weren't working there very long, or had a crappy vesting schedule. Were you there for less than a year? If so, don't worry about it. All you lost was the value of less than a year's work. I know it feels crappy that somebody else made money and you didn't, but you'll die an unhappy cynic if you look at life that way.

you expected too much

[dfjghsk]

You expected way too much. You were hired as an employee. You didn't put any money into the company, and you were paid for the work you did.

The investors, who made more than you, would have lost all of their money if this went badly. If things went badly for the company, you would have still been paid your salary.

If you wanted the benfits of being an investor, you should have taken out a second mortgage on your home (for example) and invested the money in the company. Of course you didn't want to do that, because it was a startup, and you didn't know if you would get your money back.

Well, guess what? The investors in the company didn't know if they were going to get their money back either. The money they earned from the sale is their reward for taking the risk in starting the company.

So what you wanted was all of the benefits of being an investor, without any of the risk.. which was unreasonable to say the least.