Slashdot Mirror
When To Consider Taking Shares In an IT Company?
pgpark writes "I've been working as a key resource for a small IT consulting firm in the US. While the job has been interesting and the company's growth quite impressive over the last few years, it's been almost half a dozen years now and being ready for something new, I was ready to quit for consulting. It looks like the CEO would prefer to see me stay, as she is offering me ten percent of shares in the company in exchange for five additional years of my services. So the big question for me now is 'should I stay or should I go now?' Have you guys on Slashdot ever been dealing with such a situation? What points would you consider in order to make your choice?"
Some points to consider: 10% is worth nothing because until the company gets acquired, shares have no cash value. For a small IT shop, it's unlikely that it ever will be acquired, it will probably fold once all the key consultants or the owner are burned out.
What would be meaningful is a 10% revenue share of the annual profits. Check out FairSoftware for a good example of how to mix equity and revenue sharing (disclaimer: I came up with that). It doesn't apply directly to your situation because your company is already mature, but it's a useful guide to everyone considering starting a software business today.
Another curious point: how does the owner intend to force you to stick around for another 5 years? Are you talking about stock options vesting over that period of time? Five years is a very long time. Think of it this way: if you had been offered stock options from the beginning, you'd already be fully vested, since you say you have already been working there for 6 years. Ask for some credit for time served :-)
Bottom line: the fact that you are getting this offer is a strong sign that you are in a good negotiating position. But my advice is that the offer is weak. You can do better. Congratulations and good luck! Ownership is cool.
If you already tried to resign, accepting counter offers is a pretty bad idea. Sure you could work there for another 6 months or a year, but they will always be trying to replace you.
I've had enough abrasive sigs. Kittens are cute and fuzzy.
What's 10% of zero, and don't tell me it's zero!
Would you be happy staying there for another 5 years?
Would you be happier doing something else?
Could the company go out of business in the next 5 years?
Is it likely to be sold in that time?
Do the shares have any value otherwise?
Is the value of the shares (5 years from now) worth more than you might get in additional satisfaction and compensation elsewhere?
It might be a great offer if you think the company is going places. I might even ask for 15% because it gives you a second source of income later on in life. It is almost certainly a different kind of counter offers. In most other times, accepting a counter offer is generally not a good as they will then be looking to replace you. However, this offer sounds like they really value your services and want you for the long haul.
If you are low on toilet paper. Other than that, never.
If this is 10% of the shares issued, or outstanding. Many startups have far more outstanding shares than issued ones. Percentages mean very little in the absence of the whole picture.
She could choose to dilute you to nothing if she chooses to issue more shares and grant them all to herself.
Beware of the 10% number, it may mean absolutely nothing!
I wouldn't commit to staying somewhere five years unless I was darn sure I love the place and the type of job, and have no possibility to want to leave the area or try something different. I get antsy after two or three, and being contracted to stay for five would make me stir crazy. Now, I could end up staying at a place longer than that, but I try to minimize the situations where my departure would result in significant losses other than them no longer paying my salary.
I don't know if it could be part of your agreement, but I would much prefer to have an arrangement where I'm given 1% share in the company every 6 months for the next five years, or something along those lines. It's more psychological than anything for me... I'd much rather feel that I have incentive to stay at a company than obligation.
-- I prefer the term "karma escort."
...because if you're not being paid on top of that, you should start running now.
If you'd be happier working somewhere else, then leave. Unless owning 10% of the company is going to make it much more interesting or enjoyable for you to continue working there, it sounds like nothing has changed. I'm assuming that either way you'll have enough money to do the things you want to do, and the main difference is not that.
Make sure that they can't just issue another 10,000,000 shares subsequently, and dilute your holding to almost nothing.
It happened to friends of mine the day after they signed a deal for an equity stake.
Great Windows SFTP Server!
If your gut is telling you that it is time to go after six years, trust me, you will hate it after eleven. I took a strong counter-offer after trying to quit a job once, in exchange for my promise to stay on for a long period - and I badly regretted it. I ended up leaving early, with a great deal of bad blood and recriminations for breaking my word.
Eleven years at a company is a long time these days. it can lead to stagnation and absence of career growth. You need new challenges, you need to be around new people. Don't get lured by this false hope they are dangling in front of you. Move on, don't look back, and in the long run you'll be glad you made the right decision.
(BTW when I tried to leave that company? The company I almost switched to got acquired by a huge internet firm the next year (during the dot com boom) and all of the employees ended up retiring early, taking trips around the world, and generally living it up. You probably won't be so lucky, but it was salt in the wound for me, grinding away at a dead-end job I'd foolishly trapped myself into.)
Make sure that your shares are not dilutable. That is if you get say 100 out of 1000 shares, don't sign a contract that would allow them to issue another 5000 shares. Also make sure that they can't fire you in 4.9 years. Make sure that you don't have any restrictions as to who you can sell them to. Lastly make sure that the shares instantly are yours if there is any significant change in the company such as it selling, merging, or whatever. Oh and is this company profitable? If not, I doubt it will be around in 5 years.
I've been in the biz for 15 years now. Been at 5 different startups, had juice in 4 of them. Of these, here are some sobering numbers:
* One was acquired, and the share value increased. However, I had 1000 shares and I was 24 at the time (this was in '94, before the great Equity Craze of the DotCom bust), and decided to let those shares go. Loss: about $35,000
* One went IPO before I joined, my vesting price was at $15. During my time there, the stock sank continually to $8 (this in the late 90s, so you can imagine my frustration) Loss: None, other than my time.
* One burned through $35 million of VC and kept hyping the "inevitable" acquisition. I bought 33% of my vested shares. The company went belly up on Aug 17, 2001, three months after I bought. Loss: $3,000
* One is still in existence, but because I was a contractor and forced out by management who wanted "engineers they brought in", I had to purchase my shares to stay in the game. Current loss: $1,900. Likelihood of gain: Probably 10-25%.
Bottom line: Unless you think there is a significant chance they will be acquired or go IPO, shares are WORTHLESS. And they generate huge headaches for you and your coworkers (think of the time you waste talking about share value or stock prices of comparable companies).
Only one thing matters about your job: Your paycheck. If they want to give you a cool title, wicked shares, or some new responsibility...it's all fluff unless they want to pony up cold, hard cash to back it up.
Of course, in this economy, it's good to be employed too so take it all with a grain of salt. :)
But since I employ 5 of them ... Here's what you should consider :)
What is the valuation? Fair market or other?
What is the entity? LLC, S or C Corp?
Is it a Grant, Option, Note Convertable?
What type of option is it? ISO or NQO?
What class and structure? Fully dilluted? Common or perfered? Rights?
If they are growing and you are instrumental in their sucess than YES get it. 10% is ridiculosly high percent - I give that to a CEO over 2 or 3 years at FMV! Bottom line: get a sec lawyer.
1) Is that in lieu of any raises?
2) What is the companies project worth?
3) Is the 10% yours now, or at the end of 5 years?
If they sell in 3 years are you out of luck?
The cynic tells me that maybe she doesn't want to lose you now becasue she is looking at buyers.
I've been burned hard in the past, so I'm always a little suspicious.
4) If you sit down and think about it without any emotional ties, do YOU believe the company will be here in 5 years?
5) IF the company's profits sky rocket, and then bottom out in 4 years, can you live with yourself knowing you could ahve been rich a year earlier?
Somethign I personally had a hard time coming to terms with. I went from Worse case: Walk away with 5 million, and possible end up with tens of millions, to getting nothing becasue management made some bad decisions. It was a hard year for me after that.
6) If I was to give you advice based on the limited information, I would say go for it.
WTH, you end up working a job you know and worse case your looking for work in a few years instead of now.
The Kruger Dunning explains most post on
Shares can have tax liabilities, even in private companies.
So how many shareholders are there? Assuming there are less than 10, it is most probablly run as a partnership company, and it would be worth investigating the books before commiting yourself to 5 years. if they have a steady cashflow, and 10% appears to be a good dividend, then go for it, if not, do not. To get the best answer, I would advise consulting with an accountant and assessing your '5 year plan' and look to see whether it will be viable/acceptable for you. Most importantly, do you enjoy your job and your staff? That is paramount in my books.
As has already been mentioned, if the company is private the shares are worthless to you unless you have controlling interest. . . unless it goes IPO.
If you have threatened resignation, I would not stay -- you've played your cards.
However, if you have had another offer and this is your current employers counter, you should as has already been mentioned look for credit for 'time served', but only accept profit sharing. . . My experience with small IT consultancies is that they are very difficult to take public by themselves -- however, they can and often did (before the current economy) received buyout offers from the bigger fish occasionally (in which case 10% may be a heap of change, if the controlling interest decides to sell).
I'm betting these shares vest over 5 years? Look, that ain't gonna happen. If you get shares make sure they are already fully vested. Otherwise your shares are worth nothing. If the company is bought out within that 5 years then your shares disappear.
Plus no sane company would offer you 10%. That means you're at a low-rent poorly run company. Run.
I doubt that they're interested in replacing the Asker.
However, they will most definitely use the equity vetting timeline to quash all attempts at payraises, since you'd be unlikely to leave over a payraise denial when you're earning a share of the company.
So it's best to make that part of the deal right now. Wrap up the cycle of negotiation quickly and easily, to avoid awkward dickering. What should you be earning in 5 years from now? Ask for that amount effective immediately plus the 10% accruing over time.
If they agree, then take it and be happy. If not, leave and be happy.
It would be entirely reasonable, even admirable, for you to chart a middle course. I'll assume that the offer is being made in good faith because you're regarded as a key individual. Fantastic. Trying to see this from management's point of view, there is high value in the continuity of keeping you on board.
But nobody expects such a situation to prevail forever. So there would be equal, possibly even greater, value in having your help in making a smooth transfer of knowledge to another resource. Competent management knows that it has to embrace this sort of change, because such changes are a normal part of business over the long term. Every transition is an opportunity to get better at it, and thus become more agile.
So I'm thinking, why not propose some sort of middle ground where you participate for a year (or whatever seems appropriate) in finding and training a replacement? Everybody wins. And because you took the initiative in suggesting it, you gain some advantage in negotiating the terms. I'd take 5% in shares in addition to salary for the period. And I'd really excel at making it work too. After all, I now have a stake in the company's success long term.
Parity: What to do when the weekend comes.
Never accept shares. Not in today's market. The company can appreciate you more with greater pay, which you can then place into more secure investments like gold or the money market.
Bearded Dragon
I've worked at a two different "small IT shops" where the owners offered out shares to hard working employees to keep them around. Not one of those employees is still on speaking terms with the owner of either company. Lawsuits were not involved with the departure of all of these people, but enough of them did end up involved in suits that I personally would never accept stock in a small IT shop where I was working. In fact, watching what said shops did to many close friends - I don't think I would even work as an employee at a small IT shop again!
If they're offering 10%, take it. It will certainly have a vesting schedule attached to it. Don't feel guilty about leaving in three months if things aren't working out; they won't feel guilty about firing you in three months if business goes south.
Ask for an immediate vesting clause in the case of termination (other than for cause), or sale of the company. You don't want to accept their offer, then get fired three months from now when they find someone new (because you threatened to leave), or when the company gets sold.
Ask for the latest financial statements. Your perception of the money being made by the company, and the finance guy's perception may be totally different. If they're offering options to keep you, you need to be able to value the offer.
If there is a board of directors, insist on a seat. With a 10% stake, you would be entitled to it. Its the best way to find out where the company is, and where its going.
Ask the CEO for his exit strategy - is he planning on running the company forever, is he planning on a private sale, is he planning on going public? Each of these has a different risk/reward tradeoff that you have to make.
Being handcuffed with vesting options, but having no visibility into the viability of the company, is like being harnessed to a wagon with a closed box on top, being told "You'll get what's inside after we make it over the mountain". Especially when you don't know if the wagonmaster is dipping into the box on the trip.
And the worms ate into his brain.
The Clash (you know the band?) has been asking this question for awhile...
http://www.lyricsfreak.com/c/clash/should+i+stay+or+should+i+go_20031789.html
Don't forget to ask our resident "expert" on everything. This guy never fails to get a first post, and he never fails to hawk his lame website.
Since Roland is gone, perhaps we can rally around the new common enemy: Alain94040.
Die Alain, Die.
You're not going to last 5 years at any place that makes you dissatisfied enough to want to leave now.
This sounds like nothing more complicated than an option grant. Option grants almost always wait for a year or two after the grant before they start to vest, then grant a big lump of shares and accrue at monthly to yearly intervals thereafter.
As others have pointed out, your shares are pretty much worthless until the company is sold or goes public.
Give a man a fish and you have fed him for today. Teach a man to fish, and he'll say "WHERE'S MY FISH, YOU IDIOT?"
Is this common stock or preferred stock? Is the company contractually obligated to pay out profit or a portion of profit as dividends to its shareholders? For that matter, what is the structure of this company? How will this five year period be enforced?
If you can't immediately answer these questions, you need to speak to an attorney. Period. There has been quite a bit of development in the last 10-15 years in terms of small business structure and practices, and I highly doubt that you have enough experience in how this company is legally structured to be able to make an educated decision. At this point, your question is like asking /. which server you should use at your business. We have absolutely no idea about any of the criteria or facts that would explain that situation.
Note that this is entirely separate from the equally good advice that others have been throwing around: if you were ready to leave, why are you now ready to stay for a fairly lengthy period of time? If it's just the money, then it's doubly important to get to a lawyer and have this situation analyzed carefully.
The deal isn't as good as it sounds. There are so so many ways for the company to compromise the quality of their offer without actually breaking their agreement and exposing themselves to legal risk (diluting the shares, sneaky divestment clauses), whereas your end is so straightforward that you're going to have a hard time breaking it without exposing yourself to substantial legal risk. You could get a lawyer involved but that's more likely to flat out end negotiations than it is to actually mitigate the above mentioned factors.
I have actually just recently taken an offer with a substantial pay increase of around 20K. I start in a week. I asked myself similar questions that the posters are suggesting the past few months. I have been at the current job for around 3 years. We get good benefits, the environment is nice, and profit sharing (compared to shares since the company is privately held). Each year you get 20% more vested into what ever profit sharing has been put into your 401K account. The past 10 months though we have been on a 10% salary cut (which wasn't the end of the world at first, but now there seems to be no end in sight), and now having had multiple job offers the past 10 months I have decided to leave. It's uncertain times, and I chose new beginnings over somewhat unstable comfort.
-- Brought to you by Carl's JR
If you are happy enough at the company to stay without the options, then take them and stay. However it sounds to me like you were ready to move on and if so, do it and don't look back. Happiness has value in terms of health and life. Options are worthless, and it makes no sense to chain yourself for 5 years for nothing if it could be in trade for your happiness.
Did you ever wake up in the morning, with a Zombie Woof behind your eyes? -- FZ
As I was told once, would you rather have 10% of the profits or 100%. If you feel motivated to strike out on your own then go for it. A CEO always has their own agenda. We always want to feel important, but we can always be replaced. Maybe you are great at what you do, but someone new will be motivated for another 3 years. That can be better than an employee that is bored and working at half their potential.
Personal satisfaction is the most important consideration. If you aren't happy doing what you're doing, you won't do it well.
I worked for an ISP that bought out a smaller company, whose CEO was a woman. She ended up taking my boss's position, pushing him out of the company, and I quit shortly thereafter. She had the people skills of a mouth breathing knuckle dragger. Apparently she was a wiz with the numbers though.
Head for the law library and look through O'Neal's Oppression of Minority Shareholders. You have to work hard to protect yourself, and there's a lot to protect against.
One gotcha, for example: can the current owners sell their shares to an acquirer and leave you un-cashed out? They can unless you've got an agreement requiring your shares to be included in a liquidity event. Even then I've seen someone try to violate such an agreement.
I'm certain I'm not alone in this forum as a holder of thousands of dot-bomb shares that aren't worth the paper they're printed on.
My advice? Take shares + cash. Make it a blended investment. That way, no matter what happens to the shares, you've got something to show for it.
Is there a bigger sucker out there than you are to sell the shares TO. If not, you just got talked out of the last raise you'll ever see at THIS company.
SJW: a person who perceives an injustice, and while correcting it, commits a greater injustice.
a wiz playing the skin flute, more like.
Options or shares are good at only one time, just before the company goes public and you have a strike price of like 5 cents. If you are accepting them in lieu of industry standard compensation, you're getting screwed.
As a part of your compensation, I've only felt that options are any good whatsoever when you can do something to actually improve their price directly with your own performance. That's why when you are an executive, they aren't bad. It also helps that unless you have 20 kids and college loans up to Doctorate level, an exec probably doesn't need those shares to supplement their salary.
For a minion? Make sure that your actual salary needs are covered before you play Wall Street roulette.
My feeling is that options or shares are a good thing as a bonus. That means that your company is stable enough to pay you what you need to live on, but is willing to reward you based on how you can help them improve that price.
by "the numbers" do you mean "sucking cocks" ?
Because you may have to pay tax on them (as a taxable benefit) well before you could ever liquidate them, if ever.
If you are certain the company is going public in the near future, on a real stock exchange (not the OTC:BB or Pink Sheets or something scammy like that), and you think the company will maintain decent stock value for longer than your vesting period PLUS the legal holding period you have to hold your shares (maybe 1 year after actually receiving the shares),
then, and only then, go for it...
Oh and I forgot to mention. How many more rounds of financing (and stock dilution) is the company going to go through before you can sell your shares? Will your 10% of the company be 1%, or 0.001%. That sort of dilution happens in the seedy end of the corporate finance world all the time, as companies are subject to reverse takeovers and other bizarre ripoff schemes.
Cheers and good luck.
Where are we going and why are we in a handbasket?
Frankly most small professional services type companies are virtually worthless on an asset value basis. The only concrete assets they generally own are nothing more than office equipment, some IT infrastructure, and possibly some licenses and distribution agreements.
With a small company the intangible assets amount to basically customer good will and name recognition. Customers often are more attached to the partners than they are to the business itself. If it is a business that has been a going concern for many years then the intangible value MAY be substantial, but it is difficult to measure.
Thus the REAL value of your 10% ownership is on paper at least very close to zero in most cases. It is even worse if you are a really key player in the business because it is likely to collapse if one of the really key people leaves. Maybe in your case that isn't the situation, but you never know when the VP of marketing will decide to take off with all the customers either.
Technically an equity stake entitles you to dividends, but that may not amount to anything at all. The principals in the company can just as easily take their profits in salary and you'd really have little or nothing to say about that, being a minority owner. You can also be pretty easily diluted, the board can issue more shares, etc.
Thus owning 10% may be worth exactly zip.
On the other hand, not all business owners are that cutthroat, you have to judge how much you trust them. If they are really making an offer to have you onboard as a co-owner and thats what they really want and they are honest people, then maybe its worth something. You could make some (or a lot perhaps) of extra money.
Consider though. If they are offering you equity, then that probably means the equity is cheaper than what they think they might have to pay you to convince you to stay otherwise. Even if the offer is in good faith and all it either means you're worth a LOT to them, or they are just broke and can't pay more but need you enough to give up some (possibly worthless) equity.
"Malo periculosam, libertatem quam quietam servitutem." -- Jefferson
The day before the IPO.
Then sell, sell, sell, and bail out.
A close friend of mine was allocated 10% of her employer if she would stay there two years. After 5 years the company had grown substantially and was offered $20 million to be acquired. My friend made a comment to the founder of the company along the lines of her $2 million (10% of $20 mil) payout and the founder said there was no way she was getting that much money. Days later he offered her a check for $100,000 if she would resign and not claim her 10% ownership. At that point she went to attorneys who said it would have been better if they could have been involved from the beginning because they could have prevented a later fight. While the lawyers agreed she had a valid claim, she would be looking at $50,000 in legal fees and a nasty fight. End the end she took the $100,000 and resigned, and nobody was very happy. See some attorneys up front, even if just for a brief consultation to see what could options are available.
Run and catch, run and catch, the lamb is caught in the blackberry patch.
I have a really bad track record with work and options, so take everything I say with a grain of salt.
First, this requires a lawyer, if you are serious. If nothing else, 10% of shares seems like a lot (seriously, it does -- I'd put it in "too good to be true, so probably isn't" territory). But there's an obvious risk of dilution, which happens All The Time in these situations. Anytime they get money from outside (by selling stock), bang, dilution, and as a minority not-even-shareholder (because until you buy them, they are just options to buy, not even real shares) you don't get to say squat. And understand, if it's a private company, your ability to convert shares to cash are limited.
Second, it does sound like she is trying to find a buyer. Some places I've worked, had "shares-vest-on-acquisition" clauses on their option grants. (Talk to a lawyer.) This would matter, if she finds a buyer. Maybe you can get accelerated vesting if there is dilution. There are things that they "can't do" -- for instance, it's really unusual for your shares to be dilution-proof (automatically multiplying to prevent it), because how could they raise more money? Other investors would not be happy if your shares magically increased to eat into their share. But accelerated vesting is not that big a deal -- your vesting was going to happen anyway, in the same time frame that the investors are likely to get their cash out. It does not substantially change your handcuff equation, either, since if the company is looking for money, the shares are likely neither tradeable nor especially valuable. But, it's the thought that counts.
Third, non-competes? Just curious, I hate them, seriously qualified lawyer friends I've talked to say that they're generally unenforceable (and they're almost totally unenforceable if there is any California in the equation), but consideration (e.g., this agreement you might be entering into) can affect their enforceability.
The economy is whacked right now -- it's hard to imagine an acquisition going through, there's also something to be said for the stable devil that you know. On the other hand, as other posters have noted, 6 years in a job nowadays is a long time, and 11 is even more. But that might be the best choice, and you might need strategies to help you cope if the job goes sour and there are no other choices. Is there room for any other growth there? Do they give you spare time to fiddle with other interesting stuff? Do you enjoy your hobbies?
The tax paperwork consequences can be annoying, once the you buy the shares, if this is an LLC or Subchapter S (guess how I know), especially if the company is profitable, especially if it is active in multiple states. Each state may be after you for their share of your share of the company's profits. You may need an accountant -- I don't, but that's because the company I own a scrap of, is not profitable enough to matter, otherwise I might be filing in MA, NY, CO, LA, NJ, and CA.
If you are happy in your current job then stay. If you are unhappy then make arrangements to leave - taking due regard and precautions in the current economic environment.
The shares are a red herring and I would remove them from your decision making.
Let me make my case.
There is a fairly new school of psychology, called positive psychology, looking at what actually makes people happy - which is different to what people *think* will make them happy. The leader in this is Dr Martin Seligman who wrote a very approachable book called Authentic Happiness.
The most surprising result from positive psychology is that more money will *not* make you happy. If you have enough money to put a roof over your head and food on the table then you have sufficient. The evidence for this is to study people on different incomes and see if there is any difference in their happiness - there isn't. Even winning the lottery won't make you happy. Studies of lotter winners show that a year after the win they are no happier than they were before.
The extra money you might get from the shares might make you happy if you can use them to do something that will make you happy. I suggest you work out what that is and make arrangements to do it - shares or no shares.
How to be truly happy? Use your signature skills, those things that you can do really well that others mostly can't, to make the world a better place.
If you get up in the morning excited about doing the work then good - go at it. Shares will make that all the better. But if you're not interested, and you seem not to be, then you will end up rather unhappy.
The shares are a difficult thing. There is a high risk they will end up being worthless and a firm and long commitment required from you. From what I hear from your question I wouldn't take them.
If I were you then I would make a clear eyed assessment of your options and move from there. If you think your consulting business will work in the current climate then go for it. Otherwise, it might pay to hang around for a while until the economy is ready for you.
All the best!
Sorry, but stock options have a habit of tanking when in a bad market and going up in a good market. Sure, it might be a good time to get in, but I think I'd counter with a half stock, half cash offer to ensure you at least see some of that promised gain. When those shares mature enough to do anything with them, will the company be in business to allow you to pick up that capital gain?
Think about the PAYCHECK? Unless you can know the company will NOT be around over the next 2 or 3 years, you might want to consider getting a paycheck until something sure-fire and lasting emerges. Who knows? Your company may be involved in work related to any stimulus package activity. Might take 18 months for it to happen for any such lucky companies. But, considering consumer low-confidence, constant layoff reports, and banks/lenders being not yet bound by law/government restrictions to LEND to individuals in exchange for government help, then it's possible that any number of companies will fold in the next 9 months.
Right now, if your company has a strong customer base (you won't know unless you know their financials, their work load, work backlog, and other things) and your company has a backlog of work, then you might want to stay put. Even if you go to another company, you'd have to drill DEEP into their past 2 years and their business partners/client base's past 2 or so years to make sure you're not hopping out of one potential mess into a real mess in the making.
Previously: "Linux... Toward the Sunrise..." Now: "Linux... Toward the-- No, now, part of Every Sunrise"
Bullshit walks.
Ask for a raise instead.
putting the 'B' in LGBTQ+
Simple: Never. Unless you're a fucking genius who is solving some major world problem, or are the type of person who is in the top 1% of your industry, it will never ever ever work out. Every start up is a long shot and because of survivor bias, you only see the ones that make it, not the 1 million that failed with the same story.
This is why some people make money with shares and others loose money with shares...
Right now is THE TIME to buy shares. Gold? Oh yeah whatever. Notice how gold just can't get steam? Want to know why? Because people are producing like crazy, and central banks are selling.
If you think we are heading towards deflationary times then cash is the thing to hold. Deflation means cash is worth more, and thus T-Bills are the thing.
What people don't realize is that because there is a deleveraging going on there is less cash.
When you are leveraged you are creating money due to the velocity of money increasing. To put it in perspective. If have a 100 USD, and I lend 90 then that person with 90 can lend it out again, say 80. Thus at this time outstanding in the entire system are loans of 190 USD, even though there are only 100 USD's. This is leverage and velocity of money.
The past leverage ratio was about 40 to 1. That means for every 1 dollar that the government prints there are about 40 forty floating around. With deleveraging to say a normal 13 to 1, 27 dollars are being taken out of the system. CREDIT CRUNCH!!!!
So what does the Fed do? Print money. They are reflating the system, even though it is contracting and deflating...
"You can't make a race horse of a pig"
"No," said Samuel, "but you can make very fast pig"
http://en.wikipedia.org/wiki/Hollywood_Accounting
The film industry made it famous, but they asren;t the only ones to do it.
So there's the term that applies to the method.
I listen to both RIAA and non-RIAA stuff if I like the music, tangential business/politics nonwithstanding.
It's a lot more complicated than most posts here are making it out to be. I run a company that specializes in incubating start-ups, and employ numerous securities and transaction lawyers. I have to deal with this on a daily basis. What I say IS NOT legal advise, but experience.
1) Programmers have an attitude that they rule the world and no task is too great. BUT they are not securities lawyers, and generally do not understand securities laws (reading the comments here is a good indication or that and a good laugh). DO NOT do this yourself. HIRE A SECURITIES OR TRANSACTION LAWYER. The 1 hour @ $550 it will cost you will yield great dividends.
2) There are a lot of issues to consider and information you need to collect. I am going to list most of it here. Collect and answer all these questions before contacting a lawyer to make the most of their time.
3) What type of company is this? S corp, LLC, C Corp? This deeply affects your tax status.
4) What is the share structure? Preferred vs. Common, Outstanding Shares, Options, Fully Diluted Equity?
5) What is the instrument of the proposed transaction? Option? Warrant? Convertible Note? Tax Issue.
6) If it is an Option, what type? Non-Qualified or ISO? Tax issue.
7) What is the valuation of the company and method of valuation? Fair Market Value, Cash Value? Tax issue.
8) What do the P&L and Balance Sheet look like? They may actually be insolvent, etc.
9) What is the vesting period if an option?
10) What rights do you have? Get the By-Laws if they exist, Charter, Shareholders Agreement, etc.
Finally some thoughts: 10% is a ridiculously high amount of the company to give away! Generally I would give a high value CEO 10% vested over 2 years at fair market value. So unless you are the sole reason the company is making money, I don't see how they can be giving you that much.
Just be sure there's no onerous provision where if you leave before the 5 years you get nothing. Standard is to have a 1 year "cliff" then fully vested in the 10% in 4 years. Some places a vesting schedule over 4 years is disallowed, I beleive.
Since you're established, push to skip the "cliff" and just get 1/12th of 1% per month for 5 years ownership.
If you're thinking of leaving, though, you're a crappy candidate for an owner, minority or otherwise. See if you can find your way to putting your heart into it so you can build something worth real money someday.
"Darling you gotta let me know...
Always tease tease tease...
Siempre - coqetiando y enganyando...
If I go there will be trouble...
An if I stay it will be double...
This indecisions bugging me..."
10% shares means nothing good
unless the profits are shared with You
at the end of the year. But with 10% You are not the one that will decide that.
You'll get a greater sense of responsability
that will be throwed to Your face every day
during the next 5 years.
5 years... seems like a prison...
If You need something new... search for something new, not old CEO tactics.
If it's only interesting and not what You want for the next years... You should go
Anyway, congrats, for now You can decide.
hmmm, 1:17am and working, these shares that I have only gives me more work...
Did I forget to say no?
Unless the company is publicly listed and traded the shares are worthless. It will only cause you grief. There are a million and one ways a majority shareholder can diddle you, and your only option for recourse will be a court case that you cannot afford. I hope the company is limited liability otherwise you get saddled with the company's debts. What happens when the 90% (controlling) shareholder trades the company insolently despite your objections: the companies limited liability is overridden and you lose everything, and its completely outside your control.
Trust me: there are no free lunches in business. She's trying to take advantage of you. For the amount of grief this arrangement will cause you, you would be far better off to put your effort into starting your own company, rather being the person who picks up the poo after someone else's elephant.
The fact that you are considering leaving the fold makes you unreliable. By staying under the promise of more compensation you are reinforcing the idea that you are not to be trusted.
All that you are going to achieve is making it easier to your boss to find your replacement and have you train him/her. You will be out of a job in less than one year. There is a reason why you are leaving after 6 years, just move on and don't look back.
Pedro
----
The Insomniac Coder
Consulting firms have relatively low acquisition prices, typically about 1.5 times annual revenue. Unless the shares have a cash stream associated with them such as dividends, or excess earnings distributions, they're just wall paper. Even then, unvested shares don't pay dividends.
If your boss wants to offer you 10% of company earnings (paid quarterly) on top of your existing compensation, then that is something--but you don't need to fool around with stock to do that, unless the company is structured as some kind of partnership. But 10% ownership of a consulting operation, where its human capital would likely scatter post-acquisition, doesn't thrill me.
Remain calm! All is well!
Has anyone else noticed that this thread has an extremely high ratio of replies marked "informative" or "insightful". At least, it's got the highest ratio I've ever seen.
OK, mod me "off-topic" now. /frank
And the worms ate into his brain.
As long as you get the revenue sharing and such figured out, as is mentioned above, keep in mind we're heading deep into a recession, and jobs, alone, are valuable. Basically a 5-year guarantee of a job is kind of nice.
Just my two cents.
(sorry for that)
but honestly, shares are a fool's game. I know of no one, personally, who ever got rich from shares (I live in silicon valley and have been since the mid 90's). I've moved place to place on the promise of shares.
you know, JUST when you are about to vest, some nasty things happen. seen it over and over again.
NEVER TRUST PROMISES OF SHARES.
got that?
"in god we trust. all others PAY CASH"
got that?
good.
--
"It is now safe to switch off your computer."
Im actually working at a startup tech support company right now. Im having fun working part-time trying to write a few of my own apps and working on a book, but my boss keeps asking me to come back on full time. His incentives are to a) make me a partner b)profit sharing - aka - 10% of every quarter of the companies profits as a quarterly bonus(this isnt real big right now, but were growing so fast, I could see it get pretty high) c)buy me whatever new laptop I want for work. The crux is that I havent finished my degree (international business) yet, and am torn between the need for education, the debt I'm already in, and the potential security and potential profits for me. So I would want to work on my certs (CISSP, CCNP ect), but for me its a question of A)pabout it, but just thought I'd let anyone else know another similarart-time work there till I get my degree and get passed up if it goes sky-high, but safe we go under or B) get certs and start saving for retirment early with a small chance of the company going under (as with any startup) Im still thinking situation.
"It's ok, I'm completely secure as long as my iron is off"
One gotcha, for example: can the current owners sell their shares to an acquirer and leave you un-cashed out? They can unless you've got an agreement requiring your shares to be included in a liquidity event. Even then I've seen someone try to violate such an agreement.
This happened when a company I worked for was acquired. The executive team had unvested options that vested immediately, while the rest of us had to keep waiting for our options to vest. Naturally, this was to keep the employees from leaving, but felt a bit like the execs cashed out when they had the chance.
Fortunately, it was a publicly traded company, so I could got my money later.
A)part-time work there till I get my degree and get passed up if it goes sky-high, but safe we go under or B) get certs and start saving for retirment early with a small chance of the company going under (as with any startup) Im still about it, but just thought I'd let anyone else know another similar thinking situation.
"It's ok, I'm completely secure as long as my iron is off"
I can't speak to consulting, but being granted equity is fairly common in tech. Some initial points:
* Four years is much more common than five.
* Make sure you understand the vesting schedule. You could suggest a 1 year cliff, followed by monthly after that. If they push to yearly, compromise at quarterly.
Next, as it's a consulting business, ask what happens to profits. Are they distributed to the owners? (I.e., you?) If so, how often & are the books validated by an outside firm? How would the payout of unvested equity work? E.g., say they make $1,000 profit in the first year. Do you get $100 (10%), $25 (10% / 4 year vesting), or $0 (nothing was vested).
Then you need some sense of what that equity is worth. This is where understanding the above will be key, along with looking at past performance and some forecasting of future profit.
If it looks like your salary + the equity would be significantly above what you would make as a salaryman elsewhere, you should consider.
One thing to keep in mind, is that once you sign the deal, they may be less welling to increase your base compensation (e.g., annual salary), thinking that the equity may be golden handcuffs of a sort.
Either way, good luck with your decision! As stressful as it is, this is a Good Problem to have. :)
-Bill
SlashSig Karma: Excellent (mostly affected by moderatio
> It looks like the CEO would prefer to see me stay, as she is offering me ten percent of shares in the company in exchange for five additional years of my services
Your boss doesn't sound very bright. She's offering you a 10% share, in perpetuity, for just five years service? I have a friend who had a company who made a similar offer to keep a "valued employee", and when he eventually left to tour the world he expected the founders to bust their ass so he could collect dividend payments. He was a drain on the company. Another case: Anita Roddick, when she wanted to open the second body shop store, rather than borrow from the bank took a small capital-only injection from a friend; 44,000 pounds. She was saddled that for the entire existence of the company, and when she eventually sold that investment was worth something like 250,000,000 pounds. Great return for him, but in hindsight she should have borrowed.
Businesses should be very careful handing out shares, and that your boss is willing to go to such lengths to keep you doesn't reflect well on her. No employee is that important to a business. Yeah, I know you think you're hot, and maybe you are, but there are many, many hot people out there and rather than keep you an increasingly expensive employee, she should shake your hand, wish you well and find someone new.
Personal advice: Don't take it. If you stay, it'll be for money. That's not a bad thing given the current economic crisis, but you'll be in prison for five years and regret your decision. It's not a bad chance to take a chunk of your boss' business of course, but be warned: What my friend did with his leach shareholder? He shut down the company and started a new one, and advised me after that never to give away equity.
Find out what kind of shares these are: common shares, or preferred? In other words, do you get some kind of voting rights? And if they do, does it matter? It doesn't, if the CEO (or any single person/entity) owns more than 50% of the voting stock.
Are you really getting shares? It sounds like there might be a 5-year vesting schedule, so really you're getting restricted stock units: no voting rights at all until they vest. So you'd have nothing for at least a year.
More importantly, though: you say you're ready for something new. This sounds like you're getting 5 more years of the same thing. If you didn't explain yourself to your CEO, shame on you, but if you did, this means your CEO isn't listening to what you're saying, and you've been there almost 6 years. That's a good reason to get out just by itself.
This one's simple, shares in a consulting services company aren't worth squat. IF the company is ever bought out it will likely be bought for 1x revenues, unlike a product company which can sell for 5x-10x revenues. IPOs are about raising capital to grow companies (not making people rich as you might think). Service companies don't require large amounts of upfront capital so there's generally no reason to do an IPO.
IF for some unlikely reason it is bought out, the company doing the buying is likely to require you stick around for a while as part of the agreement if you're at all responsible for the company making a profit.
It's a bad deal dude on so many levels, run away fast.
If [you do] there will be trouble An' if [you don't] it will be double
insight through the mind
I think if you leave there will be trouble, but if you stay it will be double.
Just be very careful that the 10% is spelled out clearly. I took a similar deal about 10 years ago, stuck around the company was sold off about 3 years later but only after issuing tons more stock, in the end my 10% stake ended up being about a $10,000 buyout while the company was sold for around $10,000,000. It was a good lesson learned but a harsh one. 9 times out of 10 unless your buddies with the boss a "small company on the rise" will generally find a way to screw over the little people that helped get it on the map.
No, seriously get a good lawyer. Or, start "consulting."
You would be very well positioned to be offered 10% when a company is first created. I have a hard time understanding how there is 10% available to be given out after at least 6 years in business, assuming I follow you. Find out what the problem is. I'm thinking the company is going under. Ask to see their financial info.
One that understands these types of deals or you will risk getting screwed.
As for valuation, a traditional consulting firm; where most of the revenue is from consultants working with clients and not from sales of things like software, have a multiple of around 1. So you can figure out the expected value of your shares by multiplying the revenue projected for year 5 times 1 times your percentage. Of course, the 5 year projection is probably a best case so that will most likely represent the upper limit. Lower limit is 0.
I'm a consultant - I convert gibberish into cash-flow.
* "I am afraid of executives, I don't understand what they do so I assume they are out to screw me." I'll just ignore this one.
* "Get legal advice when dealing with legal documents." This is terribly good advice, you should do so.
* "10% of something big is a lot, 10% of something tiny is not. And stock that can't be sold isn't much use." All true. But it (accepting partial compensation in restricted stock) is certainly a risk that many of us accept, and one which has worked out well (sometimes very well) for many, many people.
The real question to ask yourself, in my opinion, is "do I like coming to work here each day?" If the answer is "no" then leave. If you are worth 10% of your current company, you are worth a comparable amount to someone else -- either in consulting fees or a position elsewhere with equity.
Life is too short to do things that suck. And money is not all that important, as long as you have enough to cover the basics.
It's fine to accept shares as a bonus, you never know, they might be worth something some day. But if the rest of the compensation plan is not worth it, do not let the shares be the deciding factor. Conside them to have zero value.
The majority of companies (and their associated stock) will not be major winners. That's what allows a few companies to strike it rich. By taking stock in one company, rather than spreading around your investments, you're on the losing side of the odds no matter how bright, or dedicated the team.
Bottom line: where you're at in your life, is the risk that the shares could end up = $0 something you're comfortable with?
http://www.vontoo.com/
I have been in this situation a few times and it never works out. YOU ALREADY HAVE STATED THAT YOU DO NOT WANT TO WORK THERE. The agreement that you are about to sign, even if written by the best attorney that money can buy, will not be able to set the work rules. What happens if the schedule is such that you are now needed in a "special" project that requires you to work under the most limited time requirements that you have ever heard of? How about being assigned the most "interesting" tasks, in COBOL? Or you must manage the group that needs your "unique" leadership values?
If you are willing to work 28 hours a day, and move backwards ten years and do the work of the group, otherwise you are marked as NOT DELIVERING on your promise, stick around.
Ask yourself this question: If you are so valuable as to be worth 10% of the company, why did the owner wait until you were ready to walk? I have been at all levels, and when management believes that someone is worth it, they quickly make sure that you are tied in, way before you are ready to walk. You are valuable, but you are valuable because you have something that management feels it needs now, not long term.
Become a consultant, up your rate by 25%. And make sure that you a second job lined up, as you will quickly find out how "valuable" you are. IF I am wrong, you just got a nice raise.
I once worked for a technology company that offered shared in lieu of bonuses. I figure after taxes, accepting them cost me $10,000 or so. Unless they essentially let you write your own terms and conditions of the stock transfer, you can't help but lose. And maybe even if they do.
money talks. NEVER take anything in leiu of cash. maybe pre-dot-com that worked, but in the IT field now, it does not. I know, I've been burned by it more than once, which is why I am posting this as anonymous coward, because i'm embarrassed that I fell for it more than once.
Seriously, that's what you have to ask yourself. As a business owner myself, I would never offer "stock" unless it was worthless. The value of the stock is ultimately determined by how the company is set up. Is it an LLC? A Corp? That's what you really have to look at.
Whoever said that stock wasn't worth anything until you get acquired doesn't know what they are talking about. At the end of the day "stock" should entitle you to some sort of revenue sharing. Find out what past distributions to investors have been and then figure out what class investor you will be. And read the find print. A 35% share sounds great until you find out you are a class C investor and get paid after a great many other people do.
Bottom Line: If the stock doesn't pay out on a annual or yearly basis for a significant amount then ask for cash. If they don't pay, walk.
I was offered actually a 50% share in my company. However I turned it down for the following reasons, This may help you understand some issues.
I was offered to take the place of a partner who wanted to be retired.
However there were some issues.
1. The company acquired some debt (so we had money to readjust to post tech bubble) which I would have been responsible for, while it is smaller then when it was but if I were to become a partner then I would inherent the debt.
2. The companies futures are suspect. They were doing good at the time however the long term future of its business model doesn't look promising.
3. Even with a 50% share With the other guy with the 50% share, being more Sr. Still means his views will break the tie.
4. To attempt to improve its futures there was an attempt to merge with an other company. However after that merger my 50% share would be closer 25% or lower.
5. I didn't fully trust the partner. (this is a big deal)
6. Having to spend all nights worrying about work.
7. Having to not get paychecks if business is slow.
8. Balancing ethics with profit.
9. Having to do paper work.
10. Needs to be more aggressive and help with marketing
Having going threw the self realization of what is going on made me realize I will be more happy as an uppermiddle manger then the owner.
If something is so important that you feel the need to post it on the internet... It probably isn't that important.
When To Consider Taking Shares In an IT Company ?
March 9, 2000. You missed it.
Step 1 - Get their offer in writing, whatever it is...This is obvious, I know, but when you have it in writing then their position is much clearer. Step 2 - Seek BOTH legal and financial (i.e. accounting) advice to help you understand what it is they are actually offering you and where you stand both legally and financially. These professional service firms should/will interpret the meaning of their offer in language you understand...you may need to clarify jargon etc your unfamiliar with so take a friend who may be experienced in these matters too. Step 3. If you are satisfied/not satisfied with their offer, you are better positioned to make an informed DECISION and/or counter-offer! Note: In some countries, being offered an equity stake in a business means that you are entitled to a proportional share in the company's dividend i.e. distributable profit (at years end). Also their TYPE of shares are VERY important. You may want to ensure you have VOTING power with the shares etc. There are different types of shares and you can get shafted if you accept an offer of equity having little or no decision making rights attached. There's a lot of interesting perspectives/experiences on here (although I haven't read all of them), but really, you need to cut through the masses of information and find out (a) what exactly their offering (b) will it leave you better/worse off under various potential outcomes (c) does it match your long term goals. Just my 2 cents..
IANAL- But if it were me, I'd look up these terms "Anti-Dilution" , "Drag-Along Clause" and "liquidity event". Also, while "profits" are nice, its very easy to prevent a company from making a profit, by paying board members etc nice hefty salaries. Good Luck.
...about your company.
Is is privately held by a member of the company itself?
Is it funded by a group of investors?
Is there a board?
Is there an advisory board?
Is this a grant offer or are they options? (This can be very important from a tax liability point of view)
What does the company value itself at? (This is germane to the above)
What types of stock does your company issue? (Not all stock is the same)
Are there anti-dilution clauses? (This is VERY important and if not, you can use this to negotiate for more shares)
Each case is individual, but in the end it really comes down to two things:
(1)Do you believe that the company is viable over the long term?
(2)Do you believe that your current management will (a)not screw you and (b)have the authority in the company to ensure neither they nor you get screwed.
What you do NOT want to happen is that you commit to something that is a hard tangible reality (5 years of work) for something that is not in any way a hard tangible reality (shares w/o anti-dilution) based upon the people working there now and then in 6 months your board removes your President or CEO and replaces them with some a**hat who could care less who you are.
Loading...
Shares in a consulting group are bull. Consultants have no assets, make no products, and have little in the way of intellectual property. In other words, the stock is WORTHLESS. Consultants do work to benefit someone else's bottom line. This company will not be selling. EVER. So you will never see any windfall from this deal. If you were to get shares, your only hope would be to work there long enough to dupe some schmuck into buying his way in as a partner. Then, you leave. Remember this if you stick around.
Insist on profit sharing. That is tangible, and performance oriented. Refuse any time limits.
~Sticky
Don't do it. The company will fold. Go consulting. Or at least as for 25%
As many posters have indicated, there are lots
of traps here. And "get a lawyer" recommendations
are right as far as they go (it sometimes helps things) but IMO lawyers are of very very
small value in some cases.
Trying to find one (or a few) short questions to ... ..."
avoid the traps:
"Ok, if I vest fully and have 10%, how much
will you have (as CEO or founder?) at that time?"
Answer: I will have X%. [Don't follow this path,
it won't happen.]
Answer: I can't tell you that.
"Ok, fine, but it's less than 90%, right?"
Answer: No - - - FAIL!!! Look for new job, do not pass go.
Answer: Yes, it will be under 90%
"Ok, let's assume 90%. Is it fair to assume
that whatever happens now, be it (a) salaries,
(b) bonuses, (c) dividends, (d) price upon
aquisition, (e) 'carve-outs' associated
with acquisition or liquidatno, or (f) any other proceeds associated with the business, from now until forever assuming I vest fully, I will get at least 1/9 as much as you out of this business going forward?
Answer: "No, under no circumstances will you get less than 1/9 of what I get if you vest fully". [This case not worth continuing, it won't happen.]
Answer: "Yes, unlikely [weasal words go here] but in some cases
You: Reasonable enough. Spell out theses cases. I'm willing to commit myself to this co mpany so long as I get 1/N (for N = 9) of what _you_ get
out of this company, and if there are any exceptions you need to spell this out. If your
10% is meant sincerely, this shouldn't be a problem".
"...!!?!#*$#)*!"
You: Search for new job.
-ajg
How does "...!!?!#*$#)*!" actually sound? :-) "Good points. Makes sense to me! Talk to our lawyers to work out the details! Lawyers: "No, this isn't _standard_,
This depends on how confident you've been or how
pathetic your boss is. Here are the two possibilities:
You weak or boss pathetic. "I can't make
any such promises I think; please talk to
our lawyers. Lawyers: "No, this isn't _standard_,
here's the _standard_ equity agreement. Everyone
knows this is _standard_. You just don't understand, but there's no way we can deviate form the _standard_ for complicate legal reasons
you couldn't begin to appreciate"
You strong or boss confident: This goes
quite differently
here's the _standard_ equity agreement. Everyone
knows this is _standard_. You just don't understand, but there's no way we can deviate form the _standard_ for complicate legal reasons
you couldn't begin to appreciate"
Boss (and if you get this far, you are
a 0.01% outlier as far as strenght and integrity
goes, because the lawyers are _good_): Sorry,
this is what the lawyers say, I can't change it.
But don't worry, it's totally _standard_.
And this is partly why the entire dot-com industry collapsed.
I was at a company run by the likes of you. What I say is not legal advice, but experience.
1) Programmers have an attitude that they rule the world and no task is too great. BUT they are not securities lawyers, and generally do not understand securities laws (reading the comments here is a good indication or that and a good laugh). DO NOT do this yourself. HIRE A SECURITIES OR TRANSACTION LAWYER. The 1 hour @ $550 it will cost you will yield great dividends.
No... The financial/sales/marketing/CEO have an attitude that they rule the world and no task is too great. "Sure, our programming team can add that feature in four weeks." Generally, they have no understanding of programming requirements nor the level of education or skill required to be competent at the task.
Though I agree with you... 10% is ridiculously high... for both a programmer and for a CEO/board member.
I will never live for sake of another man, nor ask another man to live for mine.
You say you were offered stock if you stay 5 years. Just to be clear, that is a bonus, and not your salary, right? I wouldn't take stock for salary (especially in this economy), but if you're offered a wage that you consider fair, plus stock as an incentive to stay, then it might not be that bad.
But if they are trying to pay you less than what you are worth, and offering stock in exchange, it would likely be a terrible idea to take them up on the offer.
Damn_registrars has no butt-hole. Damn_registrars has no use for a butt-hole.
Figure out what you're forgoing by taking the shares. Then ask yourself whether you'd pay that much for them. This is the fundamental principle.
To help figure out what the shares are actually worth, you need to perform a discounted cash flow analysis on them. What dividends do they pay, how likely are those dividends to be maintained or increased, and how risky do you consider the investment? A DCF can assign a present value to the stream of payments you expect to receive based on your assessment of price inflation and the risk of the investment.
Specific questions to ask:
1. What's the vesting schedule? Others have touched on this. It is the single most important factor to consider. Half now and 1/120th per month for 60 months is a lot different than a bulk grant that vests in 2014.
2. Can you vote and/or receive dividends on unvested shares? Control matters, and dividends matter even more. In many states, you can be fires without cause at any time. That includes one day before your shares vest.
3. What kind of shares are they? I would not accept common shares in this situation; I would insist on preferred shares. Preferred shareholders are paid dividends first and if the company is liquidated they receive the proceeds first (though a consulting company isn't likely to have much in the way of assets).
4. What is the company's existing and potential future capital structure? If the company has a great deal of debt, you aren't likely to receive much money. If your approval is not required to issue more shares, especially more preferred shares (possibly senior to your own) then you may find your stake nearly worthless when future employees or investors are issued new shares.
5. What does the company's balance sheet look like? Most small companies have little or no assets. This means they should also have no debt. But in either case, be aware that you are buying shares that have little or no liquidation value. If the company's operating performance suffers, it is likely to go bankrupt and your shares will be worthless.
6. What do the recent income and expense reports look like? What do the current bookings look like? You need to know exactly who the customers are, how diverse they are, and what their future commitments are.
7. Do you trust management? Are they owners? Do they have control?
8. Will you get a seat on the board? If so, who else is on the board? Do you trust them? Are any of them independent?
9. Last, and deliberately least because we are considering an investment here, do you like the work? Your coworkers? Is this an environment in which you want to spend your time? This helps you figure out what you're giving up by staying; you might also earn a higher salary elsewhere or enjoy other perks that you must value against the compensation you would receive by staying.
Quite frankly, as a dotcom bust veteran, I don't value equity very highly. This is especially true of companies with little in the way of tangible assets and even more true if it's common equity. This situation would have to be almost perfect for me to even consider it; i.e., the answers to almost all of the above questions would need to be favourable.
Let's ask one more question, of ourselves, that might help lay the issue to rest:
10. Why wasn't I inquiring about buying shares in this company before the offer was made?
I assume from your description that the company isn't likely to go public any time soon, and that it is probably not likely to be acquired. (You'll want the agreement to cover those circumstances, but I don't think that's your major focus.) So ignore everyone above talking about going public, options, etc.
I'll bet that the company has a half-dozen to a dozen employees, and basically the owner / CEO is offering you a share of the company that they think you've earned over the last 6 years. With a half-dozen employees, figure his profits go down by 20% if you leave. (Until / unless he can successfully replace you.) And if you're good, and perhaps competing with them, it might hurt even more.
So basically, this sounds to me like you're becoming a minor partner in the firm. That's not a bad deal in theory. You get to be the owner of a consulting firm without having to deal with starting it from scratch, finding accountants, setting up accounts receivable, payroll, etc.
So follow up with a lawyer and a tax accountant to verify the deal is legit. And ask for company financials to get an idea of what 10% of the company will be worth on an ongoing basis. (i.e. how much would dividend you'd have been paid the last 2 or 3 years.)
But if you like the work, go for it!
I think you misunderstood the parent. Programmers generally have a personality that is characterized by their belief that because they can write code and others can't (e.g. a securities lawyer) they can do any other job function as well or better than that person. This is just an observation after dealing with programmers for most of my career. There are always acceptions, but most often than not, they fit in a spectrum of this personality.
FYI: This process is called Due Dillegence. Something everyone should do on any company or person they plan on doing business with.
I was part of an Internet startup, me and another guy. He was the idea man, I was the coder. I got 10% of the company. Later on, that 10% changed to 1% since I had never gotten it in writing. But I finally got a paycheck and went to work full time. Later on, that 1% was worthless as the vision guy and somebody else couldn't maintain a vision for more than 10 seconds and the company went under with no product anyone wanted to buy.
...
... negotiate the salary you want. Take a stake in the company if you can get it, but don't live your life expecting it to ever be worth anything.
Second example
I was part of an Internet startup, but this time there were actual investors and a true vision. I was given options and a paycheck this time from day one. Worked for three years and learned a lot of stuff about private companies and investors and boards and stock options in a non-public company and building systems from scratch. After three years and $50M, the company went bankrupt, one of the investors scooped it up for the debt, the options became worthless, and I moved on. The product is still being used today, but I didn't get anything other than a paycheck.
So
I rarely read replies, it's my opinion and if you thought about your opinion a little more, I'm OK with that.
I can tell you from experience getting shares in a private company that might go public in the future (unlikely for a small consulting outfit) or get bought out (more likely if you have a successful outfit that specializes in something rare) is worthless.
What you want is cash. Upfront.
Basically I would recommend you go for some sort of promotion in title and pay (ie. from Consultant to Senior Consultant) and/or a written bonus plan, something like "For the next 5 years, an additional $5000 bonus will be paid on a yearly basis". Ultimately though making a commitment of 5 years is employment suicide. You really will broaden your horizons if you change your point of view either from a change in venue or change in role. If you choose to stay, stay because they made it worthwhile, not because they locked you in. Hell, even the phone company only makes you sign a 2 year cell phone contract.
A slip of the foot you may soon recover, but a slip of the tongue you may never get over. -Benjamin Franklin
My first reaction is to leave immediately. If you are so valuable, they should have offered you stock options on day one. Second, the chances that your shares will be worth anything is almost nil. Small companies are not liquid and are unlikely to be liquid any time in the future. If you are planning on staying, counter offer with the following: 1) the CEO makes you a partner in the company with a 10% stake in the company. 2) the company pays profit sharing/bonuses at the end of each year. Treat it like a law firm and you are a lawyer that just made partner. Finally, have another job in the bag before you leave. Right now is not a good time to be unemployed.
We never reached an agreement, so I eventually resigned and never got the original 10% - it wasn't worth the legal effort to fight for. But throughout the last 2 years, because the negotiation had dragged out so badly, I had accepted a revenue-share of 5% (on gross, not profit). Obviously it was never intended for this 5% to actually leave the business as cash, it was meant to be "converted" as we travelled from 10 to 20% equity. But as we never resolved the issue, I took it monthly as cash. This certainly made it worthwhile (overall) for me to hang around, but it can only have hurt their own position.
Fast-forward 2 years and they were bought by a public company in a 50% cash, 50% shares deal. I thought the price (based on our revenue at the time) was crazy, and could only be motivated by confidence the parent company's shares were on their way up, and/or the opportunity to leverage themselves into well-paid upper management slots in the parent company.
Sure enough, the shares of the parent gradually headed to zero over the next year or so, making them next to worthless.
In the wash-up, the 10% I "lost" by walking away ended up being worth very little. Obviously I'm somewhat relieved they didn't end up selling for a squillion dollars in any real currency.
There's also the problem of whether or not Mr 10% would actually get what he's owed, in a private company, when Mr 90% sells up.
I've been gainfully self-employed for the 6 years since. I can't recommend 100% equity highly enough, but will certainly tackle this equity problem as I grow my own business and take other people onboard. Revenue-sharing deals will definitely be based on profit though, not gross.
you are lame alain. please go away.
Censorship is obscene. Patriotism is bigotry. Faith is a vice. Slashdot 2.0 sucks.
...un.
Don't walk.
You're not happy at the job and are looking to move on to new challenges. It doesn't sound like these challenges you're looking for include owner part of an IT company--especially you since you wouldn't be getting, you know, any of the benefits of ownership. You wouldn't get an additional revenue stream. You wouldn't get any say over the direction the company takes. You wouldn't get to boss people around.
On top of continuing in a job you are ready to leave, every one around you would know you are ready to leave. You really think you're going to figure into your boss's long term plans when he knows mentally you're already gone?
And offices gossip. Expect this to get out. Maybe not exact figures, but certainly the generalities. Any chance the loyal employee who has been busting his hump for this little engine since day 1 might feel a little bitter finding out the traitor who was ready to leave gets rewarded for betraying the company?
You'll still be in a job you don't like. You won't be making any more money. Your career advancement will halt. Your coworkers will resent you.
All for the long shot chance that at some point in some unknown future you might reap some unspecified benefit.
Oh, btw, where is this 10% coming from? Is the owner with 60% ownership giving you 10% of his stake, leaving him with 50%?
I'm guessing they're pulling this 10% out of thin air, devaluing all the other owners. The 100% they had will now only be worth 90%.
And I'm guessing the next hot shot who tries to bolt will get the same offer. And his 10% will come out of your share, which will be worth only 9%.
Don't burn bridges. Say "thank you for the generous offer."
And then run and do not look back.
Your company management wants you to be Ambitious while they are Opportunistic in your case.
I suppose you may want to know the Time Value of Money.
I'd like to buy homeland for our 10 million people. http://twitter.com/mahadiga
The number one question you must ask yourself whenever making an investment decision is ... what's your exit strategy?
So, you own these shares in the company... so what? Do they plan on becoming publicly traded one day, and is that just a dream, or can it actually happen? When you take the shares what terms are you taking the shares under? Do you have a right to sell to whoever you want once they are yours, or do you have to sell to insiders at a set price before you can sell to outsiders. Having an asset that is worth money, but has no market (as stock does when not publicaly traded on an exchange), is not a great thing, because there's no way out. If you question this, just ask the banks holding mortgages which are technically worth $0 right now... even though they're receiving income every month by virtue of possessing the asset. Put simply, you need to ask yourself... who exactly is going to want to buy this stock one day?
Also very important... Do you know how to read a financial statement? If so, look at the balance sheet of the company. The balance sheet shows the assets of the company... for illustration, if the company has a total of 1000 shares, and $1000 in the bank, and you get 10%, you essentially own $100 after you receive the shares. If they have no real assets or cash, then take that into account. One thing to note: there is a line-item on balance sheets called "goodwill", if you've got a lot of that, it is not a good thing, because goodwill has no real tangible value and is basically BS fluff 99.99% of the time. Look it up for more details.
If you can read this... 01110101 01110010 00100000 01100001 00100000 01100111 01100101 01100101 01101011
Are you rich? Can you live off your fortune alone? If not, don't take shares rather than salary, bonus or some other kind of cold hard cash. It's that simple really.
We suffer more in our imagination than in reality. - Seneca
I could swear it is you!
--- I am known for the ones who want to find me on the net. Is that a privacy risk or a privilege? One might wonder..
Three weeks after you receive your 10%, the board of directors (of which you won't be one, even with your shares), votes to recapitalize, and effectively reduces your 10% to 1% (or even less) with the stroke of a pen.
You gonna play the sucker all your life ? Negotiate real money, if they don't pay, you're not indespensible; and it's time to seek another position.
Actually, this would rather be the result of dealing with computer illiterates all day long.
It has little to do with the ability to code and a lot to do with being an expert in a field where you can easily get narrowed vision.
"If they're offering you a stake in the company, it means they don't know enough about their business to become successful. If they knew what they were doing, they could just hire someone else at a low hourly wage and give them step-by-step instructions or specifications to do the job instead of offering you a chunk of the company. You shouldn't make a deal with people who know so little about their own business or are so dependent/desperate for your help."
I'd be genuinely surprised at any actual programmer who thought this way. I'd expect the exact opposite, in fact. Even the dumbest programmer knows you don't call a Sort() routine to accomplish a Copy(). Why would you call a programmer to accomplish a legal maneuver?
"A great democracy must be progressive or it will soon cease to be a great democracy." --Theodore Roosevelt
If a lawyer thought there was a really strong case, wouldn't you just tell them "take as much as you think is fair of the final judgement as long as I end up with more than 100k" $100,001 is better than $100k. If the lawyers don't accept this, they're bullshitting about the strong case. However if they're legally not allowed to do this. Think of it in the following way. This is a typical "bird in hand" dilemma easily solved by logic. Is the 2mil - 50k fees branch multiplied by the likelihood of payout higher than 100k? If yes, file suit. If not, take the 100k.
Read what I mean, not what I wrote.
yeah - so the obvious answer would be to stay, wouldn't it?
This is just an observation after dealing with programmers for most of my career.
Let me guess, your career involves entering numbers into spreadsheets and really important meetings.
It's easier to resent someone if they have a point.
There never is one, but right now is certainly NOT a good time to 'go it alone'.
As for 10%, it's worthless. Take cash instead.
Actually my career involves providing people (plenty of programmers) with the tools, experience and resources necessary to build a legally and finacially sound business. I give them access to a world class board, capital, knowledge, experience and guidance to build their own business idea. I am very hands on and can setup, manage, admin, and develop infrastructure by myself if necessary. But I am wise enough to know that I can do more with help. Its the principle of independance vs. interdependance. The issue I identified relates to a general attitude of entitlement and arrogance that goes with a certain personality. It just happens that I notice this personality has been more prevelant in a certain group of professional. I have trashed many deals because the expectations of the person were not reasonable. They just knew better. PS> Doctors are much worse.
There is no automatic "yeah this is great" or "nah, this is crap" answer. All those advising one way or another directly are jumping the gun like crazy.
Your big question 'should I stay or should I go now?' only has one answer: 'it depends'.
I've been in similar situations before and in some cases taken shares, in others preferred to take more wages, in others left.
From what you state, the company is "a small IT consulting firm" and you are "a key resource". I think the important information that you're telling us is that the company is SMALL (5-10 people tops?) and that you are one of the key guys.
If taking 10% is equivalent to now considering you as a partner with a say, then now you have "clout" and will be regarded maybe in a different way.
Obviously you want to place a "value" on these shares. Does the company make a profit each year that they turn around and share with the partners? If so, how much has that been... If instead, all they do is adjust top salaries to what company makes (as happens with a lot of companies), then no dividends are paid out. In this case, does your also get adjuested? At what level? If you are made an equal partner on consideration (even if not on shares), will your salary now be on equal par to the others?. Being a "small company" probably means that it will stay privately owned, and never be sold, as such, your 10% probably won't ever have a decent "sale" value, so that part will not be worth much (if anything), unless the company has a declared monetary value, and thus the 10% can actually be redeemed for something... but for that you'd want guarantees in writing that it would be possible to sell at some point in the future.
A downside to "being a partner" is also that often now your guarantee of salary goes to the pits. I'll explain. As a "grunt" worker, you expect your salary as the company isn't yours. The owners generally (if they care at all about their employees), will first pay employee salaries before paying themselves. As an "owner", if hard times hit, you may find yourself with a salary that although on paper your still getting it, in reality you get what is left over... (anything missing considered to be "owed" to you by company, to be paid when [if?] things improve... after all, it "doesn't matter as it's your company after all!!!"].
You also mention that "I was ready to quit for consulting". So, you want to quit this small consulting company and go set up one yourself of your own? Well, if you are one of the key resources, maybe you are better off with your own company than having 10% of one shared with another 90%...
As mentioned above, it all depends... Conditions being special to your particular company, what the outlook is, what consideration you get for your shares, how that affects salary, if the value of shares is actually tangible down the road, etc. Impossible to tell without knowing more, but at least those are the things you should be factoring in to see if you want it or not.
Oh, and of course, the first question of all "are you comfortable with the company?" If not, then your choice is clear in any case.
$0.02
A friend is being offered a portion of the revenues / profits for a new offshoot product by a company. The main line of products is doing well and the new product fulfills an additional requirement of the existing customers. The assignment is to take full responsibility at technical level of this product. What kind of percetange would you ask for in this case? What if it is revenues? Profits?
There is always somebody deriding a poster that dares to ask a question in /. , like if we were all a bunch of idiots with no idea what we are talking about.
I have seen several replays on this thread and I think the original poster is getting invaluable advice he would have not got otherwise.
I think it is one of the wisest think to do to ask your peers who surely have faced similar experiences, and maybe, just maybe, the poster may not be looking only for the legal aspects of the choices available to him.
IANAL but write like a drunk one.
and how much you value material wealth over job satisfaction.
From the way you framed your question, it appears that material wealth scores pretty high on the scale for you. It goes without saying that you are selfish ( like most of us ) otherwise you wouldn't be asking what was best for you without considering how your choice would affect others.
There are always acceptions
I hope you don't have a career in editing. ;)
You seem to forget that a programmer that has to design and implement a system has to know every process the employees and managers use in detail. So, yes, often times a programmer *does* know more about the company's functioning than managers and other personnel combined. Is this arrogant? No, it's just the truth.
There are people out there that pretty much can call their price, even more so in the current conditions.
One important skill one should have is to know if you are one of those people or not and then act accordingly.
IANAL but write like a drunk one.
10% is a lot. The people in this thread seem ignorant of financial matters. You take the shares and stay. If you like the job, this is an easy decision.
Most small companies die far before then. So unless you can prove to yourself that the company will be alive and thriving in 5 years, she's offering you a bag of shite. And she can fire you at any time in that 5 years. And 5 years is a _long_ chunk of lifetime to promise to anyone. Where otherwise have you ever promised so much time to a single endeavor? Unless you've done prison time, the only examples you should be able to retrieve are grade school and early family life.
P.T. Barnum said "There's a sucker born every minute." Don't be a sucker. Quit and do what you want.
Your consultancy won't go public, absent another dot-com boom. Recent history is littered with consultancies (Scient, Viant, Sapient, MarchFirst, Lante, iXL, Razorfish, Proxicom, Organic, etc.) who all went public then tanked (or at least, seriously underperformed the market) when the bubble burst.
Why not? General IT consultancies are a poor investment - they tend to have little in the way of proprietary IP or hard assets, so they're only worth as much as their employee/client base. Even that's fickle - if new management/owners make changes that alienate either of those constituencies, that value can evaporate overnight.
There's the possibility you could get bought, but you'd have to be in a high-value product/client space for this to make much sense. It also depends on the attitudes of majority owners, who are probably far too accustomed to running an independent business to want to sell out to someone else, even in response to offers you might consider very good.
Should you get bought, it's likely the new owners will make senior management (including you?) sign agreements to stay on and/or not flip their shares for a set period. You already sound like you're itching to leave - are you sure you'd want to stay on longer than five years?
You won't be in much position to see any return on your shares absent a sale or public offering - foregoing warnings about dilution, Hollywood accounting, different share classes etc. all apply. (Possible out: google "Rule 144" regarding sale of closely held stock after two years. Good luck finding a buyer though.)
My opinion: walk; your sanity is worth far more than the meager chance of a payout.
Disclaimer: used to work for an IT consultancy; spent good money for shares of closely-held stock, on which I'm now unlikely to see any return. Now an independent contractor; too happy to be bitter.
I am younger, so this may be a more naive view of things, but i agree mostly with what people have been saying.
accepting shares of a company is dangerous territory. if i was offered 10% of my current company (small business) in order to stay for extra time, i would decline. as people have said, it is incredibly hard to know if your shares will be worth something, and even then, cashing in on them will be no easy task.
if you are seriously thinking about staying, get a 25-50% pay increase, ask for 5% in shares (just in case), and accept no less than 30 days a year of vacation time.
or perhaps you can do even better, and as icing on the cake, make them change their work environment that is something less miserable for you. there is something that is making your job miserable. use your power/influence in your current position to change it. get them to turn it into a job you would love.
Sadly, as a member of a "small" shop, and having been there for six years, his career advancement halted approximately three years ago, give or take.
In all my years in this business I have yet to see someone in a position with a company (consultancy or otherwise) for more than approximately three years benefit more from staying beyond that point than they would from moving on and gaining varied experience elsewhere. Not that I am advocating job-hopping, of course. After a certain amount of time living within the world of one organization, there is only so much more growing one can do there.
Not disagreeing with your post, of course. ;) I agree entirely. I just thought I'd point out yet another reason for the submitter to run and not look back.
the owner thinks, in very basic terms you staying in the company for another 5 years is worth 10% of the company.
Doesn't say much about the company if they vest so much in one person, unless you are the premier sales consultant/technical arhcitect who is ultimately ensuring new money is pouring into the business.
No one in any company should be worth 10%, a good company is based upon ideas, procedures and customers. not employees who are just resources.
You should be able to leave any time you want and the company should still be as successful if it was managed properly. i.e. good training, proper documentation and satisfied clients who don't rely on a resource to continue being clients.
the fact that you are getting this offer is a strong sign that you are in a good negotiating position
In my experience, at least in high tech, in a really successful or promising company, you won't get a 10% stake unless you are a founder, key executive, or significant funder. So if you're getting this offer, it's not a good sign: in fact, it's a sign that your ownership stake would have a good chance of being worthless.
I had some friends who worked at a smaller IT company that offered it's employee all the chance to buy shares at a reduced rate prior to an attempt to go public. It was a really good price but lots of shares - although close to the valuation of the company. It seems like a good idea: buy into a company you work for and as an employee you get a slight discount. Well the owners who where also the CEO took all the cash they could. They took very high risks that failed and drove the company into the ground. They sold the assets and the business units off. The so called company stocks are worthless now. I good friend lost nearly $500,000 which as a result lost his house, wife, etc. In the mean time the CEO and owners are millionaires and periodical consult.
All I am saying is make sure you get paid well to start with and if they are truly giving you the stock in the company then it might be worth while.
I've been a shareholder in and a director of a number of small software companies over the years. While shares in a public company can readily be translated into cash it is much more difficult to get any value out of your shareholding in a private company unless the company is floated.
10% does not buy you much in terms of voting rights to steer the direction of the company, and if you fall out with the people with the majority shareholding, 10% of a private company is effectively worthless - the other shareholders can block you from selling you shares to a third party, and are unlikely to offer you 10% of a fair valuation of the company if you want to sell out.
So - unless the company is sold or floated - you are unlikely to see very much value in this shareholding.
I'm old enough to remember when discussions on Slashdot were well informed.
There are always acceptions, but most often than not, they fit in a spectrum of this personality.
I can write English better than you, but that is my only exception. ;-)
I'd be genuinely surprised at any actual programmer who thought this way.
You're new around here, aren't you?
I present for your consideration every thread ever on patents, copyright, or trademarks on /.
Most folks posting around here don't know the difference between those three forms of IP, yet some how those threads end up full of comments.
I think you misunderstood the parent. Programmers generally have a personality that is characterized by their belief that because they can write code and others can't (e.g. a securities lawyer) they can do any other job function as well or better than that person. This is just an observation after dealing with programmers for most of my career. There are always acceptions, but most often than not, they fit in a spectrum of this personality.
If you think that's an affliction particular to programmers you're delusional. Parent is saying that CEO's, marketing people and lawyers do the same, and that's spot on.
Intelligent people are often able to do a better job than someone more experienced but less intelligent. Unfortunately, since everyone believes they're smarter than they actually are there are a lot of dumb people giving smart people a bad reputation.
I was with my former employer for over 8 years, and was the driving factor for all the IT consulting. We went from just myself, to 4 employees and over 1m in gross per year.
I told my boss this is the time to take care of me, and the best he could do was something similar, 5% of shares which expire after 3 years, and 10% of net profit. Well, he always showed profit to be near nil to the IRS and for 8 years of growing the company I get 5% of nothing for a limited period of time?
After many attempts to make it work I gave up and started my own company. So what if I can't call up my clients for 2 years? So far I have been doing OK, even in this down economy. People who are good at what they do are always desired in good times and bad.
Tell them to get serious or go fish. Remember, if they were going to hire a CIO, they wouldn't make such a lame offer. People like this wind up hiring idiots who leave quickly or perform poorly.
You are a valuable asset. If you're interested send me a pm and let's work together as partners instead of chumps.
When the foot seeks the place of the head, the line is crossed. Know your place. Keep your place. Be a shoe.
..and you still can't spell "advice"?
These will determine if it is worth anything at all.
First, is there an Exit Strategy? As in, is there a definitive committment to sell the company at some point, either via an IPO or to another company? Remember, the shares will ONLY ever be worth anything if they can be sold.
If the owners have taken VC money on board, then they have such a plan, as VCs will only invest with an enforced committment to sell (implemented by any of a variety of 'incentive' mechanisms).
Without VC, if the owners are clearly planning and executing a growth plan, with a defined product (or service product) strategy, and a plan to sell out, there is hope for the shares. If they are just operating the company to earn income, e.g., a consultancy, then there is little hope, and all the other advice is moot -- you should ignore the offer, as the shares will likely never be worth anything.
If it looks like the shares may be worth something one day, then you need a good vesting schedule. Five years is too long. 4 years is much more typical. Also, you want a gradual vesting schedule, not a "cliff" in which you vest zero and then 100% after X years.
The vesting schedule I used in both the companies I co-founded and sold worked well for all parties. The plan started vesting the allocated options 6 months after the plan (or the new hire) started, and then vested the the options at 2% - 3% per month until 100% of the options were vested. E.g., if you were on the 3% plan, 30% of your options/shares would be vested after 16 months, 60% after 26 months, etc.
The plan also provided for 100% vesting with any substantial change of control event, e.g., the company gets sold ahead of schedule.
Also note that what you probably want are cheap options (which have fewer tax consequences), instead of outright grants of shares, but you MUST consult a tax attny on that one.
Good Luck, however it turns out!!
Parent post is *exactly* right. The strategy described is excellent business practice for everyone in IT. If you are so valuable to a company, then make them pay cash, today.
**EVERY** other kind of offer usually has some kind of timing scheme behind it. The offer made to the author of the article is a timing scheme and nothing else.
What do I mean by "timing scheme?" Equity offers like the article mentions exploit the notion that these equity stakes will somehow make an individual rich at some future date. The officers know that that future date will never come. If the day actually ever came whereby there was a payout, it would be pennies or less of the original discussed offer.
Today's lesson: Make money. Get paid. Today, not tomorrow.
http://www.maxineudall.com/2010/02/should-economists-be-sued-for-malpractice.html
HFM? Seems he already made the biggest financial mistake of his life - not going to law school.
Only three things are certain; death, taxes, and apocryphal quotations - Ben Franklin.
He applied several times, but all he ever got was rejectances.
At the bottom of the
IANAL, just a lowly law student. If by "invest" you mean you put in money in exchange for shares, you might be able to get all of your money back under securities law.
Really, I'm not trying to be clever with my signature.
rather than buying stocks of your company, selling them short ?!? Seriously, given the way economy is falling, you could make plenty of money with a put option while your company stocks fall.
Translated:
.
And having dealt with programmers for several years, I suppose you aren't surprised at the responses you're getting in this forum. :-)
It's probably not just the superiority complex, but also professional OCD and a fear of depending on others. The Hans Reiser trial showed the spectacular extreme of this (e.g., continually bickering with his lawyer, flouting judicial instruction, and coming off as "thinking he could outsmart the jury"). Ironically, I think he would be free in a few months had he accepted the plea deal as advised by his lawyers (3 years in jail vs 15).
-1, Too Many Layers Of Abstraction
Reiterating... but I didn't see this comment before - what is the value of this company? As people have said, unless they're talking about a dividend you're probably only going to see value in your "shares of ownership" if the company is sold.
You said this is a consulting company, but you didn't say what kind? Are you a network person? Programmer? The company I work for does helpdesk/server work for other companies under the guise of "managed services." I was at an event which included someone discussing "exit startegies" for owners. The gist of it being how to figure out what your company is worth when you decide to get out. For our kind of company that seems to be based on contracts. Recurring contracts have more value than any other. The buyer will have to convince the existing customer base to switch over to them, and presumably some will not.
The owners of my company expect it to be sold at some point in some "shake out of the industry." Of course, we'll all be a happy family and make out at least a little by having been in from the start. Thing is, my back of the envelope calculation (even leaving aside the economy tanking) - is that at our current rate of acquiring customers - it's going to be quite a while before we reach any level that a theoretical buy out will mean anything to me other than finding myself unemployed when the new purchaser decides they can get someone cheaper to do my job. Even if I had 10% ownership.
Always keep in mind why you are being offered shares rather than cash. Your employer doesn't want to be out of pocket. Rather than increasing their risk they want to increase yours. Consider what your goals are and decide accordingly.
Yes, with the first word usually being "IANAL" and the second one being "but"...
Get out now, they won't make it big. The chief should have made you dispensable by now; that he didn't shows poor resource planning.
No, he wasn't happy because 1) my friend was the one who grew the company's revenue from nothing to millions and 2) time showed that my friend got the best payout of anyone involved. This also goes to few those posters calling BS on me (people who've obviously never dealt with lawsuits and the like before). You see, you don't just go to a lawyer and win your lawsuit next week. As some of the posters point out, a lawsuit like this could take 3 or more years. A lot happens in 3 years, esp. to a small company. First, the company didn't get bought, so the $20 million from a potential sale never materialized. Then the economy turned down and that company today is down to a skeleton crew and probably going to shut down soon, which means it, and the shares that the founders own, is pretty much worth nothing. So if my friend had sued, she would have ended up with nothing but legal bills even if she won the lawsuit. There's another thing that nobody mentioned, and that's the bad blood, name calling, lies, etc. a lawsuit creates, and if you have a serious career you are careful about such things.
Run and catch, run and catch, the lamb is caught in the blackberry patch.
Given that generally you should only buy shares from a company you believe in - long term, wether they succeed or fail...
would you buy stock from your company if you wouldn't work there? Yes? Accept it and help it succeed.
If no, don't accept it and leave. Now.
--------
* Sigh *
I think this has to do with programmers being used to "defending" the logic of their work. As a programmer you are constantly reviewed and questioned by people who have far less domain knowledge than yourself. The idea that someone who "does not understand" a specific subject area can still point out an error in your reasoning is quite natural to most people in hard sciences, mathematics and engineering. Most lawers I've met take it as a personal insult. ;)
My advice is to go for it. The good replys all come from experience - and the only way to get that experience is to do it.
If you make partner in Android, Toilette & Douche or any of the others then you get the chance to coin it in from all that child labour billing 80 hours a week.
Of course that's a big "if". All it takes is one senior not liking your hairstyle and you'll be blocked until that person leaves or dies.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."