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 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.)
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.
You would think people would be this smart but they aren't.
I know a person who spent 6 years taking care of her aunt in her own home as she was suffering from some disease and they decided not to stuff her into a nursing home seeing how there was only one other relative besides her alive still. She had around 3-5 million in rental property and probably another 2 million in other assets like stocks, bank accounts, jewelry and so on.
So after the aunts death, the will was read with the two surviving family members present. She ended up leaving everything to her attorney (who also made out the will). Not one dime went to anything else except her funeral and final medical bills.
I suggested that she fight the will and take some of the money, if nothing else, attempt to get additional money for taking care of her for the last 6 years. She decided against it because every lawyer she spoke with wanted 30 or 35% of the judgment and her aunts lawyer could spend some of the funds in defending the will. She would have needed no money at all and the lawyers would only be paid if they won and they were confident they could have the will invalidated. I told her she was stupid because 60% of 5-7 million dollars is a hell of a lot more then her $35,000 a year income. Her boyfriend, the restaurant manager who work his way up from a dishwasher convinced here that it wasn't worth it.
By my calculations, she should have still gotten around 60% which should be between 3 and 4 million to be split between two people. But somehow she was convinced that a lawyer taking over 1.75 million was just too much so she let it go to another lawyer without a fight. It's been about 5-6 years and not to long ago, she told me she finally realized how much money she let slip by.
People are stupid about these types of things even when otherwise intelligent. I don't know if it is fear or the uncertainty but it's easy for someone not directly connected to it to see the mistakes as they are happening.