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Ask Slashdot: How To Ask For Equity In a Startup?
Uncrase writes "I'm a contract software developer, and have been working for a small startup for over a year now. Not a bad position to be in of course. The company consists of a handful of people, all of which (I believe) are contractors (by their own choice), however we're doing very very well and have a very significant revenue already. Call me greedy, but I've worked hard (as the main IT guy essentially) to get the company to where it is now, and of course get paid contractor rates for this. I would like to get some kind of equity (options) in this. The company is continuing to grow its operations and I am basically indispensible for the continuation of this growth. I'm definitely not planning in any way to force a hand, but I would like to know what could be a good way to approach this. I'd essentially like to ask for a raise — being a contractor — but in the form of equity. Any experience with this? Am I completely off here?"
...and therefore not indispensable ...
Good luck, you are greedy indeed...
So treat the situation as such. There are lots of resources and articles online suggesting how to make your case for a raise; use them. The only difference is in what form you're asking the "raise" to be.
If you're charging a rate that you're happy with, then offer to give them a discount for equity. Whatever you do, don't overplay your hand.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
"Hey, I was wondering if I could buy some options, or receive stock in lieu of payment, or something."
Offer to give something in return, show you are serious. If not then walk immediately.
If you really are indispensable, then perhaps you should ask about becoming a full time employee, possibly even in a management position.
Just tell the guy who signs your paycheck that you are interested in getting some stock options since you feel you've put a lot of effort into the company. Tell them the options would secure your long term interest in said company, so it would be in both of your best interests.
Never trust an atom. They make up everything.
As jcr says - the right way to do this would have been to take a discount on your rate for the equity... a startup has two possible routes of compensation - equity and cash. Early enough they'll be willing to give more equity because roughly speaking they have more of it to give than they do cash. But some people can't financially take the risk associated with less equity.
If they're about to take a round or have just taken a round, it's not going to be as easy. I'd broach the subject of renegotiating soon with whoever you report to, but don't go retroactive, it's tacky and won't be received well.
say "I wish to (1)trade large amounts of money or (2) decrease my rate of pay in exchange for equity in this company"
If you are just a contractor, you should have negotiated for for a decent rate up front and then offered a lower rate in exchange for equity. If you gave them a lower price because they were small, but didn't ask for equity then, you can either renegotiate or walk away. They might prefer to stick with you instead of finding someone new.
Good luck, though. They might feel that just because they are suddenly making more money, it doesn't mean they owe you a piece and the same fee.
Equity is what you get when a small company can't afford to pay you the full market rate for your skills. You're gambling your current income against a future payout in the event that the company is successful. If they're paying you well and you're happy with that, you're really not in a position to ask for an equity stake. If you believe the company is going to be successful, buy some shares like any other investor would.
"I have the attention span of a strobe lit goldfish, please get to the point quickly!"
Tell the Feds you're Black, Eskimo, Indian or a Birdbrain and they'll hook you up with a ten year start-up grant for all sorts of software. No really.
IT guy claims he's indispensable...film at 11.
You get paid by the hour.
Folks who stand to lose money if the company goes under get equity. Not you.
See my journal for slashdot ID's by year. Mine created in 2005. http://slashdot.org/journal/289875/slashdot-ids-by-year
You were paid (an evidently fair compensation) to do a job. Kudos for doing it well! That said, as a biz owner myself, we take all the risk which includes employment of contractors from day one when the company was deeply in the red and then pray hard that someday we'll transition to black.
Be thankful you have a good job and if they offer it, certainly jump on options...but..again, as the owner of three startups, 2 of which are tech related, we take the risk, not you, ergo we take the reward.
From your perspective, it sucks, I know....I was a contractor for 10 years. From our perspective, it sucks when you ask, because then we have to look at potentially canning you. So, it sucks all around.
Ask. The worst they can say is no. No respectable company would punish you for (respectfully) asking for a raise.
That said, minority ownership shares in startups end up being worthless far more often than they end up being worth anything at all. Beware of taking too much of you compensation as equity.
1) you are not indispensable, that is a fantasy
2) if you are contracting, you are presumably building equity in your own company. you have been paid. eof...
3) if you want equity in the future, then re-negotiate, but don't confuse the past with the future.
If you are indeed valuable, and the people are reasonable they may well cut you a (very small) slice of pie. You are just a hired gun. That puts you at the bottom of the food chain. There are plenty more (like me) waiting to step in if you blow it.
dont take anything except for preferred founders stock .. its what I did in similar circumstances...
How much of your money you invested in the company. You see, that's usually what separates the "owners" from the "employees". In the few (these days) cases where an employee becomes a shareholder, it is usually worked out before they are hired. Oh, I forgot, you weren't hired, you're a contractor.
"Eve of Destruction", it's not just for old hippies anymore...
with the money you just got from your raise, you greedy bastard!
And give up the higher contractor wage. That's the deal you make: permanent employee who earns less per hour, but gets a long-term stake in the company, or contractor who makes bigger bucks but nothing in the way of ownership.
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
Having more than once been in your boss's role, you mustn't forget the costs involved with doing what you ask. Since (we assume) the company is not yet public, then depending on the current structure, this could involve significant legal fees to set up. In my experience, which is limited, this has ranged from $5,000 to $30,000. Of course, this doesn't apply if the company already has a mechanism to provide equity to its employees.
In addition to the other suggestions, be sensitive to whether or not they can easily make this change.
No. Well...maybe. Actually, yes. It really just depends.
Which will depend on a number of things:
Is your idea of being "owed" equity your idea, or did others approach you and say: "You have contributed work and skill sets that would have been extremely difficult to find for us during the execution of the startup. We would like you to stay in some sort of equity arrangement."
I got approached by two gents after two years and got equity and CIO status because back in 1994, building IP networks was not a widely known skill. Also, putting a internet connection in a company was a significant engineering under taking. Sure they could have found someone else, but not very easily and it would have been a big risk.
If this doesn't apply to you, I would not ask as you will be told no first of all and they will think you are a future risk as you didn't get something you asked for.
-Hack
-
Got Geometrodynamics? Awe, too hard to figure out? Too bad.
If they agree with the idea, expect that they may require you to drop from the current "contractor" rate or some other advantages you currently have or take over some new responsibilities; it would be only fair, since it is you that switched your mind in regards with a previous agreement and choose now to "bet" on the future of the company - so, what are you prepared to "pay" for it?
Note: yes, you "paying" now somehow for the options IS fair - the guys involved in startup took (and continue to take) the risks inherent to a startup until crossing the chasm.
As in any negotiation, the success depends on many factors - I can't say more on this track (other than "stay opened to understand their point of view")... but in any case, the negotiation may succeed (a win-win solution, hopefully) or it may fail. What are you prepared to do if it fails? (hint: twisting their arms is barely an ethical or long-term-prospects choice).
Questions raise, answers kill. Raise questions to stay alive.
But if you are then the company is doing itself a dis service if it is allowing you into a position where you think you are indispensible. Many information hiding IT people do try to do it though - or at least get into their heads that they are.
The people who put forward the ideas and the risk get the equity, you just get your contract rates no matter how the company goes good or bad.
I think it can be appropriate to indicate that you would prefer to be compensated with equity. From my experience in small business, most people would prefer cash-in-hand. Saying that you are looking for equity is essentially a signal that you believe in the company enough to risk your own money.
Realize, of course, that you will effectively be making an investment in the company at the (probably fuzzily defined) present market value. If you do believe in the company, this could be a great decision.
Shares aren't given out for free - even for the founders themselves they almost always have a vesting schedule which means they don't actually own all the shares up-front - they need to vest for e.g. 4 years before they actually own the shares allocated for them. If you're asking for shares from founders at an early stage company, it'll almost always imply they'll need to hire you or the startup's capital structure will feel sketchy to investors.
Also, you need to make sure the founders can be trusted. Whoever with majority control of the company can decide to dilute only "someone else's" shares at the next fund raising.
Start ups give out stock options to folk who are in it to the long haul.
They are an incentive to ensure the long-term loyalty of folk key to the company.
Now if you're indispensable (or at very least painful to replace) and you
believe this company has a bright future, you should offer to go perm.
Most startups have a 1 year cliff built-in to any offer of equity they make -
what this means is, if you leave before a year's up you don't get any options
but after a year you'll get a 1/4 of your options and thereafter 1/48 each month thereafter.
So if they offer you 48,000 options over four years, you vest
(i.e. can purchase at your option price) 12,000 at the end of the
first year and 1000 options each month thereafter.
By going perm, you'll take a cut in pay in return for options.
If you can, find out at what valuation they took their most recent
round of funding. That gives you the $ value each investor put on the stock.
Now calculate how many shares would compensate for a 25-30% cut in income
(the typical difference between perm and contract) - that's a ballpark of where to start negotiating.
My $0.02,
A former contractor and current startup junkie
OK, you're greedy. You're also not irreplaceable.
You've taken none of the risk, and have no reason to ask for any portion of the reward. You've gotten what you contacted for.
You are under no ethical obligation not to ask for what you want. So you should ask. You do need to be careful, as other mentioned, not to overplay your hand. You don't want to sour your relationship, no matter what the answer is. Being in a position of being important to continuing operations is something you should definitely make use of (again, as other said, to the extent that it really is true). It may feel slimy because you generally wouldn't do it to your friends, but this is business. Your friends look out for you in a reciprocal way. In business, the only one looking out for you is you. I behooves you to do a dry run of your request and reasoning with a friend before heading to the "main office". Also, don't assume the answer is no. That will be self-fulfilling and puts you on adversarial terms right away. Assume in your language and tone that you are asking for something that makes sense for both parties.
you made a deal up front to get paid well to do your job, because at the time, you thought the options were not worth much. They paid you accordingly.
Now that you see the company is doing well, you want to get paid and get options too. Pretty raw deal that you present to the company, you basically didn't take any of the risk and want all the reward.
Valued ... yes. Indispensable .. No.
So are you a software developer or the IT guy? You say both. You don't know if people are contractors or not. Do you not talk with your co-workers?
Revenue does not equal "doing well". "Doing well" means making a profit, which means that revenues exceed expenses. It doesn't sound like you have a handle on that.
From what it sounds like, you are likely seen as "the hired help". If you want to get off the "hired help" roll, you should have a talk with the people who have the power to make it happen. They may tell you "no", so be prepared for it. But you'll never succeed if you don't take risks. Be prepared to give a detailed explanation as to why you deserve equity and what you have done to earn it. Also, be prepared to have to show that you are serious.
I have worked for startups and I think directors either give high hourly (and overtime) pay to contractors or employee pay with a stock-option plan issued every year and awarded on a five year term or something like that to keep you employed there long term. In other words, you are either investing a portion of your time and will share in the success or not. Don't be surprised if they only have those two scenarios available. Don't take this the wrong way but it's worth pointing out that nobody is indispensable. Jobs, Gates, Obama, etc, will all be dispensed one way or another and it won't spell the end of their respective organizations.
Ask to be moved to a full time employee and tell them you want this because you believe in the company and see it being a huge success. Stroke their ego, but don't lie. They already know what you're worth and there for you're less of a gamble than bringing someone else on and you can still ask for a good market rate. The bonus to this is if you work it right you'll be able to get almost as much as you are now and have taxes taken out and get stock as a sign on bonus. Tell them you're wanting to take a pay cut (because you will have too) in order to get stock as a sign on bonus. It basically costs them nothing and they will save money by paying you a slightly lower hourly rate.
"Ubuntu" -- an African word, meaning "Slackware is too hard for me". - stolen from Dan C alt.os.linux.slackware
You only get what you negotiate, not what you deserve or desire. The best way to negotiate is be willing to walk away.
So, you should find another one or two companies willing to pay you what you want in terms of money and options. Then go to your existing employer and say "With the economy picking back up, I'm looking to find a company that will allow me to grow with them. Do you think AbcCorp could be that company for me?" "yeah, sure, excuse me while I fix my pointy hair, ummhmm..." "I've tried to figure out where that puts me, and found that a comparable position at XyzCorp offers 25 scooby snacks plus the opportunity to drive the mystery machine. Do you think my value to AbcCorp puts me in that range at this company?"
Don't use overly confrontational terminology, like "match their rate", "if I stay", etc. Treat it as a fact-finding mission and at the end of the day, you must be OK leaving if you and your employer don't agree on what the facts are.
Additionally, if you don't find other companies willing to pay more, or if you determine in your heart that you wouldn't really want to move companies, then at the end of this process you will be happier even if you stay. That is just as important to discover.
Then your boss should know that. The thing is in small companies the developers are often directly involved with their bosses but it seems you are not. If you can't trust him enough to simply ask about it then I doubt he trusts you that much.
Also getting equity is usually something that is reserved to people who have a high interest in seeing the company succeed. As a contractor it is sort of assumed you don't. Think about it from your bosses standpoint, he's put in money and taken risks and the profits he's seeing will help him expand and develop his company into what he wants it to be - and if the company fails he looses everything. You just get paid by the hour, if the company fails you find a new job and you don't loose anything, and the vision of how the company will develop is not your own vision. If you are willing to believe in the company vision and stick with it - even if the company were to go into the red and you had to work without pay for a year - then equity could be on the table.
And never think you are vital. You could be the best programmer in the world but if you have a crappy attitude you're out.
Just in my experience and opinion, you would be better off asking that on ycombinator that deals with tech startups and has many from that community, not on slashdot.
,,. is what are you going to get out of this distribution of equity? Will the company benefit greatly in term of profit by doing this? If not, why would they do it? Giving you equity mean taking it away from someone else.
If you are getting market rates as a contractor you might not get as much equity; the founders took the early risk that they'd have to pay you and go without salary themselves.Now the risk is lower so the payoff should be lower too.
That said, if you are indespensible, you can demand options. Frame it as being committed to the company and wanting to double down on the future, and wanting feel that you have a key financial interest in the company's success. Otherwise, you can go get contractor rates somewhere else just as easily. Assuming you are really indispensable, of course. Point out that options and a vesting schedule will align your interests (waiting for options, working for success) with the company's (keeping you around).
The time to ask for equity instead of pay was back when there was risk.
As a CEO of a startup (I've done a few, before), I EXPECT contractors to ask to be included in the group of founders. If they're savvy enough, I concur, sometimes converting them to employee status.
1. Start with a question: Ask for a formal review, just like other employees get (usually annually). They'll be surprised, because most people don't WANT a review. But, it helps to know if you're held in low or high regard by the decision-makers. It might not be a formal process in a start-up, but even getting senior folk to commend you for what you've done is a starting point.
2. Later, (so it doesn't seem so obvious) ask to attend the strategic meetings, so you can do a better job (e.g., Strategy/planning sessions, Board meetings).
3. After you've assessed your "cred," and shown you're ready to move beyond simple following of instructions, THEN it's time to ask the critical question: "How could I become a more valuable member of your team?" If they brush you off with a short, "You're doing fine as you are," you've got more work to do. If they offer you the opportunity to "become a more valuable member of your team," the door is now open for negotiation: Ask for fair compensation (salary or fees), and offer to take SOME of it in equity. Now the burden is on THEM to turn you down. But, if you've gotten them to admit you're valuable, and they want you in the inner circle, it's going to be hard for them to reject you.
Advice from an old hand who's both gotten and granted equity in starts-up...
Rule #1 - No one is indispensible. Take that into account in what ever action you decide to take. And, being generous, probably 1 in 1000 (probably 1 in 10000) equity deals ever make it to a significant vesting. It's usually not the product or service - it's the ability of the founders/directors/management to grow a startup. Given those odds, my Rule #2 - take the cash while its there.
>> and I am basically indispensable for the continuation of this growth.
That is funny. You must be new to the industry. One of the first things anyone in employee/contractor position learns (should learn) in their first 5 or so years is that EVERYONE is replaceable. Well ok, Steve Jobs turned out to be not so replaceable, but that's Steve Jobs. In all likelihood, you are flattering yourself - you are very much dispensable.
Presently I do a lot of contract work for one customer, and I too would not mind getting a royalty from every unit they ship. And yes, I'm kind of 'indispensable' - several products developed for them, a couple of them are fairly complex. But I know full well that if the push comes to shove they will find a replacement for me. Just the same as they've found me to replace the other guy who was with them for like 10 years before that :)
You should understand that while you think that you're an indispensable part of the equation, odds are pretty heavily stacked against that notion
Give your employer some credit: they took the risk and they deserve to benefit for that (including the ideas behind the company). However, bear in mind that most employers are not opposed to paying someone more, but you will need to justify it. If you want an equity stake, then tell them why it would benefit them to do that for you. Why should they make a partial owner? Break it down into simple math.
Trust me when I say, this is the best way because this is the way I'd want this proposal presented to me (I own a small biz myself)
I'd happily pay you Tuesday for a biopsy today!
First, you are asking the wrong crowd. You'd be better off asking entrepreneurs and start-up dudes.
Second, don't start the conversation by making an offer. That puts you in the worst position because now you are setting the bar, be it too low or (worse) too high, and they have to react to that. You are better off just asking "So, is there a way that I can start earning equity in the company, rather than just straight compensation?" That way they can evaluate the question itself rather than whether or not they want to accept your offer, and in return you will get to evaluate the deal they are prepared to offer (assuming there is one).
If you're as essential as you think, raise your rates -- you're the seller, after all. If they seem ready to consider going with a price hike, offer to take it in the form of equity (because you believe in the company's future and want to be part of it, blablabla. Asking for options in lieu of a rate hike or straight equity would be an easier sell, as it gives them a stronger hold on you and gives you more motivation to work at the top of your game. But the real question is, are you getting paid less than you deserve, and are you willing to demand more. The form of the increase is secondary.
Prepare to find out what they really think of you. If they are impressed by you, they may jump at the chance to bring you onboard. The fact that you asked for it will be a point in your favor. If they don't think you are partner or even long-term employee material then the answer will be "no" and if you want to ride the job out as long as you can, you should just leave it at that.
The best way to approach them is not to talk about yourself, and especially not about the work you've already put in. Instead talk about the company and the future. You go in and say: "The more time I spend working for this company the more excited I get about where it's capable of going in the future. I want to be a part of that. I'd like to be a full-time employee with a path to vested equity. I realize I may need to sacrifice time or money in the meantime, but I want onboard."
i wish i had a fleshlight pillow
Honestly, don't overcomplicate this or it could turn out for the worse. It's a small startup so I assume you know the owners, just sit down with them and ask how you can get onboard with some equity options. Most small startups would have considered equity options in their planning and you should get a simple response either way. I've been on both sides of this situation and in my experience it's always better to be honest, open and direct. Do it now, waiting will just decrease your upside if the company is growing already and there could be external timing constraints which may mean you miss a window of opportunity. Just be prepared that you may not get the response you want, but you should definitely ask the question all the same.
1) Tell them if they don't give you a raise you won't give them the passwords to their servers.
2) Make the news when they bring you up on criminal charges,
3) Write a book about your story.
4) PROFIT!!!
Sometimes the light at the end of the tunnel is the headlight of an oncoming train.
You are only as indispensible as your employer wants you to be. If they decide they wish to get rid of you, they can find a replacement, and decide to make adjustments to their business so that the replacement will meet their needs. Even if it seems to you that might not be worth their while --- what is (or is not) worth it, is a business decision, they make, not you. If you continue to be indispensable, that is only the case because they choose to continue to allow it.
Some businesses have a philosophy that as soon as some contracter becomes "unreplaceable"; that means they must be replaced, fired, or moved to a different area of the company, to help mitigate the threat to the business created by a problematic situation.
If you wanted to be an owner, you should have sought equity as compensation before the company started to succeed.
Now that it is starting to succeed, if you demand equity, you will start to look like a greedy vendor trying to get a piece of the pie.
If you believe in the company you will BUY equity with cash, or take a pay cut in exchange for receiving that amount as equity.
Unless you are producing novel, patentable ideas you are not indispensable; there is someone out there who can do your job. The "irreplaceable" attitude will bite you in the ass. When I hear someone say they are indispensable the phrase "pompous ass" comes to mind.
If you want a raise, make a case for it based on what you are doing now and how it is different that what you were doing before. If you were being underpaid before you need to make the case as to why you stayed.
For small business equity is a very complex issue. It is not like a small private company can just hand you some stock. They may need to make you a partner which is not simple. I you believe you should be a partner then make that case.
Write it down. You look more serious and organized. It allows you to look over your words and polish your presentation. It also allows your boss to re-read it and gain more clarity on your position.
The thing that many people do not understand about business is risk. Yes you contributed to the growth of the company but you did not risk your house, savings and credits rating to get there. What if things went bad? You could walk away but your boss could not. Since you are not the accountant, how do you know they are doing so well? You see the income but you don't see the outlay. There is a lot of overhead that goes into running a business; taxes, accounting, insurance, clerical staff, etc. You bosses may have taken out loans to start the business and they may not be paid off yet.
did you put forward the capital needed to get the company off the ground? If not, then you missed your chance to have any claim to equity in the company. The original investors took all the risk, they get to take home all the reward. If the company needed money to expand and was looking for new investment, then perhaps you might have a chance. But you would have to have large sums of cash on hand, and be willing to risk it. Since you said the company has a very significant revenue already, I'm afraid you'll have to be happy with your contractor rates.
As someone who is running a startup with a partner, I am trrying to think of a good way for someone to approach me would be. I pay anyone I have doing contractor work very well. In fact, between expenses of the business, hours myself and my partner put in, and startup costs, the contractors make an hourly rate far beyond anything we take out. The majority of the money is re-invested back into the business to make it grow. That and the endless hours working on the business is what will continue to make it grow.
So the question is why would I share the gains? And under what circumstances would I share the gains? I honestly cannot think of any compelling reason that a contractor I pay could come to me and justify any shares of equity. How long was the company in business before you were brought in? How long before the business was actually incorporated was it being worked on before becoming real? And that is where, if someone I pay very very well came to me asking for equity I would probably stop using them. It shows a complete lack of understanding of the amount of time and effort the partners / owners put into the business and in all honesty, I would be insulted.
IF and this is a huge IF, I had a contractor that went so far above and beyond what was expected I would consider it. If that contractor was with me in the beginning and did countless hours of work, not always counting the pennies in the check, then I have something to work with. I know when someone puts in 40 hours of work in a time sheet and did 20 - 25 hours worth of work. I know the opposite as well when someone puts in a timesheet for 40 hours and clearly did 60 hours or more of work. That contractor is bleeding with me and is regarded above others. If you have not put in serious blood, time, and your own skin into the game you have absolutely zero right to ask for any equity. Where I am in my startup, there are only two people who have done the time: myself and my partner. So unless you are putting up money to buy in or working for free, you are on the outside of the circle. I am on a 3 - 5 year outlooks, expecting to break even on the amount of work invested after 7 years of hard work. What that means in that in year 7 or so I expect to finally stop reinvesting all profits back into the business and finally start taking out some for myself and my partner. So yeah, after 7 years I may start driving a really nice car, buy a nice new house, or have a nice retirement fund setup, but trust me I earned every last cent. You got paid for the work you performed.
You are replaceable, no matter what you think. You may be good, even great, but trust me, in my position I would let you go without a thought. Then again like I said I pay very well, so if you are making $50-$75 / hr, ok I may be a bit more lenient. But what I pay my contractors, I pay because they are good and I expect to get things done and I know few can go out and make more. You also are naive. You have no idea what goes in to running a business. I cannot even describe the hours spent doing things like collecting on payments due, finding and maintaining insurance, state / federal filings, evaluating and implementing new systems for the business. Sales and marketing, closing new business, etc. On top of all of that I still do day-to-day programming, just to get more money to reinvest back into the business. You want equity and not want to be laughed at? Offer to come aboard and put in no less than 80 hours a week making less than you did as a contractor. It may be worth the bunch of hours and the couple of thousands of dollars to work it out, figure out workers comp, insurance and other stuff.
LOL, the programming is maybe 30% of the business after it is all said and done. And quite frankly is the easiest by far to deal with. Talk to me when you have the state breathing down your back questioning your business on the use of contractors. Now do it when states are hurting for cash and want everyone on payroll to get their taxes each month or qu
You're risking nothing. No really, you're risking nothing. You're not indispensable, so stop saying that. I'm sure there are hundreds of non-idiots that could come in and do your job as well if not better than you. You're an IT guy. You're not developing a new laser beam for the company. You're not the mind that had the idea, nor are you the person who fronted the money, you don't deserve anything more than the salary they're paying you. While it would be great to get rich off someone else's risk, it's not going to happen. You will be, and should be,laughed at if you try.
Your Majesty the King,
I wash your horse and clean your castle every day.
Please include me in your will or I will quit tomorrow.
Thanks,
Your humble well paid servant
P.S. Remember that I'm irreplaceable!
Depending on his jurisdiction, he may not be a contractor, but an employee, and both him and his boss are looking at substantial tax penalties and fines.
From your current situation, it sounds like the IRS will want a word with you
And no, having a written contract saying you're an independent contractor means next to nothing when compared to the rest of the evidence.
If they set your hours, your workplace, your work environment, pay you weekly instead of by deliverables, there's no specific "the contract is now complete" condition, and it's a key part of the business (and you have indicated yes several of these), you're an employee, not a contractor.
Let's call it what it is, Anti-Social Media.
Equity in a company should reward those who take a risk (such as putting in some VC or working unpaid hours until the business is mature), not those who get paid by the hour, even if they work hard. Especially as a contractor you are expected to work hard and you (should) get good money for that commitment.
IMO if you think you are a valuable asset then you should request a higher rate - if you are right they will agree, and if you are not right then better find somewhere else to shine.
Also if you have been working there for a while and you bring up the question of options once they start to have good revenues, then it could suggest that you are in mostly for the money.
lucm, indeed.
When "How do i get money for a startup?" is an ask.slashdot, i KNOW we're in a bubble.
Not sure where I heard it but it goes something like this..
Place your hand in a bucket and fill it with water.. now remove your hand..that is how much you will be missed.
Given that the missing is inversely proportionate to the size of the bucket..in almost all cases.. you are not missed substantively after a week or two.
If the company is as successful as you say, the current equity holders are asking their lawyers how to screw each other out of their equity. They want less owners, not more. Asking for equity is just a suicide mission.
ruin you both and you want to add equity to the mix just to remove any doubt at all that your "contractor" status is pure tax evasion.
That doesn't seem such a wonderful idea.
...since it is typically what equity in a "small startup" that is making "very significant revenue already" will end up being used as.
The great thing about toilet paper is that the founders will value it properly and you'll be able to get a lot of it for a fair exchange of salary or services.
On the other hand the founders will greatly over value the shares in their wonderful business. You'll pay through the nose for something of marginal to little real value.
If you are as indispensable as you think you are then ask for more money. Take that money and go invest in something that is likely to give you a return on your money.
Negotiating with the founders for some shares is like getting in a bidding war with a Jonestown resident for a glass of Kool-aid. Give it a pass.
You have a contract, keep up your end. When the contract is up for renegotiation you renegotiate. Know what your worth going in, don't guess, know. Make an offer 30% over that, negotiate down. Don't go below (Worth *0.8), otherwise you should be going somewhere else. If you can't find employment to pay what your worth, then you were guessing, badly. Suggest equity as an option during the negotiations, know what you consider a fair value for it, and calculate accordingly
The contract re-negotiation should be well before your contract is up, giving your employer ample time to up-train a replacement. If the employer procrastinates, that isn't your problem. The employer has no right to your services at a discount.
BTW your intimate knowledge of the employees setup should count for ZIP when calculating your worth.
Storm
so you get equity based on the risk you're taking. The fact that you got paid contractor rates until they were successful means THEY took all the risk, not you. This means you're not entitled to significant equity.
It's the opposite - when you work for little pay that would entitle you (at least morally) to a higher equity stake.
If I were one of the owners and you made a play like this I would mentally consider our relationship over, you might as well talk of unionizing. One of my top priorities would be to make sure that you weren't so indispensable as you say you are. My probable delay tactic would be that this needs to be discussed and we'll get back to you.
I have seen variations on this scenario before even among partners where one suddenly says something like, "If it weren't for me we wouldn't have landed that whale. Thus we should go from 50/50 to 40/60. Or my wife has been putting in some time on this and we need to cut her in for 10%." Without exception the relationship went to hell regardless of direction taken. The only time I have ever seen this succeed was when the "partners" had never seen the original incorporation paperwork and didn't realize until the big sale that they only owned a tiny minority while the one who filed the paperwork held the vast majority. Never even made it to court.
Face the fact - No IT personnel is indispensable.
IT personnel are like disposable diapers.
They are needed - and always will be needed - but when they have done their job, their mission is over, and they are no longer needed.
Muchas Gracias, Señor Edward Snowden !
Ask about buying shares now, before any IPO. That doesn't cost them anything and it shows you have faith in the company (or that you like to gamble). Buy as many shares as you can. Borrow money if you have to.
Ask about buying "directed shares" when the company goes public. These also don't cost the company a thing, but it's a nice way for them to throw you a bone. The downside is that you won't have the shares in hand until the IPO, so you run the risk that they change their mind at the last second. Buying directed shares, and selling them as soon as the lockout period ended, allowed me to put a down payment on my first house. I did have to risk $5k of my own money, though.
Equity comes as a risk/reward position. The other guys who put money in, took the risk, likely went without pay or very minimal pay so that they could do things like say...pay really high contractor rates for their developers.
Had you taken low rates to begin with in order to help out the company's capital position when things were tight starting out, then yes absolutely you should have a solid chunk of equity. You're getting paid well and it sounds like you'll be able to continue being paid well for quite a while now since the company is so stable. Enjoy that. Appreciate that.
Understand that you might be aware of a solid chunk of revenue coming in regularly, but you've got no idea where that money's going. If you've got a steady million a year and 5-6 people on contractor rates it's entirely possible that the business is still just scraping by. There's money going to taxes, office space, savings for future expansion and marketing plans, attorneys, preparation for lawsuits against you, preparation for lawsuits that you have to pursue, patent applications and reapplications, advertising, hopefully more employees so that the company can grow without overloading you...and so on.
It is expensive to run a business and the people that are vested in it stand to lose everything they have if it didn't/doesn't work out in many cases. You got a steady paycheck without having to worry about anything. There is a reason they have equity.
"Don't teach a man to fish, feed yourself. He's a grown man. Fishing's not that hard." - Ron Swanson
You've been paid as a contractor to build something so the entrepreneurs running this have taken all the risk and now they're seeing the reward you want a piece of the action? Sorry - the time to ask would have been at the start and it would have been on the lines of "I'll work for free if I can get x%". You didn't take any risk in getting it where it was, so I don't think you've got any right at all to ask for equity.
This is Luke. The boss. Your contract is terminated. If you show up on the premises again you will be arrested for trespassing.
Have a good day cock sucker.
as a site developer i was put in the same position by a prior developer but in his case it was more like demands. we decided to end our relationship with the contractor and i have to tell you for 2 months i was quite concerned about the projects future, we did find another development team and in short order we found that the new team is actually better than the older demanding development team. we are getting more things done at faster rates and lower prices. actually we are going to offer THEM an equity stake.
In general, IT guys don't get options unless they come in VERY early, if they settle for lower salaries, and/or if the IT infrastructure is really unusual.
If the infrastructure is generic, then you're in a weak position.
The basic test of leverage in a start-up is how hard it would be for them to replace you if you got hit by a truck tomorrow. In the case of core developers, the answer to that question is often, "impossible." In the case of most IT guys, the answer to that question is, "not very."
In general, do you know how many rounds of money your company has raised? If they are already profitable, then it may be too late for anything more than a discount, anyway.
...startups are all about getting traction at minimal cost. The time to ask for equity is when the company has no money and want to save it wherever possible. Taking less money back then for some (very) small equity is something all startups would consider. When they're making money, or can see the light, it's all over for you.
I've worked in project where equity was on the table. Sometimes I took it, sometimes I didn't. The key is it must be win-win. For a company that already has an existing business relationship, for them to win means they get something more than they've got now.
1. You take a pay cut + equity position. Thing is, they're not going to go for paying you the same amount and giving you equity. Where's the value for the company? The privilege of keeping you? As others have pointed out eloquently and not-so-eloquently, there's a good chance you can be replaced. Exception to this is if you get paid the same but somehow increase output (and you can guarantee this, in terms of hours, units of works, etc)
2. Performance-based incentives. This allows you to keep your current pay, but also get something in the future. Of course, this needs to be above and beyond the status quo, it must be measurable, it must affect bottom line, and it must be the result of your efforts. (For example, if company is growing at 10% per month in sales, basing your position on sales increases is a hard sale. Conversions is a better bet in this situation.)
The best thing about a boolean is even if you are wrong, you are only off by a bit.
Asking for equity earlier would not have done him any good, because he wouldn't have gotten any then either.
The reason many startups give out equity at the start is because they can't afford to pay the going rate for the talent they need, so the principles are forced to trade a lot of potential payoffs later for cheaper help now.
If this company is hiring contractors, then they have enough money to just pay the going rate for the work they want done. If they've decided they are going to just pay the going rate, having asked for equity at the outset would have just caused them to hire a different contractor.
Fact of the matter is, the guy was offered a compensation package for doing a job. There's no reason to expect any equity when you're getting paid up-front. Equity is compensation for risk. No risk, no equity.
paintball
As a private equity investor, I am happy to give away shares *to the right people, for the right reasons.* But expectations are never really in line - so negotiations tend to get difficult.
The right people are the ones that sincerely believe in the product, are a passionate part of the team, and will evolve with the business as the business evolves & grows. An engineer needs to learn sales and a sales guy needs to learn enough tech to effectively relate to the engineers. That part is obvious, but future equity owners need to not only learn their jobs - but to really understand each individual's role in the company. Equity owners need to be potential future CEOs - people that can build, sell, understand the numbers and deal with the customers. Equity owners also need to be able to talk to the industry - identify competitors and related products, know how much money is being invested and spent, who acquired who and why. I want people involved in the business and market better than I know them. And my job is to know those things. Impress me.
The right reason: to make the equity owners more money. Keep it to family and generational wealth reasons. Education. Advancing humans with the proper use of invested dollars. Participating in the wealth cycle and employing people. Don't talk about Ferraris or beach houses. Be a better human.
After that, it's just a matter of getting expectations in line. A few tenths of a percentage point of the total *common* equity is standard and will increase over time as goals are met. A 15% employee stock option pool is standard for early stage companies in my world. So your equity is gonna depend on the split between you and the other employees of the business - check your math. You can reasonably fight for more points over time, after goals are met. Keep asking around and you'll see some market norms.
Lastly, and jokingly - If you have any cash sitting around when the next financing round is open, ask to participate. Or maybe just ask anyway, even if you don't have cash, and see what happens. Uncle Joe couldn't lend you the $15K you were expecting? No big deal. Maybe next time.
Go to the decision maker and say exactly what you said to Slashdot. Say you are willing to take a pay cut to get equity, or make some other offer. You are already getting a fair value for your labor, perhaps. If not, then point that out. If so, then you're going to have to do some give and take. Why is this complicated? LOL
Currently hooked on AMP
If you aren't planning on forcing their hand don't expect anything. It is in their interest to retain your services as cheaply as possible. Why would they give you more money if you are going to work just as hard for less. Jeez!
My first instinct was to reply to that first post up there that basically says: "You're replaceable". Because... you are quite replaceable whether you think so or not.
However, thinking a bit more, the second thing that crossed my mind is simply: it's ok to just ask. This post is along the right track - do some homework and try to figure out what your value is. I'm not sure I necessarily agree with asking for a review unless there's already a formal review process in place. Also, simply being a hard worker and intelligent probably isn't enough. Leadership and ambition are almost harder qualities to find, so stoke those fires well.
----- obSig
Did you ever consider why the founders allowed the workforce to be structured as a group of independent contractors? Most likely it is becasue they want to preserve maximum workforce flexibility (ie hiring and firing) during the startup phase. You may think you're indispensible but you are most certainly not in the eyes of the equity holders.
Anyone who cites a requirement for equity as a precondition for remaining at a company is automatically tagging themselves as a dissatisfied employee who is a risk to the business. You may very well trigger a risk mitigation response from your boss, where he gradually brings other staff in to acquire any 'specialised' knowledge you have in preparation for you to leave.
If you want more money, the best thing to do is ask your boss how you can add more value to the company. Then go and do exactly what he says. Then once you've done that, go back and ask for your raise. If he agrees, that's great, but be prepared for him to say no. If he says no, then you can have the conversation about your future.
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The time to think about this sort of thing is when the company is/was getting started.
I'm positive that your existing contract explicitly states that you have no rights to the software in question beyond maybe being credited with it, and that you are just a contractor. Going in and asking for a cut of the business now is going to be seen as offensive and almost certainly will erode your current relationship. And it may end you up in court being sued in a worst-case scenario.*
You only recourse is to raise your rates or possibly talk about a full-time position as a in-house developer. Neither will be seen as an offensive move and you may get some perks out of full-time employment that you don't currently get, like health coverage and bonuses and so on (as well as a possible management position later on).
* in the rare case that the software rights are yours and yours alone and the company doesn't have such a clause in the contract (they'd be rank idiots if this happened, so don't count on it), then you can actually hold them by the short and curlies if you want. But you'll get the same pissed-off response by them. In such a case, everyone loses, and the person with the smallest pockets for legal expenses usually comes out the worse for it.
Personally if the company is as close-knit as you make it sound why not just ask for it?
I can't imagine that the stake-holders in the company would be so offended that you asked for stake in the company. Unless you're thinking about storming into the office and demanding it, there is no need to assume there is going to be any hostility until there is some.
The valley has become enamored with Stock Appreciation Rights. One of the reasons companies don't always like to give out options is because they can be acquired and then having voting rights and rights to inspection of the corporation. That can be a headache, it creates a real need to have solid bookkeeping and to have lawyers ready to deal with paperwork, board minutes etc. Thats a distraction from a young company. Plus...who even knows if they've done the ground work to have a stock option pool etc.
Stock appreciation rights is simply a contract that binds return to you in the event of liquidity that is bound to the appreciation of the fair market value of the company stock. So...you don't have stock, you have nothing to buy, but in the event of sale of the stock you'd get the equivalent of what you'd get if you'd had options. (you don't have the same AMT issues which is nice, but you also have no route to avoid short term capital gains if it does in deed go liquid. But..good option for your owners, good option for you. Worth a look!
I've been a contractor long enough to know that companies don't see anyone as indispensable, even if you indeed are. They're more than willing to cut off their own hand, rather than cave to those kinds of demands. Companies are very willing to spend several additional years and millions of dollars to replace you and your work rather than give you a tiny amount of compensation in return for honest hard work. It seems counter-intuitive, but this really happens.
I think human beings have an idea of what they consider fair, and if they feel you're stepping even slightly outside of what they consider reasonable, they will establish a "Scorched Earth" policy. It's overkill, silly and a detriment to their business model and revenue, but it's justice. And, people are the emotional sort where that kind of thing is justified in their hearts and minds. I guess that's the real kicker, you're dealing with emotions and not really logic or realistic numbers here. From your perspective, it seems entirely logical.
Of course, I repeat this mistake over and over myself. It's kind of like playing the lotto, one of these days I think maybe it'll just happen to work and I'll finally get what I feel I deserve. I don't really have any advice for you except to keep all of this in mind before you talk to them.
If you still want to go ahead with it, have some job interviews lined up, you're not really dispensable like they think you are. A good worker is hard to find and other companies will gobble you up fairly quickly if you're really as good as you sound. Hope that helps.
Look, be honest with yourself. If you're truly indispensable -- if I couldn't come in with my 20 years experience and do your job within about, let's say, two months after getting there -- or if you feel you have more to offer that hasn't been tapped yet, then go to the owner and talk to him. Be prepared to negotiate. There have been good suggestions made here already.
1. Be willing to take a pay cut and an increase in responsibilities.
2. Be prepared to offer whatever free time you currently enjoy -- weekends and holidays.
3. Show that you have a vision that could ensure the company's success.
4. Have an exit plan in place if things don't go the way you expect.
Now here's what's working against you. Scoring an equity stake in a company that's already established and profitable is next to impossible. And the company is already showing a marked lack of commitment to its workers -- businesses don't have to pay unemployment, benefits, or vacation to a contractor, and they can cancel the contract at anytime without notice. Contractors are, by definition, temporary and interchangeable.
But maybe you are That Guy, the one that they really want to take care of. It never hurts to sit down over lunch and chat about it.
Whats is equity? Pardon my ignorance.
Collude with the rest of the contractors to demand it at the same time, or you will all quit. They probably can't deal with being down so much manpower at the same time, so their hand will be forced.
I'm amazed at the number of people who claim the guy is greedy. Whether you are a contractor or a full time employee you can ask for a raise (whether its monetary or in the form of equity) and any time. Feel like they are asking you to do more work? Feel like you are doing more work than others? Then ask. They don't have to give it to you, they may laugh at you. They may also consider it. But you have to also figure out what will you do if they say no? Are you willing to continue to work there? Personally talk to the company, explain why you feel like you deserve a piece of the pie. And if other people feel you are greedy, then fine. They can work for peanuts. Just because you are receiving equity doesn't mean you aren't a contractor.
As an employer I find that kind of thinking ridiculous.
The company owners invested their money to PAY YOU all this time even though they did not know whether or not the company would work. You on the other had were receiving a full salary with NO RISK all this time. The owner was successful in building a good team and combining it with a good idea. Now THEIR investment is paying off. It is time for them to enjoy the benefits of that now. Remember YOU have already been paid for your work.
As a contractor, the employer has a little less risk than hiring you. But you were also most likely making more money per month than a salaried employee would have.
Now, as an employer, it is important to keep your employees happy with their package. Giving a bonus or stock options is something that I would think about. But it is in no way a right for you. You could ask for a raise yes. You could offer to get stocks or option in lieu of a salary. But if you said it like you did that you deserved it because of all your hard work. Then I would personally be pissed at you.
Cheers
I've worked for a number of startups, and, from my experience, equity is usually part of the deal. If you got in early and have really added a lot of value, I would expect them to be receptive to your request. Tech startups will usually set aside a small percentage of the company's shares to use as incentive/reward for key players during the ramp-up phase. Now, if the company's already profitable with good cash flow, their incentive to offer you equity in exchange for a rate reduction is, of course, reduced, but I don't see the harm in asking.
Just ask. Think it through, determine your goal for each conversation and visualize how a detailed contract would look that gives you equity and with which you're happy. Determine, for your self, what you're willing to bargain and what not. Establish your real position and your position as it perceived by others, maybe by having a few unsuspicious conversations throughout the team, and then move forward. If your position is good, you may even have some leverage. 'I want in. Give me some equity or I'll bail.' can be very convincing if you really are indispensable.
And Captain Obvious say, of course: When it comes to signing, consult a lawyer first.
We suffer more in our imagination than in reality. - Seneca
An IT guy is simply not valuable as a partner in a company that has technology outside the IT Sphere. What does your company make?
If you have a genuine way to IMPROVE their product - which you should have if you've been paying attention and have any experience and initiative, pitch it to them. Don't just casually mention it at the coffee machine, but do a full-out sales pitch, complete with costs, benefits, projections, how it fits in with their plans - the works.
After that, the clincher is to say that you're prepared to work on that new line for FREE, i.e. no more hourly rates. But you'd like a (small: a few percent) stake if the idea works out. That's the key element: that you're prepared to give up your security for the hope of rewards if your ideas work out. After all, that's what the founders did and they'd be crazy to accept anyone new into the fold who wasn't prepared to do the same. However, since they've already taken the lion's share of the risk and done the hard bit, all you have is a "me too" after the fact. So obviously your level of risk is much lower and your future rewards should be too.
politicians are like babies' nappies: they should both be changed regularly and for the same reasons
Shit, you're a contractor already.
The thing with start ups is that you work for them for a low salary, probably putting in long hours without asking for extra compensation. In return for providing all this cheap labor, you will get some equity. Of course, most start ups go bust, so getting in early doing the cheap labor thing is a little bit like playing on a lottery. You take a risk, and for taking that risk, you will be rewarded if all goes well.
Your case is very different though. By your own admission you have been a very well paid contractor. Now when the business seems to go well, you want to get some equity. I am sorry but to me you just come off as wanting to have something that you are not entitled to.
If you want equity, my advice for you is to go and work for a start as a [low wage] employee. Then you can ask for equity.
Of course, there is a possibility that I am wrong. Maybe you did work 80 hours a week while charging the company for just 40, during the early days. However, your post doesn't say anything about this. In that case, I could see some justification for getting equity. However, in that case you should probably have asked for it earlier. You could have told them "hey, I can do X extra hours a week in exchange for some equity. If you need me, you can call me on Saturday night as well."
Regarding the thing about being "indispensible". I have seen some contractor guys thinking this of themselves. They were very competent and very talented engineers. In the end, it was proved that they weren't impossible to replace (and they were replaced).
I'm so very pleased to see so many before state the painfully obvious. The very notion that anyone other than the proper, majority share holding owner is indispensable, much less a contractor, is naive at best, arrogant at the middle ground, and anathema to productive continuity. While we should all value our positions in whichever line of work we are in, we owe it to ourselves to come as close to objective assessment of the skill sets and their subsequent application toward the overall operation. I hold IT personnel in high regard, but let us all face reality: There are countless others that seek these jobs, many of whom no doubt come without the baggage of misplaced importance or inequitable sense of self-worth. I say this with full recognition that I do not know this person posing the question. That being said, in a place such as Slashdot, I do believe my words fall on many ears that have heard this type of talk stemming from behavior demonstrative of that which fosters ill rapport and declining morale.
There is no reason for the owners to just give you a part of their company, but there is a clear motivation for them to grant you options that will vest over a few years - it gives you a reason to stay in the company for the whole term. /. and is reading this comment...
You can also use the following approach: "I really enjoy working here, but some friends offered that I join their startup and they are offering to give me some equity. I believe in your company, but here the success of the company is not really helping me financially with my current salary structure."
Of course, you are taking the risk that your boss reads
in a small 3 man (+2 contractors) biotech spin off company here, I have an agreement for a small % of the company when I've worked here for 3 years (few months off that now). However I have been on a wage that is anywhere between 30-50% lower than I could get in academia or at a medium/large company. From the CEO's perspective, diluting equity by dishing it out too easily on people that may well turn out to be transient is a disaster.
You didn't sign up for the risk. As a contractor, you specifically skipped the risk. I can see no reason for you to "reap the rewards".
Since nobody has mentioned it, you're very unlikely to be legally considered a contractor. Thus, the company would be on hook for your payroll taxes, social security, etc. If you're looking for a way to be greedy, you can play this card and get nasty ugly about it.
The time to do it was before ether started to grow - when their future was more uncertain. Now, they are beginning to have a good story to tell - so it's harder to convince them to give up some of what they risked earlier. That said, I'd go with a "I think you are going to be very successful and would like to trade some of my current compensation for a stake in the future." Then work out a pay reduction in exchange for equity. Also, get a good lawyer that understands startups so whatever deal you cut, if any, is fair to both sides. They could give you equity with the right to buy it back a a low price, if for example, the company is sold. Or fire you before it vests.
I'm a consultant - I convert gibberish into cash-flow.
Well if you're paid contractor rates I don't see why they'd give you equities. But OTOH they could for a significant reduction of your rates.
I split my time between two companies and the company I have equities in, I essentially ask for a lot less (like 1/4 or so my usual contractor rate !).
Now this assumes you currently have a real contractor rate (orders of 1000 - 2000$ per day where I am) ...
Is to simply approach your boss (or the owners) and express an interest in investing in the enterprise. This works for both you and the owners as it registers your interest and belief in the endeavour and allows the owners the widest possible options in response.
If you are truly part of the companies DNA you will be recognised as such and can expect something reasonable; ELSE your offer is politely declined and you carry on working knowing exactly where you stand and, as you are fairly compensated anyway, no worse off than before.
Quidquid latine dictum sit, altum sonatur.
Honestly you can ask to go permanent and that is probably it. Be grateful you appear to have a solid client that won't let you go.
From their point of view, they had the idea, the money, and the forward planning to know they needed an IT solution and put the right budget in place. If they did not have the budget, they would have offered equity at the time of your employment. You, at that time, would have said no.
Having been in a similar position, I turned it down. That venture failed eventually.
If anyone ever told Stalin that they were indispensable, he had them killed and replaced.
of course the obvious approach is to give them a discount on your rate in exchange for stock. However, be aware that you need to pay taxes on that stock, even though you are not able to sell the stock at this point. In addition, this means extra work/pain for the owner as they have to figure out how much the stock is worth each time they give you some.
A little bit a different approach is if they give you restricted stock. E.g. they say they give you stock, but it vests and only belongs to you if you stay for a couple years. That way, you can do an 83b election with the IRS, not having to pay any taxes until you actually sell the stock. This approach is a lot easier, but has to be done right (not easy... ask a tax professional for details).
Buying stock in start-ups is not easy. In some cases you may need to qualify based on your income. In part the reason is that a privately held start-up has no real safe guards for its investors and the respective regulators want to make sure that you understand what you are buying.
I have also had start-ups give me stock options. In that case, you don't have the tax issues if the options have the same price as the stock at the time you get the options. Again it may not be easy for the start-up to figure out the price of the stock.
In short: if they are desperate and need cash, they will gladly give you stock. If not, you are probably out of luck.
(I am not a tax professional, lawyer, or in any way qualified to give this kind of advice. But this is Slashdot which counts as having slept at a Holiday Inn last night, which I didn't)
Microsoft isn't exactly closing up shop now that Bill is saving the world. Apple seems to be humming along without Steve. Yet, somehow, you've managed to make yourself indispensable? That seems somewhat unlikely. And even if it is true, it is meaningless unless your employer shares your opinion.
Of course, nobody is quite as dispensable as someone who realizes that he/she is indispensable. That situation cannot be permitted to last, because it is a risk to the company.
As somebody who has worked as a contractor developing software for startups for the better part of a decade, I'm here to tell you that you get what you negotiate. Renegotiating the contract you are working in the light of success is very bad form. Live and learn.
This thread reeks of altruism. I have known a great deal of business owners that are inept, apathetic jackasses. We are all in it for the money, perhaps other reasons as well. Who would turn down a raise? Then you're just as greedy as this guy!
1. At the end of the day, they pay what they are willing to, for a variety of reasons.
2. Don't assume you're replaceable.
3. If you want an ownership stake they would want you to prove yourself capable of making good decisions on a different level than you have been. They would also want to believe that you have earned the ownership stake. So either trade on your previous accomplishments, or having impressed them in the past, or be willing to reduce your rate, or work more for the same rate. There has to be a give, and take, but there is really no way to gauge what is acceptable to them on an internet forum.
Unless they are the same apathetic jackasses that I have met, in which case you aren't worth anything to them, and they would just say 'Thanks for the free work'.
4. Good luck, and be mindful of the fed up economy.
By the time is become obvious that you're trending upward, it may be too late to trade a portion of you fees for any significant stake. On the other hand, you may want to consider buying in. If money is tight at the company, and they could use an extra $100-200k, you might have a shot.
Is it just my observation, or are there way too many stupid people in the world?
Anyone who told me they were "indispensable" ended up getting fired. Either you are not really indispensable or the company will fire you anyway because they are not too bright. The company will tell you that you are special, but only at your going away party.
Sorry, but gray text on gray background is making my eyes bleed.
Stop being a pussy and just say it. People who don't ask, don't get.
Say: "I believe I have been important to this company and will continue to do so. I would like some stock options."
The worse that can happen is that they can say no.
Post your *full* name and company name, then we'll take care of the rest. You won't have to worry about anything
I recommend reading the book "Getting to Yes". It's a fluffy business book, but by far the most useful such book that I've ever read. It presents a very nice way of understanding and approaching the process of negotiation. Basically it comes down to 1) identifying your personal interests and the mutual interests that you share with the negotiating party and 2) identifying your "Best Alternative to Fairly Negotiated Agreement (BAFNA), i.e. what your fallback plan is if the negotiation falls through. The negotiation process starts with a discussion of the various interests and possible arrangements that can satisfy the interests, while avoiding positional bargaining (I want this much. You can have this much. No, I want at least this much...) The strength of your negotiating position depends on the attractiveness of your BAFNA, (and the strength of the other party depends on their BAFNA). This may all sound like plain old common sense, but I find that this framework helps structure my thoughts and approach to negotiating, leading to more success and less pain...
I wouldn't presume to judge my own value to the company, but I might invite the business owners to do so. "I know I'm just a contractor and am easily replaced, but I enjoy the work I do here, and I support the company's mission. If a suitable position ever became available, I hope you'd be willing to consider me, because I'd certainly be interested." Then end the conversation promptly so they don't feel any subtle pressure to comment on your value.
I've noticed that the people who bring the most value to an organization tend to presume the least about themselves.
--Working as a contractor, especially for a startup, is always a risk Um...balderdash. Working for a contractor is NOT a risk. I've worked as an employee and contractor and as a contractor, I know I'm always the first to go. I also know I get paid contractors rates. There is a premium paid for no having to pay for education, medical, insurance, overtime, etc. If you want a piece of success...be willing to take on some of the risks. Waiting UNTIL the revenue stream comes in....not exactly fair.
This is a job for the Geek Squad. Or any of the thousands of IT companies out there. Dude, no one in any IT support job is even close to indispensable or irreplaceable. You could get hit by the proverbial bus and never step foot in that place and the company will be just fine. Any decent IT/Network Admin type could get in there and figure out your setup. If not, then you have deviated wildly from normal practices and even then they could still do it. It just might take reloading some servers and or plugging into the back of some routers but it could be done. External hacking is hard but when you have keys to the place and can pretty much touch the hardware, come on.
If you are a truly a trusted asset talk to them about becoming a permanent player. Make sure you stress your commitment to the place and let them know you want the company to succeed at all costs. They like it when you tell them they are #1 in your life. To quote the pyromaniac from The Stand, "My life for you" . Let's say something like this, Hey boss man (or woman) I been here awhile now and really like the place. I have built us a nice little infrastructure that I think you'll agree works pretty well. If possible, I would like to be come a permanent part of the scenery and maybe even move into a management position or at least be involved in decision making. I think you know me by now and I think you'll agree that I am a level headed intelligent individual. Some one you would like to have on your team. I been thinking a lot lately about the future. I really want to settle down into a long term job and really make a difference somewhere. I think this is the place for me to do just that. This whole contracting thing is fine but I am tired of it. what do you say, can you make room for me?
Anyway, good luck. :)
This aint Daytona and you aint Dale Earnhardt. So stop trying to draft on Interstate 40.
...so here's one from a guy who owns a startup and will shortly be offering equity to one or two senior-level people I'm going to need next year!
You aren't a greedy bastard for being interested in equity. If you're a normal person, you have a decent but incomplete idea about how startups...well, start, and who gets equity and why. And why shouldn't you? I wouldn't know half of this stuff if I didn't run a startup. You see the place doing really well and you want a piece of the action because you've been a significant part of that. This is a normal human impulse.
But several other posters are correct when they say that the time to ask for this stuff was up front. Companies (like mine) offer equity because they can't afford salaries and benefits early on and are promising you a piece of the pie if and when the company takes off. We use contractors as well, but they're remote and for specific projects -- if you show up to an office every day and don't have specific projects, then yeah, your company might get in trouble with the IRS, as others have suggested. But that's not going to help you (rather, your boss may need to convert all of you to employees ASAP, which may cost him a bundle depending on what state you're in).
There aren't many rules for small companies about how much equity you can get and when. If you really are indispensable, then your bargaining position is this: you can come to another company (like mine) and get hired on account of your experience being a startup ninja IT guy, quite possibly with equity. The likelihood of this happening is probably the only thing that might cause your boss to give you equity in your current job, because you are essentially asking for the reward even though you didn't risk as much as an equity partner did. Here I disagree with those posters who say 'your job was at risk just like theirs,' and yes, that's true, but that's not the point -- an equity partner is risking more than just losing their job; they either started the business or accepted below-market compensation to work there, meaning they gambled lost income from a 'real' job in exchange for equity. You, on the other hand, were paid at market or above market (contractor) rates, so while you don't have employee benefits and probably didn't make more than you otherwise might have made at a salaried job, you didn't make less.
You might try to split the difference and ask for a very small amount of equity. Just explain to your boss that you really like your job, you're committed to the company, and you feel that you've earned a little stock. If you really are as vital as you say, then they'll at least entertain the idea -- I would -- but that's your gamble.
I'm an employee at a small company much like yours (I am not a contractor, though -- I took a lower salary than I wanted with the understanding that I'd benefit if the venture was successful). Here's my advice, based on replacing "I am basically indispensable for the continuation of this growth" with "my employers recognize that I am very valuable to the continuation of this growth".
1. Don't attempt to negotiate based on your past value. You agreed to be paid for what you did, you did what you agreed to, and you were paid. Everyone is even -- you are not owed anything for the past. Focus your negotiations on how you'd like things to be in the future.
2. Don't use (or even hint at) ultimatums unless you are 100% willing to follow through. Don't focus your negotiations on the idea of "fairness". Sell the idea that the future situation you want is better for everyone.
3. Don't attempt to negotiate at all unless you are willing to take risks and make significant sacrifices for future benefit. Your employers are doing both of these things, and that's why they stand to benefit most from success. It's almost certain that you need to be willing to be a salaried employee at a lower-than-desired rate, and that you need to be willing to work more hours, have higher availability, and take on more responsibility.
4. Your approach can't be about "cashing in" or "getting a piece". Evaluate whether the venture is something you want to be a bigger part of. Your employers probably view the business as their "baby". You have to be able to see it that way too.
Good luck!
Pretty simple: just ask. Not arrogantly, don't bring in side issues, don't say 'I am indispensible'. Just ask: Can I have equity? The worst they can do is say no. Be prepared for them to say no. Wait awhile and ask again. Ask three times. Try not to get angry if they say no and don't hold a grudge. They have their reasons. As a business owner I am astonished at what people won't do. You will never get the girl if you don't ask her out. -- IV
http://www.LinuxMedNews.com Revolutionizing Medical Education and Practice.
“The cemeteries of the world are full of indispensable men.”
- Charles de Gaulle.
You missed your chance at equity by taking a steady salary when the company was in the red. Now that they are clearly in the black if you ask for equity you come off as greedy.
a bit in recent years.
But, originally at least, contractors made a significant amount more than employees....yes, benefits weren't paid and that accounted for it, but the theory was that contractors were specialists brought in and expected to be let go. Ideally, employees would keep through thick and thin.
This has been lost recently, mostly with companies treating employees like...well, anyway. But the practice still continues. As a contractor, if you want to pay me $$$ for getting signatures on a sheet of paper (believe it or not, I have actually done that...spent 8 hours talking to people trying to explain why a change was okay to go to production) - and I had no problems with that.
Make me an employee though and that's the first thing to change. Then I'm supposed to have a tie into whether or not the company does well (and makes it's next quarter or not).
(Also...contractors...at least myself...expect to change jobs at the drop of a hat. I don't expect that as much if I'm an employee)
Thanks everyone for their replies, it's very good to see various opinions - from both sides of the equation!
https://twitter.com/#!/paulg/status/51528478083923968
The normal reason for giving equity to participants in a start-up is to compensate them for the risk they took in participating. Sometimes it's also to compensate for the lower salaries and benefits that a start-up can afford in the early years.
As a contractor you didn't take the risk (a contractor can move on easily), so why do you deserve the reward?
Instead of asking for stock options, tell your management you'd like to invest money in the company.
Slashdot = Sarcasm
Come work for me.. Send me your resume. beam.galactic@gmail.com
Like others here have implied..consider yourself lucky to be able to BUY equity at this point..if the company's doing that well it's a golden opportunity .. it's way too late to get paid in equity.. as others have pointed out.. shared risk = shared equity ..contracting = NO risk ..
It was 15 years ago, and I was just out of college. I was lucky enough to have a very understanding boss, otherwise I believe I would have been fired for my initial approach. Long story short I worked for a startup company and the owner inherited me. It was a business that was already established and then sold. The new owner had a great business background, but no clue on the day to day specifics of this particular business at the time. I was offered a substantial raise, and I instead asked for part ownership in the company. The owner asked for a few days to think about it, and then approached me with the following offer: instead of a raise, I would cut my current hourly rate in half, then multiply that by 40 to come up with a weekly salary. However, my minimum work time was expected to be 65 hours per week, and now being salary, it meant no overtime compensation (with the arrangement I ended up making less than my jobs i had before college. In return I would get a 10 percent stake in the company, but not share in the profits for the first five years unless the business was sold. I ended up taking the offer, and I still have that 10 percent ownership to this day. It did take almost 8 years before the profits plus my salary got back to where I was at just making my hourly rate, but now i consider it worth it. The company owns a large building for its operations (we used to lease) and the hours I put in are closer to 10 per week now. However I only share in 10 percent of the profits now and no longer get any type of salary other than that.
I still can't live off of the money I make from that company, but I have started my own company and the extra income for such a small time investment at this point is nice. Plus I will get a nice check when the business is sold. So I guess my advice to you is be prepared to sacrifice just as the current owners did to get the business up and running. Starting a business involves a lot of risk, and you never shared in that. Remember that when going into your negotiations. Your offer should be a PAY CUT for yourself and not partaking in any profit sharing until you have paid off your stake in the company, either by working off your share, or by giving the owners a lump sum check for the price of your stake in the company (in which case you need not offer to take a pay cut, but your salary should turn into just your share of the profits). That is the part you need to remember, if you want part ownership you have to put up capitol in some way. Don't assume your past work should be thought of as "investing in the company", since you were paid for your work. You need to either write a check or work for free to earn your portion of the company. If you go into negotiations knowing this, you may have a good chance, but do be prepared for the owner to say no, and even to let you go if s/he get very offended at your proposal.
My 2 cents.
Agreeing with a number of postings: Start by offering your positive assessment of the company, your enthusiasm for the company's future and your feeling that your work has contributed to the current good status. (Of course, touting one's own contribution needs delicacy, but no, it's not wrong to cite it.) Note that you are feeling a responsibility to continue to help the company to succeed. State that you would like to share some of the risk and benefit of the company's good future by participating in the equity plan. As others have noted, this can -- and usually does -- involve a tradeoff with other compensation. Higher pay means less stock. Also as already noted, the company's having matured already means that it is likely the stock price and the amount available to folk such as you won't be as wonderful as founder's shares. You probably do not know any details of the company's stock plan, so you should state openness about what the package of stock should be. But this is a negotiation and you want to cast it positively and flexibly. Before pursuing this, you need to consider what your reaction will be to being turned down. Will it sour your relationship to the company? Good luck. d/
Dave Crocker bbiw.net
Come on people. Really?? This guy doesn't deserve to be beaten into the ground for asking this. It's a good question. I've been in this situation more than once. If the project has much further to go, and your direct effort has a large effect on the outcome of the project, you may be in a position to ask for equity or options. Don't expect a huge percentage. Think 10%. Maybe lower depending on the financials and length you expect to be involved. I've seen vesting for certain amounts of time, or tied to revenue. Which brings us to the really hard part. How do you get money out of it? If you own options, you don't really own anything, until they are exercised. You are not entitled to anything, no profit sharing, no payouts, nothing until the company sells, the company or another share holder wants to buy the options, or you invest money in the company to exercise the shares yourself. (Options are just an option to buy, not free money. Even if the options were free to you.) In some cases you are even restricted to selling the options to pre-approved people. Private companies have a lot of control over who owns their shares, they are in fact restricted to NOT selling shares to the general public.
You may want to ask for an appraisal of your work before you make the above proposal. If the appraisel is positive, then you have a value call. If you are indispensable, then the thing to do is invite the principal(s) to lunch (one at a time), and state your case. You are the Architect, and the Project manager, and the team leader. Your contribution has resulted in revenue increases from zzzz to AAAA, in the months you took over. You believe it is reasonable to receive equity so that you will be encouraged to excel. Be prepared for a stall, or a Let me check with my partners reply. If that is stated, then say, great, let me know by next week. Good luck
Leslie Satenstein Montreal Quebec Canada
You imply that most of the people working for this startup are contractors. Who are then the shareholders? Are any contractors that are at the same time shareholders? If so, you should approach directly the head and talk openly about your concerns with the company's shares. This is specially important if you are receiving low fees "because we are just atarting up". If your fees are competitive, then you have a harder case to make, but still, if you are willing to commit to the startup 100% - 150% of your time, then you are material for shareholder.
As much as it might seem wise to trade for equity in the company, consider whether or not the company is worth investing in. Look at it from an outside-investor's standpoint, whether you would invest in it. You as a person working in the company should not be considered, unless you are going to be put in an influential position where you can steer major decisions.
Worse case scenario is ... you get fired, they run the company into the ground, and your equity that you traded a lower-paying salary for, isn't worth anything.