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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...
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."
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.
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!
Yes, he's a contractor, who risked nothing when the company was starting out. But got paid contractor rates for his work.
The company owes the greedy bastard nothing.
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
If you really are indispensable
No one except the owner is indispensable. It will completely depend on the relationship he has with them. If he's considered a "friend" or "good guy" he might be able to talk his way into something. If he's considered an asset then it's like the copier asking for a raise. A lot of people deride that this is the case or they deride that somebody thinks it's the case but I just think it's human nature and understandable.
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...
I've been amazed on more than one occasion at how quickly someone who I would have described as indispensable is quickly replaced. There are always issues and will be some lost money... but people step up and surprise you. Having seen this, I'd say very few people are _actually_ indispensable.
I have a feeling this guy thinks he's more important than he actually is. Which is fair.. most people like to think they are the main cog keeping everything running. Rarely the case. If he's not even a full time employee, chances are he could be replaced with little more than a hiccup. Management probably has a transition plan in place.
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
I have a feeling this guy thinks he's more important than he actually is.
Come on, when have you ever heard someone in IT with an inflated notion of their own importance? I mean, that is completely absurd.
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.
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.