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?"

Comments

Don't imagine that you're indispensable.

[jcr]

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

Re:Don't imagine that you're indispensable.

[Fluffeh]

You are going to be in a bad negotiating position. The thing with start-ups is that they generally offer a lot of options early to the first bunch that comes into the fray. If they have decided to go with contracts rather than options, you are in an even worse negotiating position. You see, if options are offered early, then the folks behind it are offering options to potential employees to negate their own risk in the venture. If these chaps have decided to gather enough funding and then simply offer contracting rates, then they have taken the risk totally upon themselves. At this point (where there is good revenue coming in ad the business is in a stable financial postition) they risk associated with the venture is all but gone.

Not to be blunt, but why on earth would they offer you equity in the venture now - especially that they have weathered all the early (and biggest) risk? It seems to me like you want the best of both worlds - contractor rates while the venture is risky, then equity when the venture looks safe and stable. Unless you have something to offer that will be worth equity to them - such as being able to greatly increase their revenue, or bring more clients to the company - or something else that is just as valuable - giving you options at this point would be a poor business act on their part.

You were paid to do a job, right?

[Anonymous Coward]

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, Politely

[Anonymous Coward]

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...

On top of that ...

[Barbara, not Barbie]

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.

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

Financial: Are the business aspects of the worker's job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

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.