Ask Slashdot: How To Ask For Equity In a Startup? 349
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?"
Re:Don't imagine that you're indispensable. (Score:5, Informative)
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.
Re:On the other hand... (Score:5, Informative)
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.
Tough to say (Score:4, Informative)
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
Re:You are a contractor (Score:4, Informative)
Re:Tough to say (Score:4, Informative)
You are too fast to judge. I'm an employee in a small IT company. My contract says programmer-analyst and 42 hours a week. However I'm at my desk since 7:30 until 17:00 nearly every working day. Then I get home and put more work in. Write skeleton code that gets later used by the company, write tools that make my job easier and that get later used also by my colleagues, etc. . I rarely go sleep before midnight. And I do this also during the weekends and holidays. I do it not because I was asked, but because I enjoy it. I respond to e-mail alerts from automated tasks running late in the evening - when something breaks in the evening, I log in remotely (using my computer and my Internet connection) and fix stuff so that people don't need to wait for the fix in the morning. When the building alarm goes off, I'm the one that is notified and goes to check whats going on. When an e-mail exchange with customers in foreign language reaches the developers, they come to me for help with translation. When the internet connection goes down, I'm the one talking to our ISP. When I consider it all around, I'm exploited. But I don't mind that much, because I have good relationship with the boss, colleagues, flex time, free hands in some areas, ...
I doubt that the boss/owner puts significantly more time and effort in the company. Yet I don't think I'm indispensable, but replacing me would mean that for a handful of projects the development would stall, and the bugfixes could do more harm than good because my replacement would not know all the bits and details that I learned during 10+ years.
I'm not trying to downplay the importance of business owner. He provides something that I can't. But you also should not downplay importance of a dedicated subordinate.