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?"
you're a contractor (Score:4, Insightful)
...and therefore not indispensable ...
Good luck, you are greedy indeed...
Comment removed (Score:5, Insightful)
Re:Don't imagine that you're indispensable. (Score:4, Insightful)
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
Yes, because it's not really that strong a hand to begin with. People often overestimate their own value. By his own admission he's well paid already.
equity versus salary (Score:4, Insightful)
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.
You are a contractor (Score:3, Insightful)
You get paid by the hour.
Folks who stand to lose money if the company goes under get equity. Not you.
You were paid to do a job, right? (Score:5, Insightful)
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.
Re:Don't imagine that you're indispensable. (Score:4, Insightful)
^^ What jcr said. Also, what's wrong with simply asking how you can be a bigger part of the company?
However, you also said this:
If that's the case, you should expect the answer to equity sharing to be "no, we're happy with where the equity positions are at already."
Additionally, the "price" of equity is inversely proportional to the risk involved. If it's 3 guys just starting up and scraping the cash together month-to-month, equity can be pretty cheap - you can make an offer for a big chunk of equity because you're assuming a big part of the risk. If, as you say, they have significant revenue already, then the equity should be relatively expensive - after all, there's not much risk anymore, and any cash you offer to put in might not be much in comparison to month-to-month revenue.
As a contractor, you'd probably have to offer a pretty hefty reduction in salary/rate for equity. As a full-time employee, you could probably command more for a lesser price, as you'd essentially be assuming some of the risk - e.g. the risk of being an at-will employee getting sacked if revenue turns south vs. a fixed-length contract.
Switch to permanent employee (Score:5, Insightful)
Re:You are a contractor (Score:5, Insightful)
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.
sign on bonus (Score:5, Insightful)
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.
Re:On the other hand... (Score:5, Insightful)
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.
indispensable (Score:2, Insightful)
>> 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 :)
Re:You were paid to do a job, right? (Score:4, Insightful)
However, the premise of the scenario is the guy thinks he has become indispensable.
Don't ever let the company you work for think you think that. If I had an employee who thought he was indispensable, I'd fire him. Why? Because as much as I defend Terry Childs (read my posts on that if you like), the issue there was caused by him thinking he was indispensable. That mentality doesn't work well in a company. They segregate information, horde information, and start to work in a manner to grow their power base, rather than just do the job asked of them.
I've seen it before a number of times. And it always ends the same, badly. And never once has the employee been indispensable. In fact, three times I've replaced the person who thought they were indispensable, and I certainly didn't have any delusions of grandeur when I was then as indispensable or more indispensable than they were.
Re:On the other hand... (Score:4, Insightful)
My gods, you people are greedy.
If there's a small startup, and a half dozen people are working there and manage to turn it from a small startup into a successful company, don't you think the employees deserve to share in some of the success as well?
This isn't a case of what they deserve legally. It's more a case of "We built this company. We did it together. Let's all share in the spoils!"
I think it makes sense. There's that famous story of Apple's startup days, when Woz noticed some of the employees who were criticial to the company's success didn't get any stock, and Woz gave them some of his own because he felt they contributed.
If the owners of a six person company become billionaires and the employees only get their piddly (in comparison) salaries, and NOTHING more for what they accomplished, who's being greedy now?
Re:On the other hand... (Score:4, Insightful)
That's where equity comes in.. up front.
People take some equity in leu of being paid the full going rate, and absorb some risk (but also stand to make serious money if they work hard and the thing takes off). The time to negotiate for equity would have been up front, not after the business is somewhat established and running smoothly.
If the owners of a six person company become billionaires and the employees only get their piddly (in comparison) salaries, and NOTHING more for what they accomplished, who's being greedy now?
Those owners also took all the risk. Again with the trade off. Some startups give out equity as a way of distributing the risk to employees (and the potential reward as well). This employer chose not only to not do this, but not even have him as a full time employee. More importantly this employee chose to work as a contractor at a contract rate (which is probably far from "piddly").
And this is all assuming this guy is really as indispensable as he thinks he is. He could just be a replaceable cog.. most people working on contract are. First step would be to go full time.. next step would be to talk about buying into the company some how.
Re:On the other hand... (Score:4, Insightful)
If the owners of a six person company become billionaires and the employees only get their piddly (in comparison) salaries, and NOTHING more for what they accomplished, who's being greedy now?
You're suggesting that if you take no risk, make no investment and get contracting rates you should then also be able to reap the rewards of the people who took the risk, provided the investment and paid you those contractor rates. That is absurd! 'Yeah if it succeeds i want some of the profit, but if it fails i don't want any of the debt'
Re:On the other hand... (Score:4, Insightful)
You're suggesting that if you take no risk, make no investment and get contracting rates you should then also be able to reap the rewards of the people who took the risk, provided the investment and paid you those contractor rates. That is absurd! 'Yeah if it succeeds i want some of the profit, but if it fails i don't want any of the debt'
Working as a contractor, especially for a startup, is always a risk. You could be out of a job at any moment if things don't go well. Seeing as this guy is apparently one of the main people ensuring that things go well, getting a cut of that success doesn't seem like too much to ask. If he is over-inflating his actual importance, then he will probably be unsuccessful in getting that cut. If he isn't, then I think they'd be more than willing to give him a cut in order to retain him. If you don't ask, you can't expect them to just hand it to you, even if they think you probably deserve it.