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?"
Ask, Politely (Score:5, Interesting)
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 ... (Score:5, Interesting)
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 [irs.gov]
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.
The IRS is already going to (Score:5, Interesting)
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.
Re:On the other hand... (Score:1, Interesting)
but people step up and surprise you. Having seen this, I'd say very few people are _actually_ indispensable.
Cognitive bias. Novice/Intermediate IT admins often think they are experts. IT admins/developers often think a "replacement" would have to do the job exactly the same way they would, and use the exact same techniques. IT people think they have elaborate knowledge of the systems they administer/maintain that noone else does, that's absolutely essential for the system to continue the way they conceived it; which is magically, somehow necessary for the system to continue to meet business requirements.
If the replacement can't figure out the super-secret file path to a shell script or function call they use to do X, the replacement won't be able figure out a way of getting X done. Not the case.
The truly indispensible person falls under a narrow set of possible categories: (1) The owner of the company.
(2) Family members [and sometimes very close friends] over the owner, if they work for the company.
(3) Employees required to retain business essential to the company's survival. For example: an employee that is a family member or close friend of a client of the company, that provides the company with so much business, and the company has so little other business that the company will be bankrupt within 6 months if the client is lost, AND the employee is instrumental in the company retaining that business.
(4) Contracters that the company requires a special service from that cannot ever be possibly obtained from any other source in any other form, for example: due to trade secrets, and that is practically required to keep a client meeting criteria of (3) --- an example of such a contracter would be a monopolist; a local municipal Electric company, a Software company such as Microsoft (if your business is required to support a Windows using client, then Microsoft is an indispensable contracter, and you can't fire them and refuse to keep copies of Windows and support for future Windows OSes).