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...
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This isn't about greed, it's about your narcissistic personality disorder.
You believe you are indispensable, and believe you should be rewarded without having taken any risks. It's too late dude. Now that the company has a "significant revenue already", that ship has sailed.
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Agreed pretty much. A person is hired as a contractor for the main purpose of not having to hire an employee. Ie, so that they can lay the contractor off immediately when the work is done, so that they don't have to pay benefits, and so on.
If a person is really indispensable the company is going to want to hire them full time if they can and apply some golden handcuffs. A lot of contracting agencies actually try to keep their clients from recruiting away their talent for this reason.
Not all startups are
No IT personnel is indispensable (Score:2)
Face the fact - No IT personnel is indispensable.
IT personnel are like disposable diapers.
They are needed - and always will be needed - but when they have done their job, their mission is over, and they are no longer needed.
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By the same hardline reasoning no CxO or political leader is truly indispensable either. However, it is very likely that they are valuable enough to their employer that if their employer should do all in its power to keep them on board, even if that means paying them what seems to be a lot more than the going market rate for someone doing the job that person is doing.
I'm definitely not saying this goes for everyone, but I can definitely see a few types of startup companies in which the IT guy is pretty much
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Advice to any company: If you have an indispensible worker, fire him or her immediately.
It's easier to deal will a planned loss of such than an unplanned loss.
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.
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If he quits, can they hire and get up to speed someone else without losing massive revenue in the mean time? Especially considering that he's the main IT guy and therefore is probably the only person who really knows their setup well?
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.
Re:On the other hand... (Score:5, Funny)
Come on, when have you ever heard someone in IT with an inflated notion of their own importance? I mean, that is completely absurd.
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I've seen this attitude plenty of times. One job I had, they were using a contract IT guy for both desktop and server support. This guy claimed to be "on call," but if you did have a problem, it would have to wait until he swanned in at 3:30pm to take a look at it, and then not on Mondays (because he wasn't available). When they hired me to be a full-time IT guy, he didn't even seem phased. He seemed to feel he would be spending the next six months "training me" to do stuff he couldn't be bothered to do in
Reminds me of a saying.. (Score:3)
Place your hand in a bucket and fill it with water.. now remove your hand..that is how much you will be missed.
Given that the missing is inversely proportionate to the size of the bucket..in almost all cases.. you are not missed substantively after a week or two.
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.
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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.
That's no different from being an employee, you wouldn't be much of a contractor if you didn't have a contract.
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.
You can't have it both ways, a cut of the success but no risk of suffering a cut of the failure whilst all the while being paid to do the job you were contracted to do.
If you don't ask, you can't expect them to just hand it to you, even if they think you probably deserve it.
No harm in asking.
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Do you have any evidence showing that all contractors make less than fully employed equivalent employees? I'd be surprised if that was the case with more skilled IT folks.
No, but that's not what I'm claiming either. I'm sure there are some folks with specialized skills that get brought in for a specific project for a limited amount of time. I bet they make great money too. But I also don't believe that those folks make up more than a rather small percentage of contract workers in the US.
Contractors don't necessarily cost the company less. I worked as an on-site contract employee at a local government site. The county director wanted to pull a few of the contractors in to work as government employees (we were working on the 911 system conversion). When I compared my pay and benefits from being a contractor to what the government offered, I was better staying where I was employed. Add the overhead of the company i worked for and I'm sure the cost for me as a contractor was significantly better than a direct employee.
It seems to be pretty much common knowledge [chron.com] that contractors are generally cheaper than full-time employees. I've read several estimates of the costs, but most put the savings at around 2
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Setting up business is not a risk/reward thing, it's a have money/reward thing.
Bullshit. I did some work for a startup a few years back, which was paid entirely in shares (I needed the experience a lot more than the money - it was during my PhD, so I had my stipend to live on). Eventually the startup went bust. Limited liability meant that I was not liable for any of its debts, so I lost nothing. The people who set up the company, however, were. The bank refused to lend them any money unless they accepted personally liability for the debt (not uncommon - otherwise everyone would
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You've clearly never set up a company.
On the contrary, it's clear you haven't. You need money to start up a business. And you're either going to be supplying it out of your own pocket, or it's going to be a secured loan. Very often people have their houses backing their loans. If their business fails, they lose their house.
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Your dream of a serious start-up with the potential for serious returns, on trivial capital, is just that, a dream. You've never done it.
Well, well, someone's projecting, aren't they? :-)
What, to you, is "trivial capital"? Is it like the $18k [ycombinator.com] that Y Combinator initially invests on average? That may be a significant amount to someone in his late teens, but if you wait a decade until you have gained experience and knowledge then you should certainly have the money management skills to have a lot more than that in savings (if you're cut out to be a businessman). For those who really have too much testosterone to wait and save, they'll be reassu
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There is a difference between Valuable and Indispensable. If an employee was truly indispensable the company will be bending over backwards to make sure they stay. Normally they are Valuable where they are paid better then the other people in the job, trying to make sure that they just don't walk out the door, but if they do it isn't the end of the world and no one should really threat.
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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.
In most cases, yes. In some situations, the setup may be so completely batshit insane that there's no way anyone else could unravel it. Of course, in that case the original employee isn't indispensable, he's a liability.
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If he's doing his job and documenting what he's doing, and if he's coding, he's writing passably decent code and documentation, then yes, he is replaceable. This company is in a potential nightmare situation if he isn't documenting everything, not just because he might get fired, but what if he gets hit by a bus?
I'm just putting together a company with a few partners, and part of the incorporation process that our lawyer has told us to do is succession planning; right from the share structure to how to dea
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.
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Even if all those things are true, he will still be a contractor if he has his own company and employer id, and is paid corp-to-corp. If he's 1099'd, then yes.
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Either he or the employer can ask for a determination by filing this form [irs.gov] with the IRS.
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No one except the owner is indispensable.
I see your point, and it's pretty much true; however, if the owner is indispensable and gets hit by a bus, there are now employees who are very likely screwed and will be looking for work.
If you're an owner, and you employ people, you have to leave your ego at the door and make sure there is a plan if something should ever happen to you. Owners should not be indispensable, especially at a company with at least a half dozen employees.
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Without me, it is just a collection f vans and equipment.
And no, not even a corporation and well written succession plan could change that.
Without me, the licenses are pretty pieces of paper and worth exactly whatever a paper mill will pay for them.
There are still businesses where the owner is indispensable.
With me there the company is a money making machine. Without me, it is just vans, tools and some supplies, worth very little in real terms.
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In college I was the sole programmer for a website that became relatively successful. The owner was making a living off it. My equity was 0%. What I learned was that equity has nothing to do with who contributes what; it's simply a matter of who owns what. Think about the stock market; if you buy a few shares of McDonald's, you probably have more equity than 95%
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No one except the owner is indispensable.
Nah, corporations took care of that concept.
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If the owner thinks that the guys who built the systems he depend on everyday are replaceable then he too is replaceable.
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Even the owner is dispensable. Few companies are run by their founders. Some crash and burn after the founder leaves, others grow.
"Indispensible" (Score:3)
I wouldn't presume to judge my own value to the company, but I might invite the business owners to do so. "I know I'm just a contractor and am easily replaced, but I enjoy the work I do here, and I support the company's mission. If a suitable position ever became available, I hope you'd be willing to consider me, because I'd certainly be interested." Then end the conversation promptly so they don't feel any subtle pressure to comment on your value.
I've noticed that the people who bring the most value t
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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.
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.
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I would third the suggestion of "being a bigger part of the company". The only way to make this ask and not have it backfire is to appeal to their sense of teamwork. If you have been part of the team, and you are showing that you are willing to be more closely bound to the company and its fortunes, they may consider it worthwhile to offer you a little equity in order to retain your goodwill (and similarly that of others). After all, a good employee is a bird in the hand, so most good managers will attemp
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.
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Agree with parent.
You've already poured your heart and soul into the place and didn't have the foresight to ask for equity up front.
Already been milked, time to be put to pasture.
He shouldn't have asked for equity. (Score:3)
Asking for equity earlier would not have done him any good, because he wouldn't have gotten any then either.
The reason many startups give out equity at the start is because they can't afford to pay the going rate for the talent they need, so the principles are forced to trade a lot of potential payoffs later for cheaper help now.
If this company is hiring contractors, then they have enough money to just pay the going rate for the work they want done. If they've decided they are going to just pay the going r
Simple (Score:2)
Just tell the guy who signs your paycheck that you are interested in getting some stock options since you feel you've put a lot of effort into the company. Tell them the options would secure your long term interest in said company, so it would be in both of your best interests.
Here's how (Score:3)
say "I wish to (1)trade large amounts of money or (2) decrease my rate of pay in exchange for equity in this company"
If you are just a contractor, you should have negotiated for for a decent rate up front and then offered a lower rate in exchange for equity. If you gave them a lower price because they were small, but didn't ask for equity then, you can either renegotiate or walk away. They might prefer to stick with you instead of finding someone new.
Good luck, though. They might feel that just because they are suddenly making more money, it doesn't mean they owe you a piece and the same fee.
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.
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Exactly. You have to ask - why would the current equity holders want to give up part of their share in the company if, as you say, they are doing "very, very well"?
The answer is, you have to GIVE them a reason. You'll either have to force their hand to some degree if you want it as extra compensation, or else offer to buy stock at the current fair price.
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Yup. I'd ask to buy shares, not "get" equity. But unless you bring something to the table, why would they sell you shares? Also, in a private company, shares are worth whatever the owners say they're worth. And forced buyouts are common.
Typically the share ownership is worded such that you have to be employed by the company to own shares. So you buy a bunch of shares at $100 each. Then you work like a dog, and you think your shares are now worth $1,000. But one day you get fired, and the company buys
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.
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.
Re:You are a contractor (Score:4, Informative)
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Especially considering the number of companies that hire everyone as an "independent contractor" just to make their own accounting easier. There could be 50 people in the building, but only one of them actually works for the company. Now who's the greedy bastard?
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Agreed. Mod this up!
Hard work doesnt entitle you to equity. If you want the potential reward then you have be willing to risk cold hard cash too.
Alternatively, ask to buy shares at the market rate (whether they are listed or not).
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.
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Terry Childs tried that.
Look where it got him.
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However, the premise of the scenario is the guy thinks he has become indispensable.
That's what he thinks. But every [successful] business owner who hires employees always has plan B for the case if the employee "gets hit by a bus" - departures of key people for all kinds of reasons are the norm, not an exception. I'm pretty sure that owners of the business took care of that possibility just as they took care of all other problems that they were facing since day zero. It's just the contractor doesn't know
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But if he's just the same old guy doing the same old job, he wouldn't have posted his question.
Well, we don't know that. We wouldn't know that for a fact even if he wrote a book about it.
I think we can just take as a given that he's somehow, someway worth more than he's currently being paid.
That is hard to believe, considering that the USA is in an endless string of recessions. The only good way to test this hypothesis is to replace him with someone else of equal abilities, and then see how much the
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.
I was just wondering.... (Score:2)
Buy shares like everyone else (Score:3)
with the money you just got from your raise, you greedy bastard!
Switch to permanent employee (Score:5, Insightful)
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It is not unheard-of for a consultant to receive options or restricted stock in a startup, in return for less cash compensation. I've been offered that kind of deal. It's less cash out the door for them to pay you this way. So you can certainly ask for that. But they can say no.
Measure of Worth (Score:2)
Which will depend on a number of things:
Is your idea of being "owed" equity your idea, or did others approach you and say: "You have contributed work and skill sets that would have been extremely difficult to find for us during the execution of the startup. We would like you to stay in some sort of equity arrangement."
I got approached by two gents after two years and got equity and CIO status because back in 1994, building IP networks was not a widely known skill. Also, putting a internet connection in
Simply... ask (Score:2)
If they agree with the idea, expect that they may require you to drop from the current "contractor" rate or some other advantages you currently have or take over some new responsibilities; it would be only fair, since it is you that switched your mind in regards with a previous agreement and choose now to "bet" on the future of the company - so, what are you prepared to "pay" for it?
Note: yes, you "paying" now somehow for the options IS
Not that indispensable ... (Score:2)
But if you are then the company is doing itself a dis service if it is allowing you into a position where you think you are indispensible. Many information hiding IT people do try to do it though - or at least get into their heads that they are.
The people who put forward the ideas and the risk get the equity, you just get your contract rates no matter how the company goes good or bad.
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I also tend to think you're doing yourself a disservice if you allow yourself to become truly indispensable in a specific role. Companies never sleep, but most folks like to take vacations every once in a while. And if they have any ambition at all, most folks eventually get tired of doing the same work for years. Good luck getting a promotion or a transfer to another role if you're literally indispensable at what you're doing now.
If I was the submitter, I might actually be thinking more along those lines:
Vesting and hiring (Score:2)
Also, you need to make sure the founders can be trusted. Who
OK, you're greedy (Score:3)
OK, you're greedy. You're also not irreplaceable.
You've taken none of the risk, and have no reason to ask for any portion of the reward. You've gotten what you contacted for.
Your compensation is already adjusted (Score:2)
you made a deal up front to get paid well to do your job, because at the time, you thought the options were not worth much. They paid you accordingly.
Now that you see the company is doing well, you want to get paid and get options too. Pretty raw deal that you present to the company, you basically didn't take any of the risk and want all the reward.
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.
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Bonuses are given to people who you want to convince to come aboard - not to people desperate to come aboard.
On the contrary - having an em
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Which is why I said he'd have to take a pay cut. If he's really valuable to the company they'd want him to come on board, because in a start up contractors are basically temps to help get it off the ground.
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I hate to quibble, but you then followed that up with "they will save money by paying you a slightly lower hourly rate". Take an employee's pay and multiply it by anywhere from 1.5x to 2x to understand how much it actually costs a company to have that employee. Or to reverse it, poster can figure on between a 33% and 50% cut in hourly rate just for the company to break even on the switch, not even save money.
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Contractors charge typically higher hourly or salaried rates than employees. If someone wants shares, vacation time, parking privileges, health insurance, and other employee benefits, that person needs to be prepared to surrender salary. It's a great question to discuss at contract renewal time, or when you've just completed a major project and they're looking to expand your responsibilities.
If you've just completed a major project, it's also good to have that on your resume as you look for new work, becaus
If you are so vital (Score:3)
Then your boss should know that. The thing is in small companies the developers are often directly involved with their bosses but it seems you are not. If you can't trust him enough to simply ask about it then I doubt he trusts you that much.
Also getting equity is usually something that is reserved to people who have a high interest in seeing the company succeed. As a contractor it is sort of assumed you don't. Think about it from your bosses standpoint, he's put in money and taken risks and the profits he's seeing will help him expand and develop his company into what he wants it to be - and if the company fails he looses everything. You just get paid by the hour, if the company fails you find a new job and you don't loose anything, and the vision of how the company will develop is not your own vision. If you are willing to believe in the company vision and stick with it - even if the company were to go into the red and you had to work without pay for a year - then equity could be on the table.
And never think you are vital. You could be the best programmer in the world but if you have a crappy attitude you're out.
Probably asking this question on the wrong site (Score:2)
You missed your opportunity (Score:2)
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...
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
Don't tell ... *ask* (Score:2)
First, you are asking the wrong crowd. You'd be better off asking entrepreneurs and start-up dudes.
Second, don't start the conversation by making an offer. That puts you in the worst position because now you are setting the bar, be it too low or (worse) too high, and they have to react to that. You are better off just asking "So, is there a way that I can start earning equity in the company, rather than just straight compensation?" That way they can evaluate the question itself rather than whether or not th
The equity is a red herring. (Score:3)
just ask (Score:2)
Here's a plan.... (Score:2)
2) Make the news when they bring you up on criminal charges,
3) Write a book about your story.
4) PROFIT!!!
No-one is indispensible (Score:2)
Unless you are producing novel, patentable ideas you are not indispensable; there is someone out there who can do your job. The "irreplaceable" attitude will bite you in the ass. When I hear someone say they are indispensable the phrase "pompous ass" comes to mind.
If you want a raise, make a case for it based on what you are doing now and how it is different that what you were doing before. If you were being underpaid before you need to make the case as to why you stayed.
For small business equity is a very
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: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.
Disagree (Score:2)
Equity in a company should reward those who take a risk (such as putting in some VC or working unpaid hours until the business is mature), not those who get paid by the hour, even if they work hard. Especially as a contractor you are expected to work hard and you (should) get good money for that commitment.
IMO if you think you are a valuable asset then you should request a higher rate - if you are right they will agree, and if you are not right then better find somewhere else to shine.
Also if you have been
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: (Score:3)
"Contractor" status is also nice for other reasons, such as skirting worker's compensation insurance premiums, minimum wage laws, imputed liability for negligence, and so on. People think that they can just give a 1099 instead of a W-2 and it automatically makes the recipient a contractor rather than employee. It doesn't work that way. What you actually do when you issue a 1099 instead of a W-2 for someone who is legally an employee is break the law. Giving stock or options to an actual independent cont
risk == reward. You didn't take any, so no reward (Score:2)
so you get equity based on the risk you're taking. The fact that you got paid contractor rates until they were successful means THEY took all the risk, not you. This means you're not entitled to significant equity.
It's the opposite - when you work for little pay that would entitle you (at least morally) to a higher equity stake.
Nervous (Score:2)
I have seen variations on this scenario before even among partners where one suddenly says something like, "If it weren't for me we wouldn't have landed that whale. Thus we
They won't GIVE you options, but... (Score:2)
Ask about buying shares now, before any IPO. That doesn't cost them anything and it shows you have faith in the company (or that you like to gamble). Buy as many shares as you can. Borrow money if you have to.
Ask about buying "directed shares" when the company goes public. These also don't cost the company a thing, but it's a nice way for them to throw you a bone. The downside is that you won't have the shares in hand until the IPO, so you run the risk that they change their mind at the last second. Buying
You waited too long.... (Score:2)
Speaking on experience: add value (Score:2)
I've worked in project where equity was on the table. Sometimes I took it, sometimes I didn't. The key is it must be win-win. For a company that already has an existing business relationship, for them to win means they get something more than they've got now.
1. You take a pay cut + equity position. Thing is, they're not going to go for paying you the same amount and giving you equity. Where's the value for the company? The privilege of keeping you? As others have pointed out eloquently and not-so-eloquently
Re: (Score:2)
"Oh, you were wondering? Well, the answer is no".
You have to go in more assertive than that. Tell them you want it and offer to become an employee.
A contractor with options doesn't make sense IMHO.
Re: (Score:2)
Instead I would lay out a plan for future value you can add to the company. "Within the next year I can have this project done that'll add $$$ to our revenue".