Starting at a competitor while owning equity of previous employer

Question

Assume an employee at startup company X has bought a small equity stake (<1%) in this company (we are not talking about granted equity but shares that have been bought at the current valuation of startup X at that time - so no vesting etc. is involved). Furthermore, assume that startup X is only doing so-so and that the employee starts interviewing for a new job with a larger and more established competitor Y. However, the employee cannot get rid of their equity in company X (because of various reasons). The employee does not have a non-compete agreement in their employment contract with X and there is no explicitly stated non-compete clause attached to the equity stake in X.

In your experience, would the equity stake in X be a handicap when interviewing for new jobs? I would assume that the above mentioned scenario is quite common in the tech space but my experience in the startup-world is quite limited. I want to specifically state that this is not a legal question about non-compete agreements or the like. I would like to hear from you guys how likely it is that the potential new employer Y is being turned off by a candidate who still owns equity in another company.

Answer 1

I don't see any scenario where in a normal interview, such a scenario would come up.

That's my first answer - A closed mouth, gathers no foot.

However, let's assume for the moment that this does come up - firstly would be not to lie about it (obviously - but in case anyone unsure).

The next thing I would say would be to outline what your exit strategy for the shares are. If there are restrictions, be upfront with them but brief:

"The shares are locked and I can't divest myself from them for a period of 3 years" (or whatever) - essentially, you want to let your new employer know that you have an exit planned.

Even then though, I would view this info in a dim light, you have a vested financial interest in your competitor doing well.

Answer 2

In your experience, would the equity stake in X be a handicap when interviewing for new jobs?

No.

At least not unless your equity stake is big enough to generate a real conflict of interest. What that amount is if often defined by local legislation. For example, in the US once you own 5% of an entire company you fit the legal definition of a "Substantial Share holder".

Look almost everyone how work at Apple owns some Google stock and vice versa. Given that most people own diverse mutual funds or ETFs and it's perfectly normal and expected that (knowingly or unknowingly) own equity in a competitor.

Where and how you invest your personal money is of no concern of a future employer (nor is there business in the first place) UNLESS it generates a conflict of interested which is highly unlikely of your equity stake is small.

Answer 3

It is possible that your new employer may have a policy regarding identifying conflicts of interest. At any time they could ask new or current employees to identify companies they have direct investments in. They usually don't care about investments though a mutual fund or ETF, because another organization decides how the fund money is invested.

Sometimes a company is looking for conflicts due to investments in competitors but also financial relationships with suppliers. they don't want employees to make spending decisions that help the employee more than the company.

If your position involves making spending and investment decisions you can expect a discussion about this during the interview process, or during on-boarding.

If they have a process to identify conflicts, they will also have a policy addressing them. They could require you to sell those investments, or they could limit your job functions to remove the conflict. If you can't follow their guidelines they could even decide to terminate your employment.

I am surprised that a startup allows former employees to remain investors. If the company is private they tend to want to limit inside information to people without conflicts.