4

I keep reading about joining a small start-up, keeping it up until it grows and then reaping the rewards. However, the way I see it is that investors and shareholders will be reaping the rewards, while overworked employees will get a promotion at best, and they could have gotten that promotion in many other companies. Some make millions, some make 10K more per year.

Shouldn't "reaping the rewards" include seeing your equity/shares become much more valuable? If so, should one join a start-up only when equity is written in the contract?

2
  • 5
    I'm voting to close this question as off-topic because it may get better answers on startups.stackexchange.com.
    – Jane S
    Jul 24 '15 at 11:33
  • 1
    Questions shouldn't be closed because they "can be" answered on another site, just if they're off topic here.
    – mxyzplk
    May 10 '17 at 14:10
9

There are plenty of benefits to joining a startup without equity.

  1. Rapid promotion
  2. Experience doing more things and having more responsibility and ability to set direction than you would at a larger shop
  3. Exposure to startup people, both in your company and funders, for your next startup

None of these will make you a millionaire, however. If you want to "cash in," then yes, you want equity and you want it in writing.

I have plenty of friends that worked for one startup or another, and even if they were "there early," when the founders sell and cash out, you don't get a handout out of the goodness of their heart - you get nothing, if you have no clear equity agreement.

So while there are reasons to work for a startup even if you don't get equity, if you are specifically looking for the cash-out part of that life, then you absolutely need a formal equity agreement - though even then, I've seen buyouts that manage to somehow screw minority equity holders, so it's no ironclad guarantee. As a deleted user mentions in his answer here, making sure you have a percentage or otherwise legally-enforceable non-dilutable claim is the only way to ensure you win.

4

Shouldn't "reaping the rewards" include seeing your equity/shares become much more valuable? If so, should one join a start-up only when equity is written in the contract?

If your only goal is reaping rewards, then you probably should avoid startups - without regard to the equity being offered. I worked at a several startups, most of which never paid significant financial rewards. If you are talented, you may be able to accrue far more predictable rewards at a larger company.

That said, I would never trade my years at startups for big-company jobs. I was able to learn things far more rapidly, to advance very quickly, to work with extremely smart people, and to feel that my efforts made a difference - far more often than I ever did in larger corporations.

At startups my years, my contacts, my learnings, my professional network - all of these were valuable to me in ways that never happened at big companies. At several startups I got to do things I never imagined I would have a chance to try, and I never imagined I was capable of. For me, the hard work at startups never seemed like a burden, and always made the work day fly by.

If you want to work at a startup, everything else being equal, then an equity position can give you a possibility of a bigger reward. But remember, it's only a possibility. Startups are often shooting stars - burning brightly but often very briefly. There's no guarantee you will be in for a significant reward (if any).

1
  • 1
    Upvoted cause I agree on most points, but you do need to 'reap some rewards' from startups that if you were a huge part in their growth/success. I've worked for several startups and I agree with you on a lot of points, but I also pushed for percentages in the stake of gains in the company and it not only gave me the motivation to work harder but it paid off in the end for a few of them and that increased my socializing with the founders as well as relationships and everything else and also made them more comfortable with throwing more weight on me to bring it to fruition - was a win win.
    – user37925
    Jul 25 '15 at 2:18
3

If it is a competitve salary doing work you enjoy then why not.

How can you assume will be overworked?

What is wrong with promotions? If a small company grows there are more opportunities for promotions.

And some investors make nothing. If the start up fails you get to keep your salary.

By that logic should you take corporate job without shares?

In another question you complain about lots of politics and manager taking credit for your ideas. A small start up is not likely to have those problems.

The stated question is take a job without equity. And the answer is simple. If the job, salary, and benefits is competitive then why not? You are not getting equity at a large company. Evaluate the offer for what it is.

A start up is not necessarily a sweat shop. It may be well funded and they already have the core competency and you are just a valued well paid employee.

If they need your skills to develop the core competency then yes they are going to offer shares.

If they offer a lower salary and shares then you have to compare that to another a higher offer with no shares.

14
  • 2
    Promotions don't always equate to a higher salary, but they always equate to a lot of extra work in addition to a workload that is almost always quite high already in a startup. The promotion might give you a nicer title that you could leverage when searching for a new job, but you might not be worthy of the title if the work you do is not as difficult as it would be in a similar position at another company. So it could be a hindrance in some cases. Jul 24 '15 at 12:28
  • Hi Blam, I am specifically asking about situations where the initial value of a company is expected to bloom. I agree about the value of the salary, but one would get a salary in a bigger company as well as a startup.
    – Monoandale
    Jul 24 '15 at 12:44
  • 1
    @JuhaUntinen Read the first line. If they don't give raises then it is not a competitive salary. A startup up is not always a sweat shop. Same job, same salary, same benefits, and nice environment you dismiss the start up? So I rise to VP in a small company that is going to be a hindrance to getting a management position at a larger company with similar responsibilities?
    – paparazzo
    Jul 24 '15 at 12:59
  • @Monoandale So it is expected to bloom? Do they need you to bloom? If not may just be a salary offer.
    – paparazzo
    Jul 24 '15 at 13:24
  • @Blam All startups need people to bloom hence the 'startup'.
    – user37925
    Jul 25 '15 at 2:11
2

First, just equity isn't something you should look at ever - you need a 'percentage' of the company, not just equity. Equity can be diluted which companies do all the time to get a lot of free work from employees 'hoping for a payout' - it's called 'The Golden Chains', this is what happened to the co-owner of facebook. Say FB started at 100 shares total, Mark and his partner would each of had 50 shares which if it stayed at that amount each share would be worth billions today. However, Mark tricked his partner in signing off his 'percentage' and he was just on equity so Mark raised the total shares to like 4 million and kept half of those meaning his partner had 50 shares and he had 2 million thus making his partners shares worthless.

Point is, don't trust equity unless it's a percentage of total equity created - companies trick people all the time by saying 'here is 20,000 shares for 0.001c a share in the company' and people think it looks incredibly good so they take it, are willing and get worked to the bone also while being convinced into signing something like a Non-Compete that locks them from progressing, or excelling or growing in their field and dependent on their job. Then the company adds say another 2 billion shares in which they keep all of it and you literally get maybe 0.00001c a share, are stuck in the job and dependent on them because you can't work for someone else you've built your skills in, all while keeping your salary low because of your dependence on them.

I mainly suggest that whenever a Non-Competent agreement comes in front of you you pass it up, then you are always able to negotiate more and never put your life in someone elses hands that isn't you.

8
  • A percentage is equity. They are not going to give an outright percentage. Yes stock option can be diluted and reverse splits but they are not going to give an employee an absolute percentage. That is not how those deals are structured. They give stock options. From a tax perspective that has value. They may need to raise more capital. Have you been with start up and been able to demand an absolute percentage?
    – paparazzo
    Jul 24 '15 at 19:46
  • Yes - you sign something that if more shares are added you always get a percentage that keeps you at say '20%' of the company, so if someone wants to add shares and dillute it (which is mostly what happens when options are concerned) then you will receive more shares ontop of that to keep you at a valid percentage. Equity is 'Current percentage' but if you are given 20 shares on a 100 share company that's 20% of current equity but they can add more and make it 1,000,000 making your ownership 0.00002% of the company.
    – user37925
    Jul 24 '15 at 20:23
  • Let me be clear you have gotten that deal? As an employee you got an absolute percentage?
    – paparazzo
    Jul 24 '15 at 20:44
  • I've had contracts that stated they could not add more shares to the company without me first approving the amount and agreeing to the allocation - this was too guarantee and insure a certain margin of ownership.
    – user37925
    Jul 24 '15 at 20:50
  • 1
    Sorry man. Deleted comment. I don't agree with your absolutes. Never take equity. Never sign non-compete and you are always able to negotiate more.
    – paparazzo
    Jul 25 '15 at 13:23

Not the answer you're looking for? Browse other questions tagged .