Work for equity?

[Marquette]

I've been tossing around the idea of, and have received favorable responses to, working in exchange for equity. I'm trying to figure out more about what, exactly, that should look like, though. I'm assuming that the companies that I'll be working with will be private and in various stages of securing funding.

I'm really looking for any advice on if a move like this isn't worth the trouble, the gotchas to keep in mind, experiences of people who have done it, etc.

If a company has gone through several funding rounds and already has internal share valuation figured out, then it seems like it'd be simple enough to calculate an exchange rate between billable hours and shares.

For a smaller start-up, though, I'm not quite sure what a good approach would be. Maybe work out a percentage of the company and go from there?

In both cases, would it be better to go after preferred shares? And, it seems like it might be in my best interest to stipulate some sort of right to participate in future funding rounds to protect my percentage if I choose.

I don't know, I guess the whole thing could be more trouble than it's worth. On the other hand, it could be a lot of fun and potentially pay off as well.

Oh, and for what it's worth, this would be in addition to my current job. I already do a lot of remote work on the side so this would just augment / replace that part of my life.

 

[cute fuzzy bunny]

Did it twice when I was younger and got sporked both times.

First guy started struggling with the business and decided he didnt want to have to cough up what he was going to owe me, so he accused me of stealing from the business which gave him a contractual out. I wasnt in it for too much so I just flipped him off and moved along. He shortly thereafter went bankrupt and then contracted cancer and died, so I guess there is such a thing as karma.

Second outfit kept milking me for work and stringing me along on finalizing a contract, would pay me big chunks of cash when I exceeded a certain grumpiness level, and then after about six months decided they didnt want to do the deal. Bunch of screwballs that had no idea how to run a business and they were pretty much face down with their customers until I took over sales and support. After I threw up my hands and walked away, they sold the business for sixteen million. I dont know if they dropped dead or not, but that would have been fine.

So, get your contracts done up front, make sure there arent any holes in them and be prepared to slug it out in court if they pull a fast one, and then maybe decide its more trouble than its worth...?

 

[mh]

i've done this a couple of times in the software startup realm
and have had some close associates
also do it. it worked out ok for me but i should have made out better
even after i was pretty careful in my compensation agreements.

In the end to, to get your compensation , there is i high likelihood
you will have to at least threaten legal action if it's anything other
than some very concrete stock deal of one form or another.

if you are worried about dilution, chances are it will happen unless you've
really covered your bases. if some larger financing steps in at later stages,
you can be sure they will at least consider devaluing
whatever they can legally manage on individuals that
have no leveraging interest. in short, words in the end won't mean
anything. you better have a REAL good contract in hand that ensures
you will be getting what you think you are getting.

i've made out just about as well working strictly for billable hours.
with a lot less stress and hassle. i consider myself pretty lucky
in hind sight that i came out as well as i did on my few speculative
endeavours..

i'm sounding pretty down on the whole idea i know. I'm not
necessarily. just keep in mind that any specualtive deal like this
is usually a lot more speculative and/or contentious
than you imagine if you are somewhere between a principle
player and a johnny come lately getting the routine stock option thing..

 

[Buckeye]

If they are properly funded, they should be able to pay you a competitive salary. If they can't get properly funded, I would suspect there are other problems.

I've done the start-up route and I was paid a very competitive salary. I chose to invest in the company which was all lost when the company went bankrupt. A great product does not insure success. It turns out the CEO was a crook and a jerk. He made some very poor decisions because he was so arrogant. We were doomed from the beginning.

I learned a lot about people (there really are bad people in the world!) and business from the experience and it was well worth the money I lost.

 

[rogersteciak]

I agree with the other posts. I've been in two startups myself (they were a lot of fun), but neither one made it financially.

The venture capital profitability calculus is as follows: 7 of 10 startups go bust (stock options expire worthless), 2 of 10 barely break even and are acquired (stock options are worth a little bit of money, but probably not enough to compensate you for all the hard work you put in at a below-market salary), and 1 of 10 becomes a "home run" (stock options are worth quite a bit of money if you got in early enough, but don't bet on becoming the next Microsoft or Google billionaire).

If you've already FIREd and have some time on your hands yearning to be challenged, then work for equity. It becomes a "positive black swan event" if the startup is one of the home runs (meaning you might become really wealthy), but you will still be able to put food on the table if the startup is the typical bust or breakeven case because you were already financially independent when you joined it.