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Businesses The Almighty Buck IT

Ask Slashdot: How To Ask For Equity In a Startup? 349

Posted by timothy from the say-fellas-it's-about-my-passwords dept.
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?"
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Ask Slashdot: How To Ask For Equity In a Startup? More

Ask Slashdot: How To Ask For Equity In a Startup?

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  • you're a contractor (Score:4, Insightful)

    by Anonymous Coward on Monday May 23, 2011 @08:09PM (#36223410)

    ...and therefore not indispensable ...
    Good luck, you are greedy indeed...

    • 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.

    • 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

    • 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.

      • 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

    • 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.

  • Comment removed (Score:5, Insightful)

    by account_deleted ( 4530225 ) on Monday May 23, 2011 @08:12PM (#36223432)
    Comment removed based on user account deletion

    • Re:Don't imagine that you're indispensable. (Score:4, Insightful)

      by ScrewMaster ( 602015 ) on Monday May 23, 2011 @08:14PM (#36223456)

      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)

      by Anonymous Coward on Monday May 23, 2011 @08:24PM (#36223556)

      ^^ 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:

      however we're doing very very well and have a very significant revenue already.

      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.

      • 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)

      by Fluffeh ( 1273756 ) on Monday May 23, 2011 @08:45PM (#36223728)

      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.

      • 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.

        • 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

  • 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)

    by Zerth ( 26112 ) on Monday May 23, 2011 @08:17PM (#36223476)

    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)

    by GreatDrok ( 684119 ) on Monday May 23, 2011 @08:17PM (#36223478) Journal

    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.

    • Re: (Score:3)

      by Dahamma ( 304068 )

      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.

    • Ask for stock options. Basically, you get an agreement that within a certain period on time you can purchase shares at the price the shares sit at when you make the agreement. Now with a start-up they will likely make the shares available a little at a time (vesting) e.g. The shares are worth a dollar now, and they give you options for 50,000 shares. The shares are 20% vested upfront and vest 20% absolute every year for the following 4 years. That means after 4 years you have the option to buy 50,000 shares
    • I say focus on the positive. Tell them you think things are going well. That you want to move from a more casual contractor position to a true partnership. Then offer to take some salary as stock or if you can to put up some of your own money. I would suggest if you are bringing in money come up with an idea where that money can be used profitably (if you have the purse strings then you should have that more incentive to see it put to a profitable use).

    • Re: (Score:3)

      by cptdondo ( 59460 )

      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)

    by MyLongNickName ( 822545 ) on Monday May 23, 2011 @08:19PM (#36223500) Journal

    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)

      by BasilBrush ( 643681 ) on Monday May 23, 2011 @08:31PM (#36223612)

      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)

        by FooAtWFU ( 699187 ) on Monday May 23, 2011 @10:17PM (#36224286) Homepage
        It's true that the company owes the guy nothing. But the company must continue to pay him in the future if they want his work, and there's no reason that equity can't be part of that. Of course, there's no reason it has to, either, but crying "greedy bastard" is perhaps a little much.

        • 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?

    • Re: (Score:2)

      by ldbapp ( 1316555 )
      It's the other way around. Folks who have equity stand to lose money if the company goes under. That's why they have a vested interest in its success. The equity is the cause of the risk.

    • Re: (Score:2)

      by aXis100 ( 690904 )

      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)

    by Anonymous Coward on Monday May 23, 2011 @08:19PM (#36223504)

    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.

    • Re: (Score:2)

      by ldbapp ( 1316555 )
      All true. However, the premise of the scenario is the guy thinks he has become indispensable. So, he is in a position of forcing the owners' hands. They should not have gotten into such a position. Now that they are, the contractor is in a good position to make this request. Of course it has to be done delicately, because, as you said, the owners will likely be defensive when put in an awkward position. But the point about the owners taking the risk is spot on. The contractor needs to frame this as h
      • I disagree he is indispensable, at least if he still wants to work with professional integrity. He accepted the work at the rate he was paid. Going forward he can try to negotiate a raise but to hold the company's operations hostage to get his way would be hugely unprofessional. At the very least he should help in the transition to a new IT guy if the negotiations go south. I for one don't want to be known as that guy that left everything in confusion when he left because he was sulky he didn't get his way.

      • Re: (Score:2)

        by tftp ( 111690 )

        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

      • Re:You were paid to do a job, right? (Score:4, Insightful)

        by AK Marc ( 707885 ) on Monday May 23, 2011 @10:34PM (#36224376)

        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.

  • How much of your money you invested in the company. You see, that's usually what separates the "owners" from the "employees". In the few (these days) cases where an employee becomes a shareholder, it is usually worked out before they are hired. Oh, I forgot, you weren't hired, you're a contractor.

  • with the money you just got from your raise, you greedy bastard!

  • Switch to permanent employee (Score:5, Insightful)

    by LynnwoodRooster ( 966895 ) on Monday May 23, 2011 @08:27PM (#36223570) Journal
    And give up the higher contractor wage. That's the deal you make: permanent employee who earns less per hour, but gets a long-term stake in the company, or contractor who makes bigger bucks but nothing in the way of ownership.

    • Re: (Score:2)

      by durdur ( 252098 )

      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.

  • 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

  • Raise the point with them and be prepared to negotiate in good faith...

    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

  • 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.

    • Re: (Score:2)

      by PCM2 ( 4486 )

      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:

  • Shares aren't given out for free - even for the founders themselves they almost always have a vesting schedule which means they don't actually own all the shares up-front - they need to vest for e.g. 4 years before they actually own the shares allocated for them. If you're asking for shares from founders at an early stage company, it'll almost always imply they'll need to hire you or the startup's capital structure will feel sketchy to investors.

    Also, you need to make sure the founders can be trusted. Who

  • OK, you're greedy (Score:3)

    by DerekLyons ( 302214 ) <fairwater@@@gmail...com> on Monday May 23, 2011 @08:34PM (#36223642) Homepage

    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.

    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.

  • 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)

    by wmbetts ( 1306001 ) on Monday May 23, 2011 @08:39PM (#36223674)

    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.

    • 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.

      Bonuses are given to people who you want to convince to come aboard - not to people desperate to come aboard.

      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.

      On the contrary - having an em

      • 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.

        • 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.

    • 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)

    by Kagetsuki ( 1620613 ) on Monday May 23, 2011 @08:40PM (#36223690)

    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.

  • Just in my experience and opinion, you would be better off asking that on ycombinator [ycombinator.com] that deals with tech startups and has many from that community, not on slashdot.
  • The time to ask for equity instead of pay was back when there was risk.

  • Ask, Politely (Score:5, Interesting)

    by Anonymous Coward on Monday May 23, 2011 @08:49PM (#36223760)

    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...

  • >> 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

  • 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)

    by Perp Atuitie ( 919967 ) on Monday May 23, 2011 @08:53PM (#36223794)
    If you're as essential as you think, raise your rates -- you're the seller, after all. If they seem ready to consider going with a price hike, offer to take it in the form of equity (because you believe in the company's future and want to be part of it, blablabla. Asking for options in lieu of a rate hike or straight equity would be an easier sell, as it gives them a stronger hold on you and gives you more motivation to work at the top of your game. But the real question is, are you getting paid less than you deserve, and are you willing to demand more. The form of the increase is secondary.
  • Honestly, don't overcomplicate this or it could turn out for the worse. It's a small startup so I assume you know the owners, just sit down with them and ask how you can get onboard with some equity options. Most small startups would have considered equity options in their planning and you should get a simple response either way. I've been on both sides of this situation and in my experience it's always better to be honest, open and direct. Do it now, waiting will just decrease your upside if the company
  • 1) Tell them if they don't give you a raise you won't give them the passwords to their servers.
    2) Make the news when they bring you up on criminal charges,
    3) Write a book about your story.
    4) PROFIT!!!

  • 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)

    by Anonymous Coward on Monday May 23, 2011 @09:19PM (#36223958)

    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)

      by rastos1 ( 601318 ) on Tuesday May 24, 2011 @04:22AM (#36225672)

      You have no idea what goes in to running a business.

      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.

  • 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)

    by nedlohs ( 1335013 ) on Monday May 23, 2011 @09:51PM (#36224152)

    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)

      by ari_j ( 90255 )

      "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

  • 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.

  • If I were one of the owners and you made a play like this I would mentally consider our relationship over, you might as well talk of unionizing. One of my top priorities would be to make sure that you weren't so indispensable as you say you are. My probable delay tactic would be that this needs to be discussed and we'll get back to you.
    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

  • 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

  • ...startups are all about getting traction at minimal cost. The time to ask for equity is when the company has no money and want to save it wherever possible. Taking less money back then for some (very) small equity is something all startups would consider. When they're making money, or can see the light, it's all over for you.

  • 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

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