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How to Protect Yourself with Startups? 122

JustAin'tFair asks: "Last year, I took a chance on a small but promising startup. When they approached me, it was a 3-person operation (all involved were investors) with a functional website, a viable piece of technology, and a problem. Their prototype was just that -- a prototype. They were experiencing serious maintenance and scalability problems, and had exhausted their own technical knowledge. I agreed to come on board as their first employee, in return for a decent salary and a nice vesting schedule." To make a long story short:"My old boss & his partners netted a very nice payday, on the backs of their former employees. What would you do to protect yourself? I got a fair salary, but in the end, they got far more out of me than I got out of them. Would you contract? Get a parachute written into your contract? What have you done?"
"In 6 months, I rewrote and redesigned most of the key subsystems, built new servers, hired new staff, and got the company rolling on a serious path. Serious senior architect-level stuff. Then it all fell apart: one day, out of the blue, they fired all of us, claiming shortfalls in funding, and so on. It sucked -- it always does (I watched my own startup fall apart in the dotcom 1.0 days). So the other day, I saw they were bought out.

Sucks twice.

In the end, that's their right. At-will employment, and all that. However, it chafes me to get screwed like that."
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How to Protect Yourself with Startups?

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  • Did you not have any vested options? Did you not get any $ for those?
  • by renehollan ( 138013 ) <rhollan AT clearwire DOT net> on Tuesday June 13, 2006 @10:01PM (#15529226) Homepage Journal
    If you were the first employee, your old boss would have been an investor, and thus didn't make out like a bandit, but rather left with somewhat less than they had invested.

    But, as employee #1, you should have negotiated a better severance package, for the risk involved (along with the golden handcuff vesting schedule). Of course, that would probably mean that you'd probably be required to give serious notice if you decided to leave (I was once in an employment situation where either side had to give the other six months notice, by contract).

  • by ivan256 ( 17499 ) * on Tuesday June 13, 2006 @10:02PM (#15529229)
    1. Have zero expectation of monetary compensation beyond your salary.
    2. Don't take a job for less salary than you would be satisfied with in exchange for equity.
    3. Don't sign on to a vesting schedule you know you won't stick around through.

    If you hadn't vested at all yet, you either weren't working there very long, or had a crappy vesting schedule. Were you there for less than a year? If so, don't worry about it. All you lost was the value of less than a year's work. I know it feels crappy that somebody else made money and you didn't, but you'll die an unhappy cynic if you look at life that way.
    • by Procyon101 ( 61366 ) on Tuesday June 13, 2006 @11:43PM (#15529598) Journal
      I'm curious how he got "screwed".

      He did his job,and got paid for it. That's what he asked for, and that's what he got. There's nothing here to be "protected" against. He's just complaining because other people did well on a risky investment, whereas he went in with no risk and got exactly what he asked for.
      • I disagree he went in with absolutely no risk. He had riskier long term job prospects which impacts his overall earning potential because of the real risk to fall on his ass for X months earning nothing. That's opportunity cost. As opposed to a gouverment union job with life employment guarantees.
        • So what? He chose to take the job, so he must have agreed to the salary.

          If you work for a big company with thousands of employees, you can be pretty sure that the CEO is taking home millions, even if you and everyone else are earning a pittance. This is no different. It's how American capitalism is supposed to work.

          • by kthejoker ( 931838 ) on Wednesday June 14, 2006 @08:21AM (#15531221)
            Executives of companies, and in particular Chief Executives, should have their pay tied squarely to the fate of the ship. While they should receive a salary that is higher than the highest non-executive (perhaps 50% more? Arbitrariness works both ways), if a company is doing poorly, an executive shouldn't expect to "take home millions", because they represent the company in abstract, and as such their entire endeavor (executing) is abstract - which means their pay should be just as abstract.

            It really is that simple.

            If you're "just" an employee, you *should* get paid a concrete value based on your time, talents, and output - and not on the success of the company.

            If you're an executive, you *should* get paid an abstract value based on the success of the company - and not on your time, talents, or output.

            What's really dumb is that large one-time payments to take control of companies preparing for a merger are causing CEOs of companies NOT preparing for mergers to try to "flip" their gig into a better paying one through consolidation and capitalization - which nets them a huge windfall, almost always at the expense of the labor force, with redundant jobs being eliminated. Not to mention this is a terrible strategy in the long run.

            As related to this article, if there were strong corporate laws in place, if a firm went under, executives would be forced to provide exit pay to lost employees and cover all of the firm's debts before filing for bankruptcy. It'd make them think twice before pulling shenanigans like this where they cut their losses and run on the labor beneath them.
            • But the whole point of filing for bankruptcy is the inability to cover all debts. Bankruptcy is a replacement for Debtor's prison.
            • Where do you get your idea of what *should* happen? did someone tell it to you? Did you dream it up yourself? Did you read it in a book?

              Why *should* it be that simple? Why should the rules be completely different for different people? Why shouldn't everyone get paid according to the work they do? If a company does well, why should a few people reap all the benefits?

              Conversely, if the executives were responsible for all the debts of a failed company, no-one would ever want to be an executive. The potenti

              • No, I don't think the executives should be responsible (as in jail time) for the debts. But they shouldn't have any golden bungee cord/parachutes for driving a company into the ground. Almost all bankruptcy proceedings by major companies are preceded by hastily voted agreements to dish out "final payments" and bonuses for CEOs and other executives. THAT is where the problem lies. These people did no different - just on a smaller scale.
            • Do they "owe" him anything? No. Should they give him a fat bonus? Yes. No one wants a job for 6 months. Especially if you have to put your blood, sweat, and tears into it. Wait till these idiots try to hire some talented staff the next time around. Anybody who knows better won't touch them with a ten foot poll. Why do you think consultants charge start-up companies hefty fees? They know whats going down.

              My advice is that you use this experience to your advantage. Next time an offer like this comes
              • I have a sneaking suspicion that this *was* "the next time around". Otherwise, how do 3 investors end up with a decent prototype product that they know nothing about? Somebody had to do the initial work...
                • Oh, that's easy. They hired some contractors when they had a little angel funding and then shopped the prototype around for a while to get some more funding. Startups don't just happen overnight. Typically you'll see years of low-level activity before they receive enough funding to really start moving.
          • I think the point is that he could have better mitigated his risks (primarily, the risk of being out of a job) by better negotiating his contract. Capitalism doesn't dictate any particular method of contract negotiation.
            • Capitalism doesn't dictate any particular method of contract negotiation.

              Yes it does. "He who holds the most capital does the dictating." Please note that "capital" doesn't neccessarily mean just money, but anything that can be used to make money - intelligence, experience, etc.

        • [...] because of the real risk to fall on his ass for X months earning nothing. That's opportunity cost. [...]

          You have that risk practically everywhere, with one exception, which...

          As opposed to a gouverment union job with life employment guarantees.'ve mentioned, but I guarantee you that he was much better paid at this job.
      • While the gist of your response is true -the poster got what he asked for, one statement is glaringly false. Because I see it frequently bandied about in any discussion of Free Enterprise it's starting to cause a Pavlovian response of frothing rage every time I see it, so let's get it fixed quickly here.
        False Statement: "...he went in with no risk"
        Perhaps this particular employee took few risks in accepting that job, but obligating yourself to someone else's company is actually more risky than working fo
        • I agree. I started to write something to that effect in my original response, but thought it diverged from the point I wanted to make. He got what he asked for. If he wanted a different outcome, he should have signed up for something that had the possibility of supplying that outcome.

          Employment is anagolous to time as a Certificate of Deposit is to money. You are going in with a set expectation of what you WILL earn for the duration of the agreement. You may not be able to get the same deal when the mi
    • Ivan has hit the nail right square on the head here.
      I worked for a startup that floundered in startup status far longer than any company has a right to - they're still there after nearly 8 years in operation. I was there long enough for my vesting schedule to be completed (and then some), and should have been able to cash in a very tidy sum. Vacations in Rio, private schools for the kids, and a new home with no mortgage kind of tidy.

      Well, that's not the way things worked out. The company had some ques
    • Focus on the base salary. For my last two jobs, I waived my "right" to any bonuses in exchange for getting the base salary that I wanted. Haven't regretted it one bit. I've gotten options, but I never considered those any sort of compensation. The free sodas were worth more.
    • 1. Have zero expectation of monetary compensation beyond your salary.

      No. Have great monetary expectations but only beyond salary expectations.
      Startups pay very little with the expectation of it becoming something big and rewarding the people who stand with it at the end.

      2. Don't take a job for less salary than you would be satisfied with in exchange for equity.

      If you want a salary then take a job with a well founded company.

      3. Don't sign on to a vesting schedule you know you won't stick around through.

      If yo
      • Startups pay very little with the expectation of it becoming something big and rewarding the people who stand with it at the end.

        I am currently working at my fourth startup in a row, and fifth overall, and I've had offers from countless others in the process of finding these four jobs. I can say from personal experience that what you're saying is absolutely false. Unless you're in pre-funding and have a period with no pay, startups invariably seem to may *considerably* more than established companies. You d
  • It's a risk, and you didn't win this time around. Any of the possibilities you entertain -- contract, golden parachute -- only work provided you have a good relationship with them. If you're fired, don't expect anything. Sue? Good luck -- they have more money than you. If you are not fired, you are in good standing, and you won't need them. So in the end, they won't do anything for you.
  • Plan B (Score:5, Interesting)

    by AndroidCat ( 229562 ) on Tuesday June 13, 2006 @10:08PM (#15529261) Homepage
    So the other day, I saw they were bought out.

    Talked to the new owners about a job yet?

  • IMHO (Score:5, Insightful)

    by packetmon ( 977047 ) on Tuesday June 13, 2006 @10:11PM (#15529278) Homepage
    You should have had something written in concrete on your contract. One of the problems with going to a startup is that there is no guarantee of anything so its always a tough call. I think gone are the days where people caught a wave. Nowadays one would have to be absolutely deranged to chuck salary for options considering the market on tech has been crappy thanks to days of Critical Path, Worldcom, Metromedia Fiber, etc. I was working for an up and comer who was ahead of the game in the managed services arena. They allowed Metromedia Fiber to buy them for about 2billion at the time... Just a month or two after Metromedia disclosed their woes and I saw many people thrown in the gutter.

    Weigh your options: You are hired to perform X function for a startup. Anything extra is on you. If you out of the goodness of your heart decide to give it your all for nothing in return, you are to blame. Business has no heart nor emotion. Option a) take a high salary to perform your task. Perform your task well and obviously (well theoretically) it will show and hopefully you will earn more. Option b) take a moderate salary and work with management to ensure your works pay off in the long run (via options, Sr. position, etc.) Option c) believe business should have a heart and cry foul when you find out that again it doesn't.

    On a slightly different note, my brother in law was with Citigroup for 21+ years. He was the Tier 2 Network Engineer at Citibank HQ in NY. They outsourced first, then made a data center in Texas. He was given the opportunity to relocate their however... He had to come on as a new employee. 21 years down the drain. Sayanora. Although he made out with a nice goodbye package, that will run out in about a year. Business nothing personal happens everywhere.
    • You are hired to perform X function for a startup.

      Let me just expand on this. The original post has the same argument as communism (as I understand it). The people who invest the money get rich on your work (you said that they were investors). It is like gambling. What do you have to loose in your job? The answer is just your job. If the startup folds, you just go on your merry way and find new employment. It is a pain, I admit, but that is all that you have to loose.

      Now, look at the guy who owns t

    • I applied for one of those jobs in Dallas. I received a telepone interview, then an in person interview. Having been a technical manager for a national ISP, I have been on the other side of the interviewing fence. So, I expect a certain level of organization and professionalism from those handling the interview process.

      This was not the case during the in person interviews. In fact, one manager flat out lied to my face. Based on the way the managers handled the interviews, I would not have gone to work for t
      • Citigroup on the whole is a great place to work. Certain parts of Citigroup are not. IT tends to be one of those parts. The manager already knew who he wanted to hire and was only interviewing other people to avoid complaints.

        And for the OP, I'd bet your brother wasn't a Citigroup employee in NY. If he had been, there shouldn't have been any question about his time. If he was working for a third-party providing services for Citigroup, and now would be employed by Citigroup directly, why should his time with
  • by (H)elix1 ( 231155 ) <> on Tuesday June 13, 2006 @10:12PM (#15529284) Homepage Journal
    I got a fair salary

    Risk vs. Rewards. Most of the folks who end up with a Ferrari started off putting their house up at collateral to make the startup work. Better cash than a lot of worthless stock like many of us got in a startup...
  • As a first employee with a "good" vesting schedule, shouldn't you have turned a profit on the buyout?
    • by AKAImBatman ( 238306 ) * <{akaimbatman} {at} {}> on Tuesday June 13, 2006 @10:25PM (#15529327) Homepage Journal
      As a first employee with a "good" vesting schedule, shouldn't you have turned a profit on the buyout?

      That's my thought as well. My only guess is that he didn't exercise his options. If that's the case, then things get a bit tricky. If he was lied to or otherwise mislead about the status of the company, then he might have a chance of recovering his losses in court. He might even find a lawyer to work for him on a pro bono basis, with the expectation of the judge ordering the other party to pay for the lawyer's services.

      If he was not mislead about the status and simply chose not to exercise his options, then he's SOL. Thems the breaks.
      • That's not what pro bono means.
    • Vesting means that over time he has the option to either 1 buy stock, or 2 is given as "time served" if you will.
  • Just like investing in a gold mine in Venezuela (see NYSE:KRY), in a startup, some Hugo Chavez type can make it all go away in a blink. High reward if it works out, high risk if it doesn't.
  • Obvious? (Score:4, Insightful)

    by rueger ( 210566 ) on Tuesday June 13, 2006 @10:21PM (#15529316) Homepage
    Don't be an employee, be a partner. Should have bought a chunk of the company.
    • Isn't that what his stock options were supposed to be - a chunk of the company?
      • Options are only that--options to purchase a chunk of the company at a particular price. If you exercise that option to buy a chunk of the company when the stock price is higher than your option price, you make money. All kinds of restrictions can be placed upon those options as well, including a vesting schedule. Chances are that if he didn't exercise his options within a certain time frame after he ceased being an employee, he lost them. As the first employee at a startup, I would have asked for stock
        • Yes and no. As an employee, it's unusual to get the preferred shares that the VCs and founders get. You get common stock instead. You don't control the company, the preferred share owners do. When a buyout comes along, the preferred share owners can decide to divvy up the money however they want. If they want to take all the money for themselves and leave nothing for the common stock owners, they can.

          If they hire their buddy to work for the company, they can dilute your shares by issuing new ones to their

  • by Spazmania ( 174582 ) on Tuesday June 13, 2006 @10:25PM (#15529329) Homepage
    First, as others have suggested, tell them what a fair market salary and benefits package is and assume the options will be worth $0.

    Then, decide how much less money you're willing to take per year for a shot at a bigger pie later. Call that number $X.

    Ask them to pay you for the first 2 years as a form-1099 contractor and give them a vesting schedule for buying out your ownership of the intellectual property you produce. At six months they can buy you out for X cash. At 12 they can buy you out for X cash and X stock. At 2 years they can buy you out for 4X stock. If at any time prior to 2 years they fail to maintain your contract, the offer to sell changes to 3X cash and is good for 3 years. Upon buyout or after 2 years (whichever comes first) you expect to be offered a W2 salaried position at the fair market value of your services.

    This way you're both reasonably protected. If things go well, they have a fixed and reasonable buyout. If things go poorly then either you walk away with your work-product or whoever they sell the remains to will have to seperatly buy your work product from you. And if the buyer insists on a package deal, they even have a fixed price for it that they know up front.

    • That way, you're unemployed.

      The only way you get that deal is if you have an unhealthy business relationship with the company founders, the investors are complete idiots (in which case you'll probably end up with nothing in the end anyway), or if you're the 1 guy in 100 million that can do what you do.

      Clearly this guy didn't have a good-ol-boys relationship with the founders (if he did they'd have just given him a stake anyway, or they would have canned everybody but him). I like my odds that this guy wasn'
      • Either they'll work, which means you'll never get that contract, or they won't, and you'll be in the same boat you were in without it.

        The nice thing is sometimes you offer something that protects you and the employers balk. A friend of mine got screwed by stock option dilution once so when the next company came around he asked that his options be non-dilutable. They said "no way" so he knew they were planning to devalue his shares at some point and avoided that potential trainwreck while learning the kind
        • They said "no way" so he knew they were planning to devalue his shares at some point and avoided that potential trainwreck while learning the kind of folks he was dealing with.

          Every early round startup will probably raise more money eventually. Practically every startup will tell you to go screw if you ask for a different equity deal than everybody else. They only want to pay the lawyers once.

          The proper way not to get diluted in a startup is to go to a company that has pre-alocated shares for the later fina
          • I guess it's a matter of how it's sold. Often the recruiters lure folks in promising them some tiny percentage of the company in equity which sounds like a good deal to them because they don't understand that percentage is going to plummet. I've seen plenty of guys get their shares subsequently revalued to the point where they get a couple thousand bucks after working there with three or five years worth of vested shares, sometimes going in with whole number ownership stakes. Not to say every company int
            • True, but getting protection against dilution is a non-starter in part because it will make it impossible for the company to get funding. No investor is going to be willing to buy into a company where some employees won't get diluted while they do get diluted, because any chunk of the shares that are "protected" that way will mean they will take a larger chunk of the dilution.

              Instead, you should account for it when you negotiate. Assume the shares will be diluted around 60%-80% (i.e. the original shares m

              • I agree, that's a good strategy for working at an honest company. The trouble is you don't always know up front if that's where you are. I've seen the 'worker' class of shares reduced to less than one percent while the VP's class wound up more like at the 20-40% range you mention. No ethical board would do such a thing, but being such isn't one of the rules.

                And somehow Sergey and Larry wound up with, what 2/3 or 3/5 of the company while investors beat their doors down with fistfulls of cash. :)

                Then again
  • Fair (Score:4, Insightful)

    by JanneM ( 7445 ) on Tuesday June 13, 2006 @10:26PM (#15529333) Homepage
    First, like others have pointed out, forget stock options or other perks. Don't plan your economic future around them - they are a lottery ticket, nothing more. Your salary is where it's at.

    Second, you were an employee. You were hired to do a job - with, by your own words a fair salary - and you did that job. You should have no expectation beyond that; you certainly have no moral right to anything more.

    Really, if you want a part of a company's future, become an investor - put your money on the line and accept the risk that comes along with the possible rewards.
    • Re:Fair (Score:3, Insightful)

      by timeOday ( 582209 )
      You were hired to do a job - with, by your own words a fair salary - and you did that job. You should have no expectation beyond that; you certainly have no moral right to anything more.
      If working for a startup only pays a normal salary, why would anybody work for one instead of a more stable company? Options are supposed to make up for the added risk of unemployment.
      • Re:Fair (Score:3, Insightful)

        by JanneM ( 7445 )
        If working for a startup only pays a normal salary, why would anybody work for one instead of a more stable company? Options are supposed to make up for the added risk of unemployment.

        Again, and as the story poster found out, options are a lottery, not an income source.

        What you get by working at a startup? Little bureaucracy and short decision paths; well-focused, exciting projects; tightly knit organization where everybody knows each other; quick career advancement (and commensurate salary increase) if the
        • Re:Fair (Score:3, Interesting)

          by The Vulture ( 248871 )
          Hear, hear!

          I work in a promising startup now - the options are great if they come through, but if not, I don't lose a whole lot. I made sure that my salary and benefits were adequate when I took the job.

          The best thing about working in a startup is that it's a small company, and we're all friends (having worked together at a previous company). That is worth more than all of the money in the world, because it makes working more fun than most other jobs.

          I disagree with the parts about well-focused projects a
  • by dfjghsk ( 850954 ) on Tuesday June 13, 2006 @10:43PM (#15529402)
    You expected way too much. You were hired as an employee. You didn't put any money into the company, and you were paid for the work you did.

    The investors, who made more than you, would have lost all of their money if this went badly. If things went badly for the company, you would have still been paid your salary.

    If you wanted the benfits of being an investor, you should have taken out a second mortgage on your home (for example) and invested the money in the company. Of course you didn't want to do that, because it was a startup, and you didn't know if you would get your money back.

    Well, guess what? The investors in the company didn't know if they were going to get their money back either. The money they earned from the sale is their reward for taking the risk in starting the company.

    So what you wanted was all of the benefits of being an investor, without any of the risk.. which was unreasonable to say the least.
    • Help me take back Slashdot. When did 'News for Nerds' become 'FUD and Conspiracy Theories for Extremist Nutjobs'?

      Way before you showed up, newbie.
    • There are more kinds of investments than just money. If the guy's story is right, they had maxed out their own tech experience, and he ended up making a lot of high level infrastructure/planning decisions. So yes he invested in the company - he invested his talent and expereience, and possibly saved their bacon. It sounds like either he didn't have a good contract to start out with, or should have renegociated when he started assuming more responsibility.
      • He did invest his talent, but he never invested in any of the risk. It's easy to put effort into an enterprise, doing the work etc. but until you decide to share in the risk then you don't have very much to negotiate with.

        Look at it this way. If the company had gone under, all he would have lost was his job. And he would have still gained something from it, and whatever he'd saved over that period and experience. That's always valuable when going to your next employer. If he'd have become a fully fledged in
        • He did invest his talent, but he never invested in any of the risk. It's easy to put effort into an enterprise, doing the work etc. but until you decide to share in the risk then you don't have very much to negotiate with.

          How exactly do you define risk? I don't think investors' lives or health was at risk, so let's assume you are talking about property loss risk. Well, most every property today comes from talent or effort and risk, either owners or owners' ancestors. What I am trying to prove here is that

      • every person who goes to work at a company invests their time and talent. In exchange they are given a salary. If that counts as investing then every employee and independent contracter in America deserves a piece of the companies they have worked at.

        It does not count as investing, because there is very little risk in going to work for someone else. If the company had gone under, he could have sued for his paycheck; the owners would have been responsible for paying any employment taxes, even if they had to
    • I agree with you mostly, except for one thing: This is the second comment about "invest by mortgaging your house",so I need to set the record straight. You can't just take money and put it in a company (if the company was cash strapped and short of investors, perhaps, but this was not the case). There are few things worse than having an immature/nervous/difficult-to-deal-with investor on board, and so it is often INVITATION ONLY.

      No investor/founder worth their salt is going to let just anyone invest in thei
      • Good points. I own a small business myself, and employ a few people. Investments in small businesses are, almost exclusively, invitation only.

        Maybe he should have been allowed to purchase a few percent in the company.. but he wasn't, and he can't expect to benefit from a risk he never took.
    • Help me take back Slashdot. When did 'News for Nerds' become 'FUD and Conspiracy Theories for Extremist Nutjobs'?
      Before user accounts were even available. I posted as an AC for quite a while before registering because I thought that it was weird to access a news site with a username and password.
    • I have to agree in principle with this...

      I joined a startup, and I should have been the first employee, but as the only tech guy I was given the option of becoming a partner. The catch was that I was going to be paid sporadically, had to take responsibility for the company and its decisions, and worry about all those things that people who run companies have to worry about. Not only things like going bankrupt, but also taking a load of people down with you. But since I was doing the work myself, I felt I
    • Bullshit. If you go into a startup as the first paid employee in a reasonably high responsibility situation (such as taking the app from a prototype to functioning system) and don't get options for at least a couple of percent of the company with a decent vesting schedule, you're being shafted.

      Yes, the investors take risks. Yes, the founders do too. That's why this guy couldn't have expected an equal share of the company with the founders. But he certainly could and should have expected a significant stak

  • Hi,

    Basically if I was in the same situation I'd double check the contract when I signed up. Always try and think what's the worst that could happen.

    My guess is that you would have gotten vested shares after either 12 months or 24 months. If that's the case then add an escape clause that says something like "The share will be immediately vested immediately upon the termination of the contract unless the contract is terminate by myself or is terminate for gross negligence." While you can could just add it at
  • As we all know from out dotcom 1.0 days a 'post layoff buyout' is basically getting rescued from creditors and being able to sleep at night, secure that they won't come to steal your furniture.

    Having been a principle at one of these things I will tell you that their life is more hell then you can imagine and you should actually be happy you got out and could just move on with your life.

    Sure, MAYBE they got some cash but I have to date have never seen a post layoff startup get bought out, just acquired for t
  • by ejoe_mac ( 560743 ) on Tuesday June 13, 2006 @11:10PM (#15529486)
    So, since you know so much about the technology purchased, how it was implemented, and who was involved - drop by! Once you show them your role, you're in the best possible place to argue for and recieve cash and stock in the new company. I know it sucks, but some times it'll all work out in the end.
  • by Anonymous Coward
    You could argue that since you're one of the first employees, they should offer you some amount of stock (not options, but actual stock). Just have them calculate the amount of stock they would have to give you in order for you to own some small percentage of the company (e.g. 5%), and then divide that amount by the number of paychecks in the first 6 months.

    Every two weeks, they have to give you a paycheck and the agreed upon number of stocks. After 6 months, you'll own 5% of the company. Thus, if they
  • I happen to be one of those people who owns a startup. My company doesn't have the money to pay phenonmenal salaries, but we make sure people are taken care of. The best advice I have for anyone coming into a situation: love what you do and make sure your work is meaningful.

    A startup is a risk no matter how you cut it. You and everyone else is involved in a project which may or may not take off someday, and your financial compensation is directly tied to the success of the organization. Your challenge is re
    • Out of curiosity, how do you compensate the two individuals? Or more specifically how is the disparity in work effort reflected in their compensation. As some have pointed out, you 9-to-5'er is doing his job and earning his salary. However, your dedicated employee is far exceeded the job requirements. We have struggled with this issue for a long time.
      • well, obviously, the 9-to-5er is not effective in his current job, so we'll move him into another position, perhaps a minor supervisory position where he can use his knowledge to oversee a small group of people doing what he used to do. if he does well there, he can always move it up...

        meanwhile, that guy who works his ass off? we love him. he'll never lose that job. 'course, that also means he'll never be promoted either, and he'll be working deep into the night long after his health or his life really all
        • You're promoting the guy who isn't as dedicated to the company and as committed to his job, over the guy who excels in both of those categories. Seriously, do you think that's the sensible thing to do?

          This presumes of course that the dedicated employee even wants a promotion.

  • get a lawyer (Score:2, Interesting)

    It sounds like you feel that the proffered reason for termination, that they were out of money, was pretextual. This implies that the actual reason was that they didn't want to let you collect on your options. Don't assume you have to just chalk this up to experience, live and learn. The law often provides protection for this type of situation. Likewise, don't assume that the term "at will employment", that gets bandied about, universally applies and precludes fair treatment. From a cursory search, stock o
  • by eclectro ( 227083 ) on Tuesday June 13, 2006 @11:34PM (#15529555)

    Employees are the rungs on the ladder to success. Don't hesitate to step on them.
  • exactly what you are supposed to do and to what extent.

    The rest is up to you. The rest is you offering something for free, to look good, to be friends with the investors and to possibly be a future dev manager. You're providing that for free and you should simply know that when you're providing that. Apart from that, what you do is your job and you'll get paid for it.

    For some strange reason, I suggest you try and apply to get hired in that bought company again.

    I dont know why I suggested that.
  • I've personally made the mistake of accepting a job at a startup where I traded some salary for non-binding verbal assurances about future benefits. In some ways it was a similar position to yours - I was to build the company's software capability, and in return I would their CTO. In fact, all they really wanted me to do was fulfill a specific contract, which didn't interest me much, and which I wouldn't have taken if it weren't for the promise that I could "grow with the company". Later I was sacked, altho
  • Immediate Vest (Score:2, Interesting)

    by khyron4eva ( 244559 )
    The answer to the question is you write it into the contract that you vest immediately in case of termination, whether for cause (your screw-up) or not (they fire you). 100% vesting upon termination of employment for any reason is very popular with most of the tech execs I know. You probably should have taken a higher salary too though. Or better yet, instead of options (which need to vest to be usable), you should have negotiated a small piece of equity, even 0.5%. As employee #1, you could have negotiated
  • Options are worthless if they never vest. You should insist on something that gets you actual stock as you go. Monthly vesting, up-front stock grants, maybe with the stock in escrow. Then they can not sell off the assets without notifying you as a shareholder.

    All of the fancy notes, options, future grants, and other instruments are not very meaningful until they actually turn into stock. You will also find that you often have more rights as a shareholder than as an employee.

    The only down side to this a
  • by Doomedsnowball ( 921841 ) <> on Wednesday June 14, 2006 @01:30AM (#15530076)
    If you want to protect yourself from ungrateful, uncaring employers... there's just one word: rootkit.
    • If you want to protect yourself from installing a root kit, there's just two words: anal rape. You'll be bestest friends with Brian the BeefCake at the county jail for installing a rootkit on your company's servers.
      • I do see your point, though some of us old hacks are a bit crafty and 'create' our rootkit out of a collection of undocumented and not-so-well-known bugs, carefully --even artfully-- scattered throughout the code. Of course, if you're this good, you're not getting into bed with shady investors/employers. Offtopic: Love your website. Better luck with the firework photos next time.
  • by Zadaz ( 950521 ) on Wednesday June 14, 2006 @01:47AM (#15530135)
    You say you got a "Fair" salary, but clearly you didn't because you feel screwed. You should have asked for more up front.

    A start ups, especially web start ups, really only need talented people up front, then they have to get rid of them. Same reason you don't pay carpenters to come back to the house after they finish building it. That's the nature of the startup.

    I'll echo what everyone else said.
    Either you need to get into the company before they have employees (in which case you'll likely get burned much more severely, but with better reward possibilities) or get there later, after they've shed their builders.
  • you need authority not promises. if there's someone who can fire you and ruin you then you're already fired and ruined. you need power over people in your work place. you need to not give a shit what they do or think because in the end you're in control and only you can mess up your career. allow yourself to risk their jobs? that's what they're doing to you by making you have no job security. just like in dating, unless you are both virgins in your first true love relationship then be brutal. you bot
  • by hirschma ( 187820 ) on Wednesday June 14, 2006 @03:17AM (#15530375)
    Most people believe that equity is equity. It isn't.

    Let's say that I do a startup. I immediately create two classes of equity - Class A for me, Class B for you and everyone else that I hire. To make things simple in this example, let's say that in terms of ownership, Class A = Class B, but they have different rights. Class A gets to vote on things, Class B doesn't.

    OK, so I have 50% of the company in Class A stock, let's say 100 shares. You have options for 50% of the company in Class B stock, also 100 shares. These shares seem to be equal, but they're not.

    So, together, we build the better mouse trap. Then we run out of money. The VC's step in... and since we're distressed, they seek to do a cramdown. Which means that they're going to shrink the existing slices of the pie,and perhaps convert things. Time to vote on whether to accept the cramdown. But only I have voting rights. So I agree to do it on whatever terms we can get.

    So... first they buy the majority of the company with their investment 89.99%. The company issues 10,000 shares of a new class, Class C, which is what the investors get - 8999 shares worth. Class C becomes the only redeemable equity. The investment terms specify that Class A owners can convert on a 10:1 ratio - so now I have 10% of the company, or 1000 shares. I've been diluted. Class B owners can convert on a 1:10 ratio, or 10 shares. You are diluted, the way the "active ingredients" in homeopathic remedies are diluted. So now you have .1% of the company. You still have the same number of SHARES as spelled out in your agreement, but they're now effectively valueless.

    The VCs find someone who wants to buy the company for $100 million. They get $89.99 mil for doing a bit of social networking, and tiding us over through the rough times - in other words, the rich get richer. I get $10 million. Woo hoo. You get $10k. Thanks for playing!

    This is how it works. Founders often end up with far less than 10% of the company, if anything at all. Employees typically get screwed. The exceptions are the companies that are so hot, and/or have enough revenue coming in, that they can play one VC off of another. It is not often that founders have the ethical grounding to make sure that employees don't get screwed, at least any more than the founders themselves. But, on the other hand, I've seen employees cut separate deals with new investors to cut the founders out. No one plays nice in this game.

    This is what you need to know going forward: get the same CLASS of equity that the founders have. Insist on instant vesting upon change of control. Insist on at least partial vesting if you are fired without cause (although employers will always be able to show cause, there is at least the threat of a lawsuit).

    The flipside: if you have the stomach to do another startup... since you helped launch a company that made people money, you can get a better deal the next time around.
    • Yeah, what hirschma said...

      Also, the reason a founder can look you in the eye and screw you with worthless stock and make you believe they are sincere is because most of them are. They are clueless. Most of them (especially back in 1.0-land) don't know much more about stock and what it will mean in an earn-out, merger, or IPO than you do. In fact, most of these people ARE you three years into the future. And many of them are in the process of getting screwed too on a different level...

    • My opinion about employee stock with startups is very simple: In exchange for putting up with the startup environment, the company gives me lottery tickets!

      Now, only a fool would think that getting paid in lottery tickets is a good way to make a reliable income. The same applies to startup stock, only a fool thinks that stock is reliable income.

  • Sorry, but in all seriousness, this is a mentality the average worker hasn't displayed in 30 years.

    The market is dynamic in the U.S. In other words: we hire and fire like it's nothing. Didn't Slashdot the other day link to an article discussing this effect in the U.S. economy and its positive value?

    As 1/4 of the business at the time, you should have demanded at least 1/4 of the business.

    Taking pay at a startup is the easy way out. And I guarantee you it's why your employers didn't feel bad about letti

    • As 1/4 of the business at the time, you should have demanded at least 1/4 of the business.

      At the stage where a company has a prototype and a business plan that is just not a realistic prospect in most cases unless you're very heavyweight or well known in your industry, are bringing in funding, or the founders are very close friends of yours.

      • If that's the case, then I'd offer the company doesn't value you enough to make joining a startup worth the effort.

        A startup is a very tricky business, and a type you can only participate in for a very narrow window of your career.

        It means that your situation needs to match the company and vice-versa.

        If they don't see the match as that important, then that's life. In that scenario, you're no better than the guy pulling French Fries out of the vat at McDonald's. So, the lesson is if your not a primary,

  • Lot of focus on early option vesting here. But options have a strike price, and even vested options are worthless if they're out of the money. If you want a share in the company (and the subsequent sale of the company) then you need to own a piece - i.e. you need equity. So either buy into equity as an investor, or earn-in by receiving shares as remuneration. Equity by itself is risky, options (as remuneration) are speculative devices.
  • by tverbeek ( 457094 )
    Press [F8] and startup in Safe Mode.
  • I got F*CKed royally by eCharge in the bad old days of 2000. The day my wife was closing on the sale of our house in Boise, eCharge, who recruited me only a few months ahead of time with tons of evidence of financial health, had me in a conference room tell me and others that the doors had been shuttered retroactivly to the day we all left on Christmas vacation.

    Still live in the area, but still can't go to 5th and Union without spitting on the building.

  • Markets rewards those who take risks. The founders took the risk of starting a company that may make $0 and putting their own money into it. You took a job. They get the rewards.

    There are some cool companies that vest stock on a monthly basis. Or, some companies will have a vesting schedule with a clause that if the company is acquired by someone else all of your shares automaticall vest.

    My friend was an exec at MySpace and worked there for a few months before they got bought. Not sure of the details b
  • Some clarity (Score:2, Insightful)

    by pHaze ( 19163 )
    There are two distinct roles you need to be aware of. An employee and an investor. An employee does the job, gets paid a salary and bears no risk. The only risk is that the company might go away and you will have to go be an employee somewhere else. Then there's an investor. As an investor you bear the risk of losing your investment which may mean losing your home if you've morgaged it to raise funding.

    You can choose to be both by agreeing with your employer to take part of your salary and use it to purchas
  • You didn't invest in the company, you offered a service to them in exchange for monetary payment. You didn't dump hundreds of thousands into this company. Those people took a risk, you didn't. You were going to get a paycheck if the company floped or exploded. Taking risks is what investing is all about, that is what makes money. don't whine about not getting a piece of the pie when you decided to play it safe. Next time? If you believe in the product and/or service, heavily invest in it.

1 Angstrom: measure of computer anxiety = 1000 nail-bytes