Reply to: Joining a startup

[PerfectStorm]

Very important point

I would go as far as to say - don't go into business with anyone you care about seeing again.

Equally - as an employee (or otherwise) - never work with a husband and wife team. Nothing good comes from it and they'll stick together no matter what.

[Rabotnik]

I just did this recently. We all work from home since everything is hosted on AWS, so I just do my bit here and there in the evening or weekends. It seems very promising and we have some big clients trialling us and already have our first paying customer. I'll be gutted if it all goes south, but I'm treating it as a learning experience since I'm learning about AWS along with some Big Data stuff which I can use for future contracts.

[dx4100]

and don't rely on your friendship.

Very important point

[woohoo]

I was offered today to join a startup by my former collegue. And thats all I know and will have a meeting with them in few days.
Because i want to be prepared on the meeting, any idea on what terms should i agree or might be offered? I have no idea even if they are thinking of hiring me on permie basis, but most likely to participate in the business somehow and deliver some product.
Whats common in such scenario, share in business?

even if that was no-go, its worth to know

Thanks

If they offer a share in the business or partnership then be clear on what work is required who is doing it. Also, be clear on continuing responsibility, you don't want your business partners slacking off and you picking up the extra work and all the time they still have the same share of the company. Unless you are planning on slacking off, then don't be clear on anything.

Get any agreement in writing and don't rely on your friendship.

Good luck.

[stek]

Didn't Dobbie join a start-up on Peep Show?

[diseasex]

Combination is the answer - day rate and shares. What split is a personal choice and a negotiation. It may be that the main investor is insisting on an experienced hand, having seen too many startups fail due to keen but inexperienced young perms. Until you have the meeting, we're all guessing but the key questions if I were you would be:
- Why me? Why do you want an experienced contractor rather than a cheap perm?
- What different packages are on offer in return for your skills/time?
- Can you secure IPR on your products? If not, then increased shares as the IPR is only worth something if it's marketable anyway.

If i remember correctly (and last time i asked was a year ago) they were doing something about bitcoins. But that's a dead topic now.

[LondonManc]

Yeah im sceptical now.

Combination is the answer - day rate and shares. What split is a personal choice and a negotiation. It may be that the main investor is insisting on an experienced hand, having seen too many startups fail due to keen but inexperienced young perms. Until you have the meeting, we're all guessing but the key questions if I were you would be:
- Why me? Why do you want an experienced contractor rather than a cheap perm?
- What different packages are on offer in return for your skills/time?
- Can you secure IPR on your products? If not, then increased shares as the IPR is only worth something if it's marketable anyway.

[diseasex]

No never ever agree to that. You will not see you money.

Yeah im sceptical now.

[Eirikur]

yeah i appreciate that.
Lets say you were approached by a "startup", which is running for less than a year and they want you to deliver another product to their portfolio. Thats all i know. They do have clients and 1 product and apparently they are doing well.

No never ever agree to that. You will not see you money.

[JoJoGabor]

What do you want to get out of it? Money or the enjoyment of creating something as part of a startup?

I was approached 2 years ago by an ex-colleague asking me to join his startup. I had every faith that the guy would turn it into a successful business, but going through the figures would mean stopping my contracting career earning between 120 and 150k a year and starting on about £35k a year. If the company did well (by his projections) I would stand to make about £350k when I sold my shares, in 3 - 5 years time. So losing say £100k a year over 5 years, the maths didn't add up.

So, I decided to invest instead. I stuck £25k in as a seed investor along with 6 other investors. That money didn't last long but they (in the nick of time) raised £1.5m in VC funding so they are doing well. Based on the last round of funding, my share is worth just over £100k and I've maintained my decent earnings as a contractor. Of course it could still go belly up which I'm well aware of, but at this point in time I'm very glad I didn't join but invested instead.

[WordIsBond]

What should you ask for? You shouldn't even be asking that question yet. What you need to find out before you even get anywhere near talking an agreement is A) what they want from you B) is their product/service likely to be successful C) is the guy running it going to run it effectively (lots of guys have great ideas for a product/service but can't run a car, let alone a business) D) are they going to have the funds to make it work E) who are the competitors and why will they be able to beat out the competitors. And a lot of other questions.

Unless they are offering you a good rate, they are asking you to put up venture capital in the form of your time/services. So the first thing you need to ask is the kinds of questions an investor would ask. And that includes how much they want you to invest (in time/services), and what they are offering you for that investment.

Get all the information on those questions that you can, then go away and think about it. Do NOT make an offer. Do NOT believe the guy's sales pitch of how wonderful this company is going to be, think about all the reasons it is going to fail, since it probably will. If you have friends who are naturally sceptical, ask them about it. And then, make your OWN assessment of how likely the thing is to succeed, and factor that into your calculations of what you would need to get for the time you are giving.

If the time you would have to give means you need 5% of the company shares to break even if the company succeeds, but you think there's a 50% chance that the shares are worthless, then you need 10% of the company to compensate you for the risk. If you think there's a 50% chance they are worthless but a 10% chance that the company overperforms and you get double your money out of the shares, then maybe you only need 9%. The point is that you can't even begin to think about what you should be getting back until you find out A) what they want from you and B) a realistic assessment of the viability and long-term prospects of success of the company.

Of course, if you are out of contract and need work, and would just be sitting on the bench anyway, then I guess you could ask for less because you aren't really putting that much at risk. But if you are passing up a paying contract, then you are making an investment of precisely the amount you could have earned in that contract, so you need to view it exactly the same as if you were writing this guy a cheque for that amount -- what would you want in return?

[dx4100]

Personally I would be looking at doing a contract with your friends and being paid in £££ on a WEEKLY basis(given the risk).

The other option would be to go in with them on a co-owner basis and to do this you are going to really want to be involved and believe in the company.

Any other option would be a waste of time and too risky for me.

Start ups are alright if they are being backed by venture capitalists as they have an element of security. Otherwise be VERY cautious.

Good luck

[VectraMan]

"Always take the shares" - because it worked 1 time for someone who worked for the fastest growing company ever

definitely make sure you get something in your pocket...

There was that guy (who made a TV series about it all) who was one of the original Apple employees who turned down stock and held out for his salary.

I worked for a start up a few years ago (as a contractor). It was great; really enjoyable project and a great bunch of people. Until the second month when it turned out the guy behind it all didn't quite have the deep pockets and investors lined up that he'd claimed. It then fell apart overnight leaving me to sue (unsuccessfully) for the last month's invoice amount. Once it all turned sour people started to look into the bloke we were working for and discovered he was disqualified from being a director...

Look before you leap.

[pr1]

Always take the shares. The guy who painted the Facebook office for shares cashed out at £30m a few years ago if I recall

"Always take the shares" - because it worked 1 time for someone who worked for the fastest growing company ever

definitely make sure you get something in your pocket...

[PerfectStorm]

Always take the shares. The guy who painted the Facebook office for shares cashed out at £30m a few years ago if I recall