[LRUG] Looking to meet...

[Stevie Graham]

On 15 Sep 2011, at 10:47, Paul Robinson wrote:

> On 14 Sep 2011, at 19:15, Stevie Graham wrote:
> 
>> Equity options are a useful way to get people to behave irrationally.
> 
> Woah there, equity options != equity.
> 
> You should only take *equity* in lieu of a higher salary, never options. Options have a whole barrel of issues with them that mean they must be seen as nothing more than a bonus that might never get paid (or in accountancy speak "realised").
> 
> I think in most UK start-ups where founding teams are 2-5 people, straight-up equity is common. The next trenche to come on board will typically get options. If you're in that next round of recruitment, you are probably looking at a company that has revenue, possibly profits, and has market validation. If it doesn't, don't take the job! :-) Anyway, options in that scenario are fine (caveats Stevie points out notwithstanding), because a lot of the risk is gone. There's still some there, but you're probably going to get offered a decent salary anyway.
> 
> When you first walk in and there's nothing more than some ideas on a whiteboard, well, options are worthless. Equity is where I'd say you need to be.
> 

This is nearly always not true. It's unlikely you'll get a straight up chunk of equity in a startup. It's common practise even for founders to have vesting periods. It's a way of protecting the other shareholders from a founder agreeing to do a startup and then bouncing after 3 months with 25% equity, leaving to others to slog it out for the same upside. Vesting periods are very important to investors. I have been employed at a company as one of the first actual employees, and it was because they raised capital and nothing do with revenue. I think at one point their burn was £50k/month and their revenue was circa £100!

I have to say you have raised some good points, specifically exploitation is unfortunately too common, and I think the backlash is in part due to others not having been shafted themselves. I hope it never happens to them, it's very unpleasant.

Cheers

S