Employee Equity
Discussion
Im in discussion with a company about a role. They cant match my current package in cash but have offered an amount in equity. The company is not yet listed and has series B funding I think ( I am dont really understand this bit).
There view being that the equity will be worth a lot more in the end.
I have never had this before and so unsure how it all works. It sounds a bit jam tomorrow to me.
How do I know I am getting the value they say if the company currently doesnt have a public share price? When it does go live, what options do I have in terms of liquidating it if that was what I wanted to do? Presumably dumping all my stock on launch date is not going to look good.
Anybody have an experience of this?
There view being that the equity will be worth a lot more in the end.
I have never had this before and so unsure how it all works. It sounds a bit jam tomorrow to me.
How do I know I am getting the value they say if the company currently doesnt have a public share price? When it does go live, what options do I have in terms of liquidating it if that was what I wanted to do? Presumably dumping all my stock on launch date is not going to look good.
Anybody have an experience of this?
Equity is often a very good thing and common-ish in startups and tech firms.
In general, I always want some equity with a role and would choose the role with equity over the one without.
If it is a tech startup try and find out if the shares are EMI as they end up being tax free which is nice.
Either way, they are not worth anything until there’s a way to sell them so you need to find out what the exit strategy is for the shareholders ( those that put in the series B funding). Don’t be afraid to ask - any startup should know what their plan is.
Presumably they will be looking at either a trade sale or an IPO - these events should then turn your stock into something saleable.
Take a look at the company on companies house and find the doc that details the shareholders - you should be able to see other employees and what they have received so far. This should help you gauge what you should be negotiating for.
Depending on the size of the company / number of employees, you could end up with a decent whack of shares if you play your cards right.
Sometimes 0.5% is a life changing amount so good luck.
In general, I always want some equity with a role and would choose the role with equity over the one without.
If it is a tech startup try and find out if the shares are EMI as they end up being tax free which is nice.
Either way, they are not worth anything until there’s a way to sell them so you need to find out what the exit strategy is for the shareholders ( those that put in the series B funding). Don’t be afraid to ask - any startup should know what their plan is.
Presumably they will be looking at either a trade sale or an IPO - these events should then turn your stock into something saleable.
Take a look at the company on companies house and find the doc that details the shareholders - you should be able to see other employees and what they have received so far. This should help you gauge what you should be negotiating for.
Depending on the size of the company / number of employees, you could end up with a decent whack of shares if you play your cards right.
Sometimes 0.5% is a life changing amount so good luck.
I've worked in a number of tech companies that offer equity, only one ever got acquired/went public....I don't think it means a single thing until that happens, which may be a goal in the next year, or 5, or never happen.
Put simply, I'd ask what their goals are in that regard. If they are targeting flotation then possibly interesting, if they're not then you could be in with a long wait for anything to happen. And even then, as I've just found out, if its US based you probably end up paying at least 50% in tax anyway. So don't be blinded by it if the money is s
te.
Series B Funding is just that they've raised twice now, series A being the first.
Put simply, I'd ask what their goals are in that regard. If they are targeting flotation then possibly interesting, if they're not then you could be in with a long wait for anything to happen. And even then, as I've just found out, if its US based you probably end up paying at least 50% in tax anyway. So don't be blinded by it if the money is s
te.Series B Funding is just that they've raised twice now, series A being the first.
Edited by okgo on Wednesday 21st July 11:07
I would personally be very wary of accepting equity instead of cash, it would only be a consideration if it was in addition to an acceptable package.
Shares can be dilluted, reclasiffied, subject to bad leaver provisions (This can be as simple as you give up your shares if you choose to leave!).
Ask yourself this, would you invest X thousand pounds per year in this company in return for the stock they will give subject to the above conditions. if the answer is no then you should probably walk away.
Shares can be dilluted, reclasiffied, subject to bad leaver provisions (This can be as simple as you give up your shares if you choose to leave!).
Ask yourself this, would you invest X thousand pounds per year in this company in return for the stock they will give subject to the above conditions. if the answer is no then you should probably walk away.
Thanks all. The package itself is pretty decent. Base salary + bonus is the same as I currently get, in fact the bonus is better. The equity is to make up for a retainer that I'm on to stay in my current job.
The plan is an IPO I understand but not sure on timescales. It's early stage discussions at the minute, just want to understand the options before I get to the negotiation phase.
The plan is an IPO I understand but not sure on timescales. It's early stage discussions at the minute, just want to understand the options before I get to the negotiation phase.
matrignano said:
Surely you can also sell your shares at the next funding round
Many “series” rounds don’t allow unfettered secondary transactions (I.e. someone to sell) as investors are looking to put money in to the company, not to the pockets of individuals. It can however sometimes be the case that they will allow some secondary sales provided there is still enough skin in the game. Even at ipo there can be restrictions on execs. Bluequay said:
I would personally be very wary of accepting equity instead of cash, it would only be a consideration if it was in addition to an acceptable package.
Shares can be dilluted, reclasiffied, subject to bad leaver provisions (This can be as simple as you give up your shares if you choose to leave!).
Ask yourself this, would you invest X thousand pounds per year in this company in return for the stock they will give subject to the above conditions. if the answer is no then you should probably walk away.
Dilution is often a red herring. Dilution takes place where more shares are issued, usually when more money gets injected. Would you object to having a smaller % stake in a more valuable company with better prospects due to having money to invest? Probably not. Where dilution matters most tends to be around control, where the % can sometimes matter more than the £. Shares can be dilluted, reclasiffied, subject to bad leaver provisions (This can be as simple as you give up your shares if you choose to leave!).
Ask yourself this, would you invest X thousand pounds per year in this company in return for the stock they will give subject to the above conditions. if the answer is no then you should probably walk away.
It is however worth understanding what class of shares you’ll get and the rights/rules/restrictions associated with them. Good/bad leaver provisions are one, but also voting rights, vesting periods (expect a lock in) /acceleration (in the event of an ipo etc), and the such like need to be understood. Then you have to think about tax, which isn’t necessarily straightforward (and restrictions can actually be good here).
Worth being aware that “equity” doesn’t have to mean they’re going to give you a number of shares. Sometimes option plans or other contractual provisions can give you the similar/better effects than pure equity. Hopefully the firm has thought it all through and taken advice on the matter. If you’re the first they’re doing it with then there’s the potential to get a great deal, but also a very poor one if it’s not well structured.
As for cash vs equity, that all depends on your risk tolerance, how much you need the liquidity, and how much you believe in the company. Possibly, depending on the role/upside, how much you can influence outcomes will be a consideration too.
Remember, big liquidity events don’t always happen (or happen quickly) so there’s no reason that equity shouldn’t be one component of a broader long term incentive plan that also involves cash or more equity down the line if you hit certain targets.
Equity can be a good thing. There is though a caveat to consider.
When equity is included in the published package on offer from the start (i.e. stated in the recruitment and job description), this demonstrates that the company has thought properly at what is needed to attract the right talent and has built employee equity into their financial planning. In this case, the equity acts more as an added-value 'lure' beyond the normal financial remuneration being offered. In these cases, there is a high chance that at some point in the future your equity could turn into a nice trickle of gold.
However....
When equity is thrown in at the last minute to secure a potential employee, this smacks of desperation and lack of foresight, research and proper planning. This doesn't bode well for the future and lessens the value or likelihood of any financial gain coming from that equity. This isn't always the case and there may sometimes be just reasons for this approach but one should be more alert when this situation arises compared to the one described above.
HTH.
When equity is included in the published package on offer from the start (i.e. stated in the recruitment and job description), this demonstrates that the company has thought properly at what is needed to attract the right talent and has built employee equity into their financial planning. In this case, the equity acts more as an added-value 'lure' beyond the normal financial remuneration being offered. In these cases, there is a high chance that at some point in the future your equity could turn into a nice trickle of gold.
However....
When equity is thrown in at the last minute to secure a potential employee, this smacks of desperation and lack of foresight, research and proper planning. This doesn't bode well for the future and lessens the value or likelihood of any financial gain coming from that equity. This isn't always the case and there may sometimes be just reasons for this approach but one should be more alert when this situation arises compared to the one described above.
HTH.
okgo said:
All very well until you realise the tax you have to pay 
Surely that depends on a) how many you have and b) how many you sell per year?I've financed several cars with the proceeds and never paid any tax... am I doing it wrong?
Plus, given I've made $300 per share for nowt, who cares how much tax that attracts?
fat80b said:
Take a look at the company on companies house and find the doc that details the shareholders - you should be able to see other employees and what they have received so far. This should help you gauge what you should be negotiating for.
That's often not the case if they're assigned in trust, which is starting to trend as people seek wealth privacyB9 said:
fat80b said:
Take a look at the company on companies house and find the doc that details the shareholders - you should be able to see other employees and what they have received so far. This should help you gauge what you should be negotiating for.
That's often not the case if they're assigned in trust, which is starting to trend as people seek wealth privacyNominee approaches also hide ownership to a degree but i's not wealth privacy that usually drives moves towards these but the complexity associated with larger numbers of direct shareholders and the time it takes to get signatures on the docs associated with various corporate actions (many of which impact shareholders agreements etc) that firms face as they grow. These are much more common than individual employees wanting/being able to hold via trusts.
Of course some may wish to hold via trusts as well but I'd suggest that's rarely going to be appropriate for regular employees with quite modest holdings.
Alternative forms of quasi-equity also don't show up on companies house.
Edited by LooneyTunes on Thursday 22 July 11:05
timbo999 said:
Surely that depends on a) how many you have and b) how many you sell per year?
I've financed several cars with the proceeds and never paid any tax... am I doing it wrong?
Plus, given I've made $300 per share for nowt, who cares how much tax that attracts?
I suppose it depends how it has been registered, seems most of the people I know working for US firms have been clobbered by cica 50% marginal tax on any shares due to the way the companies have set up the schemes.I've financed several cars with the proceeds and never paid any tax... am I doing it wrong?
Plus, given I've made $300 per share for nowt, who cares how much tax that attracts?
To your last point, yes, but given most companies offer this as part of the package, it is always nice to minimise the tax element! Maybe I'm just bitter about the way ours are set up
okgo said:
I suppose it depends how it has been registered, seems most of the people I know working for US firms have been clobbered by cica 50% marginal tax on any shares due to the way the companies have set up the schemes.
To your last point, yes, but given most companies offer this as part of the package, it is always nice to minimise the tax element! Maybe I'm just bitter about the way ours are set up
I think that's true for shares given as part of remuneration (although where the 50% comes from, I'm not sure... unless its their marginal rate) but not for share save schemes that this was.To your last point, yes, but given most companies offer this as part of the package, it is always nice to minimise the tax element! Maybe I'm just bitter about the way ours are set up
timbo999 said:
okgo said:
I suppose it depends how it has been registered, seems most of the people I know working for US firms have been clobbered by cica 50% marginal tax on any shares due to the way the companies have set up the schemes.
To your last point, yes, but given most companies offer this as part of the package, it is always nice to minimise the tax element! Maybe I'm just bitter about the way ours are set up
I think that's true for shares given as part of remuneration (although where the 50% comes from, I'm not sure... unless its their marginal rate) but not for share save schemes that this was.To your last point, yes, but given most companies offer this as part of the package, it is always nice to minimise the tax element! Maybe I'm just bitter about the way ours are set up
ecs said:
Startups love to do this because they all think they're the next Facebook. Consider the number of companies which fail in their first few years and then think about whether you can pay your bills with their Disney Dollars.
But then imagine all the bills you could pay if they do become the next Facebook!As long as equity is the icing and not the cake then there's no issue.
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