Saturday, October 15, 2011

Equity and other Business Jargon

I am currently pursuing a short term contract with a start-up. I will share with you the magic phrase that opened up this opportunity, and then try to explain why this is a double edged sword.  "I would consider working for equity."  My Dad told me to try this, so I blurted it out when asked about compensation, even though I don't really fully understand what it means.  Well, now it looks like I'll have the opportunity to learn.

The phone interview was really winding down in a "don't call us, we'll call you" kind of way, but I mentioned I'd like to tour this facility, and I'll be in the area for a while.  For some reason, this got the CEO interested again, but when I uttered those magic words, he said "You are getting gold stars for that answer."  Why?  As a start-up, I know that he has limited funds.  He is seeking investors, but it isn't clear that the money has arrived yet.  Working for equity is a delayed (and risky) promise of money.  That is, this privately help company will someday have a public offering of these shares (go public), and if the market has confidence in the business, the shares will increase in value.  Hooray!  However, if the company never gets enough investors to develop enough to go public, the shares don't really have value. Or the markets deems this a terrible business, the shares may loose value.  Many companies will offer partial equity to employees ("employee-owned"), as a way of helping them being equally invested in the success of the company.

This contract I am trying to get is a "high-risk" contract; it's 100% equity.  I'm hoping that a short term contract with a start-up will give me some business cred and help me get my foot in the door somewhere. It's giving me the opportunity to learn some of this business jargon I've never considered before.  I signed a non-disclosure agreement.  I am trying to figure out the difference between Founder's Shares and regular Shares.  I am trying to imagine how many shares there might be in one company, and what it means to spin-off the investment arm of the company.

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