Work for a start-up for shares instead of a salary/fee

Hi folks,

I've been approached by a family friend to help out with a new venture. I've given him a price for completing works but I've now been told that the company (limited) has no seed money and therefore he's is looking for me to join on the basis of shareholding. I see this as high risk where I could complete over 40 days of development (IT) work (to begin with) and get nothing at the end (x% of nothing is nothing). I'm also worried about taking a small shareholding as I'd get no real decision making rights and I'm wondering how I could eventually turn the x% shares in to real cash.

Are there alternatives to share holding when a company has no money?

Any advice would be appreciated.

Best regards,

BVB

Most start-ups fail. I would guess that the biggest cause of failure is the lack of capital to get it through the initial stages.

If this company has no seed capital, how will it pay for its other costs.

Ask yourself - "Would I invest cash in this company in exchange for a shareholding?"

If the answer is no, then don't invest your time in the company.

If you have no other work to do, then you could do this for free. But 40 days is a lot of time. What is the opportunity cost?

You should tell him that you will do the scoping for him for free or for deferred or contingent payment. But he has to organise his financing first.

Hi Brendan,

Thanks for the super fast response

Fortunately, I work full time and these works would be carried out at night and the weekends - family permitting.

I think you're spot on with

Brendan Burgess said:

Ask yourself - "Would I invest cash in this company in exchange for a shareholding?"

Click to expand...

That's something I need to really think about.

Thanks

BVB

I don't think this is viable for you. To work for shares instead of cash, you have to be sure you'd get some value for them (even disregarding the risk of the company crashing and burning). Hence you'd need some form of shareholder's agreement, which itself would generate legal costs. Without that, your shares are effectively worthless (unless you're being given an equal shareholding, which seems unlikely), as other shareholders, including, for example, a new investor, can dilute you to nothing amongst other things.

If they don't have the cash, treat it as a loan. Either that or barter something. You're left with the same sort of question: would I loan the person X amount.

It would be common enough to have some form of very soft loan with personal friends or family when starting up (i.e. "pay me when you can"), though this is dangerous too if the amount is large, but I note you say "family friend", which isn't quite the same thing.

So, I'd recommend:

- anything that could be bartered?
- treat it as a loan: have some form of written agreement, so there's no misunderstanding

It's up to you to decide how "soft" or "hard" the loan terms are, or if you want to do it at all.

This is far less complicated than getting involved in shareholdings (I think people read too much into stories about the early days of Facebook etc.).

Take it from an eijit who did it twice for people, unless there's cash on the table walk away.

Having been involved with a few of these schemes, if you are willing to work for free, whether because you are getting good experiance from it, or you want to give this person a hand, go for it. You may get lucky and get something out of it, but more likely you won't.