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Ask HN: How to get stock as a contractor or consultant?
I make good income contracting with startups, but startup employees at top startups will be handsomely rewarded with stock, not salaried income. How do you position the conversation to earn stock while still not being an employee?
- PythonDeveloper 11y agoThe company must have a stock/option plan that explicitly covers consultants, or one does not define who can or can't get options. When I was at a large Internet company, they had a "Directors and Consultants Stock Option Plan" that covered special case workers. Prior to that, only full-time employees could get options.
- jeffmould 11y agoPersonally I wouldn't put a lot of effort into getting stock as a contractor/consultant. The chances of being "handsomely rewarded" in terms of future fortunes are very slim and far between. By the time you throw in the cost to exercise and the tax obligations, it may not be as much of a reward as you think. With that said, you may be able to negotiate to reduce your hourly rate in exchange for earning a equity position. You could also work out a convertible debt type arrangement. But again, I would walk cautiously here. Having $100 today can be worth a lot more than the gamble on possibly having $1000 five years from today. Just because a company is offering employees stock does not mean that the stock will be worth anything or that the employees will be rewarded on an exit.
- gesman 11y agoYou may ask and decision makers quite often will be happy to grant you N worthless stock options for reduction of your today cash rate. You may ask for an actual stock but it still won't be a fully vested grant but some conditional trickery promise. I'd rather take maximum cash squeeze and re-invested [part of] it into some more dependable.
- patio11 11y agoThis is a very difficult sell at most startups, particularly those who have done A rounds, as it requires legal maneuvering in most cases. If you want startup stock, I'd think "Charge biggest/most sophisticated companies a LOT of money, reinvest a portion into angel rounds." This does mean that you'll have stock from companies you didn't work for. Note that angel investing is, for most angel investors, a fun way to lose money. (I have three small angel investments.) An angel who invests $50k into a startup at a $5 million valuation gets a MUCH better deal than an employee who is offered 1% of the company, by the way. Ask me why if this isn't immediately obvious to you.
- anonconsulter 11y agoNot a bad idea about charging more and then just angel investing. Although then you have to be a competitive angel investor in order to get into the best deals, essentially taking on a new angel investor job in addition to consulting. Have you successfully got stock as part of your consulting compensation and if so, why do you think you succeeded even though it's a really tough sell? For the $50k angel investment, I'm guessing that you mean because its preferred stock with no vesting?
- patio11 11y agoNever asked for stock from clients; very happy with that decision. I wrote up the reasons for angel stock being better than employee stock on Twitter and, as I am on a phone right now, cannot conveniently paste it. Can someone please link that conversation here?
- tvmalsv 11y agoHere it is: https://twitter.com/patio11/status/660953729940635648 https://twitter.com/patio11/status/660953729940635648
- anonconsulter 11y agoAccording to http://www.kalzumeus.com/2015/05/01/talking-about-money/ http://www.kalzumeus.com/2015/05/01/talking-about-money/ you are asking for ~$30k/week when consulting. I just read some of your year-in-briefs, and it seems like the most you ever made consulting was $150k in 2012. Is that correct? How much income are you making per year consulting? Because I'd want to make much more than $150k in order for it to be worth it. The numbers I'm going through right now show that, even if I can make a lot of income consulting, if I just join the right startup I could earn stock options worth effectively more than I'd ever be able to make consulting (assuming I don't get stock consulting).
- shoo 11y agoperhaps that's a reasonable analysis, but you are working from the assumption that you're able to "just join the right startup". i doubt that it is realistic to think that you have much control over it turning out to be "right" or not. if you are able to earn $150k / year from consulting in a relatively small fraction of your time (incl. the overhead of networking, etc), that frees you up to use the remainder of your time on other activities, perhaps profitable or something else you value. some ideas: start your own startup, start your own small business, focus your energy on building a diversified investment portfolio, buy and renovate a house to sell, plan and run a series of workshops, start your own hobby farm, spend more time with people whose company you enjoy.
- deleted 11y ago[deleted]
- tptacek 11y agoYou don't. Employee options vest; there's no such thing as contractor vesting. There is a sense in which stock compensation to a contractor is equivalent to raising cash from an investor and exchanging that cash with a contractor for services. During the first dot-com bubble, equipment vendors famously did that with startups; it allowed those vendors to book totally unrealistic sales which juiced their numbers even though they'd never see a return on the stock. It was, in effect, channel stuffing. Today, though, a company that is willing to, in effect, raise an ad-hoc random funding round in order to get a contractor programming job done is a company whose stock is not going to be worth anything.
- JoeAltmaier 11y agoI've negotiated stock as part of a contracting deal (in exchange for reduced rack rate). I'm not sure why 'there's no such thing'?
- tptacek 11y agoIs that stock liquid now? There are a lot of people who will trade you stock for things. I'm certainly not saying nobody will offer you stock!
- JoeAltmaier 11y agoThen you've lost me. I consult; I have option; they vest. It's the same stock that employees would have been vesting.
- tptacek 11y agoLiquid meaning, has the company sold or gone public, or is there some internal market available today that will put a cash value on them? When did this equity compensation deal start? The most important feature of employee options vesting is the cliff; your deal was something like "if I'm still consulting for you 12 months from the start of our first statement of work, I get 1/4 of the promised options"? How does tax treatment of those options work? Most of the reason that employees are put into a crunch period after they leave where they have to spend real money on shares is that US tax law requires employee options to expire within some number of days after the employee relationship terminates. But you're not an employee at all; how can you have employee stock options?
- husseiny 11y agoYou may be able to negotiate to be paid in stock versus $$$. Very early stage startups that have not raised a round of funding might go for that deal. I am working on a startup that is currently bootstrap and am very open to getting work done for shares vs salaries.