Employee compensation in a startup without funding | Hacker News Reader

Employee compensation in a startup without funding

2 pointsl3mming7 comments

I'm working on the software side of a startup that I feel has a lot of potential, but I'm conflicted because those in charge have asked me to sign an NDA that gives away the rights to anything I produce for the company. Normally I'd sign it without much hesitation, but the startup is in an early stage with no funding, and management will not agree to set any terms for current or future compensation (i.e. I am trusting that they will fairly compensate myself and others who are working with me). I think this company is headed in the right direction, so what are my options for making sure that if the startup succeeds I'll actually see a return on my time investment, and making sure the founders can't just use my contributions for their personal gain?

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You an employment contract which gives you stock, and a shareholder agreement, right? There's your guarantee that you see some benefit from the work you do for the company.

If not, what are you doing there?

Unfortunately, no, I don't have one. The founders are holding off on cash and equity compensation until after funding has come in. They seem like honest guys, but of course only they know for sure.

Looks like you're being too nice. Why does giving equity depend on having funding? And why should you sign a formal NDA while your compensation depends on a mere verbal promise?

You should probably insist -- diplomatically -- on a contract specifying deferred salaries and equity. Say, something that does not screw the company in case it doesn't get any revenues.

It depends on where you live but verbal contracts are enforceable but very hard to enforce. Having done some business deals that were with honest guys that went south after differing opinions ruined the company I can attest to the fact that you need a contract. Get the contract reviewed by a lawyer. I know that lawyers are costly but look at it this way if you were buying a used car you would do some due diligence and take it to an independent mechanic to review and make sure that you were not getting a lemon.

The way I look at contracts now is you and the company are being held to certain standards. The company promises that they will pay you x shares or x dollars and you promise that you will work for the company for a certain number of years to be fully vested.

I thought that this was the norm too (that you have to hold off on any kind of agreement for compensation before the company has funding) but it's actually not the case at all. I just signed something with two friends last week for a side project that might take off and we put in clauses for how many shares of stock we'd get, depending on two conditions: 1) that we get at least a million in funding, and 2) that we each put in a certain amount of hours within the next two months.

Although it's still an experiment in progress, I think it covers several bases well: we get a shot clock on the amount of work we all have to put in and by when, and as long as we do that, we'll all get varying pieces of a pie that doesn't even exist yet. Self-reinforcing.

This is a tricky one. Have you thoroughly discussed your concerns with the management? Sometimes there is rational reasoning behind things that seem unfair. I believe that being able to communicate about things like this openly and establishing trust can be quite important in determining your success in resolving this concern.

In my first company, I didn't give equity agreements to my employees... IMO, it's one of the stupidest things I have ever done because we lost the trust with the employees and ended up losing productivity. If the founders are educated, they will protect the best interest of the company using vesting clauses and legal firms. My guess is that the people are either inexperienced at running a company or they have something up their sleeves for having you sign an NDA without a vesting agreement.

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