Evaluating a "Promise" from a startup company for pay raise, benefits, stock options within a specified period of time?


3

I would appreciate any advice based on a current situation that I am in that I think a lot of people involved in startups (especially developers) find themselves in at some point.

Basically, I'm in a situation where I am with a startup where I started as a regular employee without any stock in the company (no benefits, just straight salary), etc. I have been offered another higher-paying position with a more stable, much larger company that is appealing to me for its stability.

Having been made aware of my intent to leave, the startup company that I have worked with for the last 1/2 year, or so, has made me a number of promises that, if I just stay another 2 months, a number of things will happen including a pay raise, benefits and stock in the company. From what I have been told they have raised some venture capital, etc and have a few clients lined up to start paying for the software now (they have been testing it already). I have been told the valuation of the company is now around $1 million, which, if true, is rather impressive given that we have a very small development team (basically 2 programmers + 1 part time designer along with 1 sales + the main backer / manager). Obviously I need to verify this valuation is correct and I don't have long to do it and don't know how to go about it either. Other promises have been made such as moving into a permanent office space and hiring testers and at least 1 more developer (something I basically said needs to happen for me to even consider staying given that I've put in a lot of extra work so far because of a lack of resources.)

I'm trying to get general advice / resources to refer to on this so that I know what I need to get them to put in writing and what questions to ask about the investors, etc so that I don't get screwed. I'm curious to hear from anyone else who has been in a situation like this. I know a number of things can "not pan out" as promised so I'm curious how programmers manage risk in these situations.

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asked Jun 29 '11 at 15:19
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Rick
136 points
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2 Answers


5

Verbal promises about your potential equity in the company mean nothing unless they are backed by a written contract.

If they want to keep you and mean what they say, they should have at least given you equity with a vesting schedule by now. The whole point of having a vesting schedule is to reduce their risk in case you walk AND to give you a concrete incentive to stay with them (assuming the company isn't worth zilch). So if they mean what they say, there should be no reason why they wouldn't agree to this. Absolutely make sure you get this on paper. Have them provide you a legally binding stock purchase agreement (a contract) for your share in the company.

answered Jun 29 '11 at 17:43
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Henry The Hengineer
4,316 points
  • great answer, this is the sort of info I'm looking for, basically I want to write out sort of an ultimatum that they need to agree to right away (such as putting me on the vesting schedule) or I walk as I already have the other offer and I can't keep them waiting long (the company that made the new offer to me) – Rick 8 years ago
  • Also don't forget to make sure there are antidilution terms in your stock purchase agreement (or simply make sure your equity is in % rather than absolute shares). Don't wanna end up like Eduardo Saverin! – Henry The Hengineer 8 years ago

2

It sounds like they want to keep you probably because they know new developers won't be as familiar with the code as you are which in turn will cost them more money than keeping you if issues arise when customers start to pay.

As for verifying the valuation and promises, have you thought of asking? Say, look I'm in a vulnerable position right now. I've been offered another job with a stable salary, can I please see some kind of info relating to the direction of the company to back up the promise you've made to me.

Just ask them. Tell them the truth about being unsure about the direction and viability of the company. If they want to keep you, it's time for them to put in the hard yards to show why. You're in an awesome position right about now, make the most of it.

You could even go as far as getting the promise in paper, that way if things don't go as planned, you're not poor with no job to go straight into too.

answered Jun 29 '11 at 16:52
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Digital Sea
1,613 points
  • Thanks for the post, I actually met with the founder today for quite a while and touched on a lot of what you suggested, with him, basically, he's a sales person based on his background so he was, of course, spouting off all sorts of info about the investors, etc but I guess I'm wondering if I should basically say they need to match my current offer from the other company, or I walk.. Also, I'm not sure how to go about verifying all the financial info, etc to know if its really as promising as he wants me to think it is – Rick 8 years ago
  • specifically regarding "getting it on paper", I did mention something along these lines when I met with him earlier but I'm not sure exactly what I should have him put down in writing? any advice is appreciated – Rick 8 years ago
  • Sorry for the late response, I didn't realise you left a comment after your last one. If you haven't already, I would ask him to put in writing that in 2 months you will receive a pay rise, benefits and everything else he promised you. A written promise will be upheld in a court of law if things go the opposite of what you've been promised. – Digital Sea 8 years ago

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