tech-company, united-states, compensationLet’s say I am creating a piece of mobile software and I need another developer and artist to work on it with me. Assuming they are willing to work for compensation that is not immediate, what are my best options for these employees?
Off the top of my head I can think of only two methods:
I think partial ownership is your best bet. I know you listed that, but I think that’s the best thing you can offer. People these days–developers in particular–are so excited about start-ups, because we’ve seen companies like Facebook, Twitter, Tumblr, and all those get so big lately. So if you can find people who are as enthusiastic about your idea as you are, they’ll gladly hedge that bet and go for equity.
You could go with something like “free service for life!” but that’s not likely to attract much attention from most developers.
Given that, your goal just becomes building an environment of morale and excitement for the future. That can be easier said than done, of course. That sense of security and morale is also easier to maintain, I’d say, once people are truly comfortable with the idea and progress you’re making. This will sound stupid, but I’m a proponent of internal branding: get mugs and pens made with your logo. That will help your employees feel like the brand means something and that you’ll be around for a while. It’s a cheap investment on a sense of security.
But really, the driving force behind most start-ups is passion. You just need to find people who are passionate about your idea, and that’s a difficult task. But if you can find people who are super excited about what you’re putting out, they’ll most likely be enthusiastic about any equity offer you throw them, because they’ll agree that your company is going places.
Convertible Debt Contracts.
You offer a multiple of the going rate to the contractor, contingent upon the business either raising investment or raising revenue or being sold. The larger-than-you’d-get-even-if-you-invested-the-money-in-something-amazing payment means you’re not giving up early equity. The contractor, if you succeed, makes a big pile of cash. The multiplier is a mutual agreement of the risk of non-payment. Sure bet companies should look for lower multipliers than “I have no idea if this will work or not” companies.
I’ve come across this contract style more often in the USA than the UK, despite having worked in the USA for just under a decade and in the UK for, erm, much longer.
It really depends on how committed the artist is to the startup. If the artist will complete the art for your application, but will have no further commitment to your startup then I’d argue your best choice would be to offer them a percent of profits from the application.
If on the other hand, you plan on this being a long-term relationship, you should work out a partial ownership deal. It’s unlikely for someone to fully commit to a startup for nothing more than IOU.
As you said, Ownership in the company might be the best option. With my past experience, the best way to do this by using Vesting.
In some ways, it is a contract between you (the company) and the employee, that will guarantee him that he will receive something after a period of time (most of the times I hear of something around 3 years). However, it also will give you the guarantee that if the employee stops performing as expected, you still don’t have to give everything right away.
As far as I have used, and seen start-ups using, it is a great deal for both parties.
I think if you can offer them unique roles in your project, then even if things don’t work out in the long run, they can have ownership of the assets and deliverable and use it as part of their portfolio work and experience to go into their cv. You just need to weigh it up with how much work you are actually asking them to do, since everyone has different levels and comfort with how much free work they can commit to.
If you also think about what is in it for them not just in financial benefits but also experience, chance to learn new things and some aspect of the potential of the business (i.e. if it works out then they also have a job plus some share in the business), then there is probably a good number of ways to get them interested.
Thinking a bit more creatively, here are two ideas:
If your needs go beyond short term / project based work, and you need to have some one on board full time, or someone with deep expertise, then the options mentioned (vesting, onwership, royalty based, etc.) will work best.
Just to throw it in there, how about royalty for the work they did? For example, they help you design a widget. If the product takes off in sales, they don’t have to do any work thereafter, and royalty cheques will keeping coming in the mail.
If you don’t have money and your company is worthless, offering a percentage is not good enough (but that part is necessary).
Selling someone on your dream isn’t good for the right people. What you need to sell them on is your ability to follow through on this product and the type of person you are like to work with & for. Show them you’re an expert in this domain or you are connected with someone who is an expert that is involved.
Sell them on your clearly defined goals and experience carrying through on your goals.
There are very few situations where I would only take a percentage.
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