[jtfairbank]

jacksondeane has a great answer if you're at a traditional startup who's goal is acquisition or IPO.

Not all small businesses are startups though. If you are working for a lifestyle business, or even a larger company that has relatively slow but steady growth, then the board may decide to issue dividends.

It's important to remember: your equity is worthless, but so is everyone else's. If you trust the company leadership and they aren't just using this as a way to get cheap labor (i.e. they will pay dividends, buy back your stock later, get acquired, or IPO) then it could be a good deal.

My recommendation: if the company isn't a traditional startup and offers fair pay (or will increase compensation down the road if they are early stage now), then add some terms that require the company to buy back your vested shares when you leave. You can set a predetermined price (like 2x the current value), or base it on milestones (time you spent there, revenue milestones, etc). Just make sure that you don't have to sell at that value if they are worth more- you can always hang on to them, negotiate a higher price with the company, or sell them to someone else.

[giltleaf]

Thank you very much, that makes a lot of sense. It seems like I would want to angle for dividends or the terms that would require the company to buy back the vested shares. It sounds like that might be something I need a lawyer for, but just in case, do you think there are common terms or templates for that?

I also really liked the framework of "your shares are worthless, but so is everyone else's." So aligning my interests with the founder seems like a good way to go.

[jtfairbank]

Yup, always make sure the incentives are aligned. Unfortunately this is a pretty unique situation. For startups the usual is to angle for an IPO, or failing that go for an acquisition. This shared goal and payoff event naturally aligns the interests of employees and management.

For your situation, you'd definitely need your own lawyer to review the documents. Perhaps you can get the company's lawyer to add those terms in though, to save some initial cash? I'd go for one of the following:

* Required stock buyback when you leave at 2-4x the current value, or based on the last 409A valuation if that is higher. They should be doing that once a year for legal reasons, if they do any equity or stock option grants.

* Minimum yearly dividend to be paid to all shareholders based on a % of revenue (not profit). This one is nice because it's egalitarian. Building it into revenue protects you, and they can just consider it a cost-of-doing-business overhead.

* [in addition to the above] Have them come up with a set compensation plan that applies equally to everyone (including them) based on role, years with the company, and level of expertise (junior, normal, senior). This should be public internally, and there should be no bonuses or additional compensation beyond what it specifies. The plan can be re-evaluated wholistically based on runway left and revenue milestones, but it'd be good to note down what those milestones are ahead of time. Unfortunately you probably can't get that in a contract, but it'd show a lot of trust and goodwill on management's part if they implement it as part of company policy.

Honestly this situation sounds a bit tricky if you don't have a strong history with these guys, or they don't have a track record of building a small business that pays dividends or otherwise compensates equity holding employees. A worse case for you is no liquidity event or dividends, but management pulls money out of the company for bonuses for themselves.

That being said, this could be a great opportunity for you. Forget the SV big or bust mentality, there's a lot of pluses to working at a stable slower growing business. Less pressure, more flexibility with your time, a closer knit team that won't double every year or two.

Best of luck mate!