Ask HN: Working for 100% equity and no salary

[whatdoido]

Our current startup is running out of money and wants to convert the current team into founders (~10% ownership) and withhold salary for the next few months.

1) Is this legal? 2) Is this a stupid option as a developer?

[moocow01]

1) Yes as long as you sign the papers

2) Yes - you are effectively being strong armed into becoming an investor.

Would you invest $[your salary / year] into a company that is running out of money and not paying employees? I sure wouldn't.

Without knowing the situation, the likely truth is that the VC's passed, the angel investors passed, so now you and your coworkers are being turned into the unwilling bottom-of-the-barrel investors.

[brudgers]

The company is looking for triple-f investment. Maybe one of the founders was in your fraternity. Or maybe one of the founders is your cousin.

But probably not.

Unless the founders are offering the employees more than 50% of the company in aggregate, people who will ask others to work for no pay and with any future reward solely at their discretion are still in control.

[fuj]

2) Is this a stupid option as a developer?

It will most likely go bust. 10% of 0 is zero. Leave.

[codegeek]

"running out of money"...."withhold salary"

Run.

[ACow_Adonis]

1) Can't Comment

2) Well, if you're no longer getting paid a salary, as far as I'm concerned its no longer a job. Its now akin to your own personal project. Most of us not born to money aren't in a position where we can quit our jobs and decide to work on our own personal projects. So really, the decision is somewhat analogous. Is it a personal project that you think it makes sense to be working on despite not getting paid? If you can't survive without getting paid, well, time to look for your new job. (in all seriousness, without knowing anything else about it, run is probably the correct option :P).

[imx]

Question is why founders unable to raise money??? Today it is extremely easy to attract VC/angel money!

If founders are unwilling to accept new money because of greed, valuation too low, contingencies, etc... then yes maybe it is a fair gamble to work for equity... Like if you knew your startup had 99% chance of being acquired in 3 month at 5x over today's valuation, then equity pay makes sense.

However, it does not seem like the case here. Highly likely that all VC/angels had passed,.. hence, follow the money and look for an exit.

To make it easier to decide: ask founders to explain why they cannot raise money. If they bring low valuation as an excuse, ask to show termsheets and make judgement upon that. If they cannot provide this proof - run.

[whatdoido]

Thanks, this makes a ton of sense and I will hopefully get to see the term sheets today

[imx]

If you decide to gamble and stay, then ensure a lawyer to have a look at the paperwork. I can recommend one in downtown SF (email me). When I was in similar situation 5 years ago, this guy helped me for $1oo! :)

[whatdoido]

Thanks for the offer! Looks like too many other engineers bailed and now we are shutting our doors.

[cordite]

I was at a presentation once about this.

Yes it is legal if the agreement is made mutually.

However! If one of them wants to leave and go somewhere else, they still own that part of the company. This dead weight is not good in the eyes of future investors.

[heshagasc]

I would prefer only answering #2 generally (probably 99%) there is a mindset that solely exist to rob us by our time & energy spent for peanuts or not at all (in your case). Remember money could not buy happiness but no-money surely buys depression, choice is yours! Be Safe.

[rajacombinator]

must agree with others. given the context, it sounds like a bad idea

[logjam]

This is a stupid option as a developer.