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Ask HN: Option to invest as a condition of employment?

3 points by johnrob ↗ HN
A question for founders: what would you think if a prospective hire agreed to accept a position on the condition that he be allowed to make an angel investment in the company?

To clarify, in addition to the employee getting X salary + Y amount of stock (vested over 4 years), he also gets to purchase Z amount of stock immediately (at the normal investor price/terms).

Here is the background for such a question: you've saved up money for the purpose of funding your own startup, but before doing so you get an interesting offer from another company. Unfortunately, the company is later stage than you're looking for (i.e. raised money and paying salaries to employees). This is a way to take the savings, and become more founder-ish in the new company via increased ownership.

Thoughts?

9 comments

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michael_dorfman
Stock options may be taxable, depending on your jurisdiction.

Talk to your lawyer/auditor.

johnrob
Not sure why that applies... The stock options here (Y amount vested over 4 years) are no different than the ones you'd get at any company. The interesting part is the Z amount of shares bought at full price.
ADRIANFR
This is very unlikely to happen because: 1. When a startup sells shares (i.e., you purchase stock) it sells them not only for money, but also for advice and connections. Most of the time these are more valuable than the cash. Since you are likely (only) an engineer/geek, your part of the deal is short. 2. Even if they would want your money, evaluating a startup's worth (for pricing your shares)is extremely difficult and/or expensive. So the won't go through this process for a few thousand dollars.
johnrob
Everything has a price. If the seller doesn't want to sell, it just means the price is too low.
ADRIANFR
Technically you are right, everything has a price. Except when that price is way too high. So if you think a share is worth between say, $5 and $10, they can either say (nicely) "we're not selling shares right now", or say (rightly and rudely) "we can only sell YOU shares for $1000/share". And that may really be a fair price from their point of view, since having you (a nobody in the VC world) as an investor is really detrimental to their image.
frossie
What would you think if a prospective hire agreed to accept a position on the condition that he be allowed to make an angel investment in the company?

This is SO not my world, but since comments so far have been on the negative side: I can't actually imagine what the downside is in asking. They will either say yes or no. If they say no, you presumably have the choice of accepting the employment anyway or walking away. Provided all the negotiating is done courteously, I'm not sure what the problem could be.

I guess there is some scenario whether they are so shocked and appalled by you asking (an Oliver Twist moment) that they would withdraw their employment offer completely, but would you want to work for them if they are that touchy?

johnrob
You are right about just asking. Still, I wanted to get a sense of how unreasonable such a thing would be.
staunch
Unless it was a significant amount for the company, or they were already raising a round, my guess is most would decline.

Definitely a reasonable thing to ask about. Any employee that wants to dump his savings into the company is probably going to be pretty committed.

jamesshamenski
I've done this with my last startup and also have seen this happen on two addition occasions with new employees putting in 6 figures each.

1. Funding is usually open for employees to participate. Founders love taking money from employees rather than VCs.

2. VC's like this because the team is invested to win. No, they love this.

3. Be like a VC and be diversified. Don't put all your eggs into one basket.

4. putting in new bucks likely won't bump you up close to founder-ish levels of equity.

5. Timing has a lot to do with this. Don't force the issue if any tension arises that can take away from your core responsibility of doing a good job.