A Startup Without Employee Stock

I have worked crazy hours for a tech startup for the last two years, starting as the third employee. I have made sacrifices to make the company successful, like taking a salary well below my worth and working for no benefits, but still do not have any stock. In fact, none of us have equity except the owner. Now that we are successful, how do I ask him for some stock for my hard work?

You are not working for a “startup,” at least not one worthy of using that name. True startups provide universal incentives for the necessary sacrifices early employees must make. And do so from the beginning. You are working for someone who is calling his 100% owned personal business a “tech startup” as a weapon to justify your taking well below your true worth … and receiving no benefits to add insult to injury.

My first question is whether you want to continue working for this company at all. Anyone who would let you work for two years without any part of the upside is unlikely someone who deserves your commitment and abilities. Using the term “tech startup” is not an excuse to exploit you. It should entail a moral commitment to follow best practices to reward talent and sacrifice.

Presuming you wish to stay, you and the other employees have effectively given him interest free money for the last two years in the form of taking a lower salary and no benefits. You have therefore been integral investors in his venture and his success. I do not know the specific economics and what is rational to demand, but understand the value you have created, the extent to which he needs you, your ability to create a competing business if you (or all of you) leave, and the adverse tax consequences and life sacrifices the delay has cost you.

A few thoughts on stock: You will not be receiving as favorable an economic deal by receiving stock now, versus if he gave you stock from the beginning. How much will “make you whole” is a complicated math problem. Also, stock may ultimately not be valuable if there is no exit or other path to liquidity for the stock, so some “phantom” plan or bonus plan may actually be better. The plans I have discussed on the site assume you have stock also, so you should seek something more aggressive, absent other factors like above market salary and generous benefits (which often compensate for a lack of stock.)

As far as specific negotiation tactics when you do ask, I would like to recommend a book I have recommended before: Never Split the Difference, by Chris Voss. Chris is the former lead FBI hostage negotiator. His strategies work for international terrorism situations and salary negotiations alike. The book is substantially better than any of his recorded or summary materials online.

In the end, I would not have high confidence that he will do the right thing. I am sure he has a complex narrative about how he deserves all the upside and will gaslight you and your colleagues when you ask for some of the value you have created. Prove me wrong. But if I am right I would suggest you take the experiences you have accumulated and figure out how to create wealth for yourself — and your employees — with your own startup.

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