[TurdFerguson]

I get pitched equity as a form (full or partial) compensation a couple times a year. It’s an easy concept to toss around but in my experience the sophistication of the conversation is usually a great indicator as to the sophistication of the company/people making the offer. Couple questions/thoughts that always go through my head when presented an opportunity:

-why are they offering me equity. What do they want/need that they are unable to buy? Why are they not buying that service? Do they want a partner or are they just strapped for cash – very different things.

-how did they decide on me?

-is there a business plan in place or is it an idea…ask 10 people and you’ll get 11 stories on great ideas. Business are made on execution not ideas (generalizing a lot here, I know).

-what is my LOE to achieve the equity? What is my role and what are the expectations after that?

…I could go on and on here but the idea is, vet the business and offer. As someone else pointed out, if you were starting the company from day one with these people and with this idea, would you be interested?

If things check out and you want to get involved then it’s really worth your while to do some research and involve a lawyer. If the business busts then it’s all a waste but if anything material comes of it you want paper and to know what rights you do and do not have. Error on the side that would piss you off the most.

-Unanimous Shareholders Agreement is a must. Know what it is and how it impacts you in the business and exit.

-formal agreement that outlines services provided for equity received. My advice is always to get the equity from day one and give the company the ability to repurchase it if services are not delivered. Reverse vesting. This way you are not subjected to potential tax burden if the company’s value increases from the time of engagement to completion of service.

-understand the company structure (shares, classes, dilutive rights, director rights etc.). Negotiate for what you need.

-understand the financial position of the company. Statements and couple quick checks from your Lawyer.

I could go on and on…PM me if you have specific questions. In general though, equity is meaningful. If you or the company don’t treat it that way and are unwilling to do the appropriate due-diligence and paper then I wouldn’t associate much value to it.

/2cents