How can I protect myself joining a startup?

I am joining a startup as Product Manager.

The 2 owners are offering me 5% as equity.

How can I protect myself? Just in case you know we sell the company and they fire me the day before

  • The day before you vest? Well you can’t. You can try to sue after the fact though. I believe Zynga pulled this shit off and was sued. You might want to see how that case went.

  • If they fire you, you still own your equity unless your shares are vested and you haven’t reached the cliff.

    Unless they fire you with cause and have documented proof of poor performance, etc, you could sue and will likely win.

  • Write down a contract! And be perfectly clear what happens if you leave the company, whether voluntarily or fired. Ideally for you, you would get the 5% straight away with no conditions. But it’s more likely that you would have to work at least let’s say 1-3 years there.

    If you suspect that they will run you over be sure to make a bulletproof contract, which forbids them to just kick you out 1 day before you would get the shares. You could make a contract that you get the 5% for full 2 years, and if you leave earlier then according to the time you staid (if 1 year -> 2.5% etc).

  • I just witness someone who went through a longer court dispute over just that. In the early stage of the company the individual’s knowledge and experience was priceless so the founders issued him % of shares to bring him onboard. After company started making a lot of money the owners began to believe that they could buy his skills for a dime a dozen, so to speak.

    If I were you I would speak with an attorney about the terms of the contract. Remember a contract is just a piece of paper as long as every one is happy and getting along. It only becomes a legal document if the relationship goes sour.

  • If the company has formal Employee Stock Offer Plan (ESOP) or documented Phantom Unit plan then you are subject to that agreement. If these are vesting plans then they have may or may not have the right to terminate you (with or with out cause depending on state laws), buy out your shares at fair market if you leave willing or unwillingly, or provide nothing unless you are onboard at the time of a sale. Also, your shares may be diluted with other hires depending on the contract.

    If they do not have an agreement get something in writing to protect your interest. Ask that they specify in that document any terms or conditions like I have provided above. However, a formal employee equity plan is always better.

  • Protect yourself by doing kick-ass work. The rest is uncontrollable, and if you don’t trust them now, you won’t trust them later.

  • Employment contracts exist for precisely the purpose of ensuring that you don’t get fired for ridiculous/greed reasons as opposed to for cause. I also wonder about the vesting you were offered. Typically you have an initial period like 6 months or a year for the first 25% (or more), and the rest spread out over time. If you were offered something different like 100% after 3 years, then I’d definitely be suspicious.

    Are you also speaking towards other ways you can get hosed? Because getting fired before vesting is only one of the ways you can get screwed. Employees typically can’t get anti-dilution clauses, but at a minimum I would ask that you get the cap table, the articles of incorporation, and the investor agreements if said company got funding. This will at least give you an idea of the actual legal power structure and the means by which control is exercised.

    Lastly I’d add that it is also not extremely unusual to ask for accelerated vesting in case of acquisition.

  • Get it in writing. Oh and also consider not working for a startup where you don’t even trust the founders…what other areas do you not trust them in…?

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