The nature of start-ups means that they are generally different to other businesses, so the issues to consider when looking at a job in a start-up are different to other businesses.  Set out below are some of the issues you should consider when looking at a job in a start-up.

1.         Equity

Will you receive equity in the business as part of your package?

Many start-ups don’t have cash reserves and/or aren’t generating profits so cannot afford to pay their employees exorbitant salaries, bonuses or grant pay rises.  It is therefore not uncommon for start-ups to offer prospective employees some equity in the business so they share in the upside of the business if they help make it a success.

This does not mean you will strike it rich, not all start-ups succeed and there are any number of things that can happen along the way to dilute the amount and value of your equity.  If you are offered equity you need to consider, do I receive it now or does it vest in the future?  Am I getting paid what I am worth?  How long will I work for this business?  What could my equity be worth at the end of that time?  It is recommended to work this out at the beginning because once you start it will be difficult, if not impossible, to negotiate a bigger slice of the equity.  If the business is successful then your equity is more valuable as the value of the business increases, if the business isn’t successful then why would you negotiate for more equity, it’s not worth anything!

You will also need to determine whether you are taking a financial risk by joining the business.  Ask yourself, will I be paid less by this business because it is a start-up?  If so, your interest in the business is not only as an employee, it is akin to an investor.  Make sure the equity you receive reflects this interest.

2.         Salary

What salary will you be paid when you join the business?

As set out above, many start-ups don’t have cash reserves and/or aren’t generating profits so cannot afford to pay their employees exorbitant salaries, bonuses or grant pay rises.  It is therefore important for you to negotiate a competitive salary from day one, as your salary is unlikely to increase for a while after you join the business.  Ideally, it should be a salary that you would be happy to be receiving in three to five years’ time.

3.         Non-Compete

Check your employment contract to see whether there are non-compete and non-solicitation clauses that restrict your future employment or business options after your time with the start-up ends.  So far as possible you should seek to have any such clauses deleted from the contract.

4.         An Environment Where You’ll Learn

Start-ups can be stressful.  They often involve long hours, tight deadlines and frustration if progress is slow (or non-existent).  There’s plenty of grunt work.

It is therefore important to make sure before you join a start-up that it is has the potential to be beneficial for your long-term career prospects, in particular that it offers you opportunities to learn, grow, challenge yourself and expand your skills.

5.         Does the Team Have a Good Track Record?

People who have a proven track record of success could be more likely to replicate that success in the future as opposed to an unproven team who haven’t tasted success.  If the team behind a start-up is unproven then you may be willing to take a chance and try to contribute to the success of the team’s business.

In either case you should gain an understanding of the team members before deciding to join the team as this may assist you in determining whether the business is likely to succeed.

6.         Job Title

Job titles aren’t important to some people, but if you are joining a start-up (particularly if it is early on in its life) then you should try to have your job title locked-in now before others join the business, your desired job title becomes more valuable and therefore harder to negotiate.

Conclusion

Are you starting work with a startup? Not sure how to negotiate the terms of your employment contract? Let LegalVision do the talking on your behalf and give us a call today!

Lachlan McKnight

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