Fledgling Firms Offer Jobs With Equity as Pay
But employees run risk of company failing
AUSTIN, TEXAS — ENTRANTS to the job market, whether fresh out of school or laid off by their companies, may feel as though America's corporate-restructuring wave has washed away their employment prospects.
If they can't find a salaried post, maybe they should consider a riskier ``equitied'' job at a start-up company. The payoff can be much bigger. Or it can be zero.
``We're going through a fundamental change in business structure,'' notes Michael Mead, president of Entrepreneurs Online in Houston. Major corporations laid off 615,000 workers last year, and the pace has accelerated to 3,100 a day this year, he says. Many of the newly unemployed are walking away from their former white-collar jobs with $50,000 to $500,000 in severance benefits. But they will not easily find another corporate niche to fill, Mr. Mead predicts.
Meanwhile, founders of start-up businesses face two problems: They need employees but don't have the cash flow to pay them. One solution is to pay employees with a share of ownership in the business. The benefit for an equity-holder comes when - and if - the business grows to the point that profits are paid to shareholders or the company goes public and its shares are bought and sold on a stock exchange.
With the launch this month of the Entrepreneurial Opportunities Database, Mead is giving the phenomenon a ``place'' to occur. The database lists people possessing white-collar skills who are willing to work at low or no salary in exchange for equity in the business. Small businesses that pay $14.95 a month to subscribe to Entrepreneurs Online will have access to the database. Other features of Entrepreneurs Online include forums, e-mail, new business opportunities, business networking, and product discounts - all with small businesses in mind. The two-year-old service already has 500 subscribers, and Mead says he hopes to triple that figure soon. To find would-be equitied employees, Mead is working with outplacement agencies. He offers to list people for free in the Entrepreneurial Opportunities Database. And he says he plans to advertise his service and send direct mail to professional associations.
Jan Triplett, co-director of the Entrepreneurs Association in Austin, cautions against labor-for-equity swaps. They generally do not work out for the employee because start-ups usually go broke, she says. Ms. Triplett speaks from experience. She accepted an approximately 20-percent stake in a company that intended to make and sell a health-equipment item invented by the company's founder. In exchange, Triplett was to handle advertising and marketing.
Her research showed that the company needed to cut the product's price. But the inventor/founder refused ``to believe the reality of the situation,'' Triplett says. She adds that people value what they pay for. Had Triplett received cash for her services, the company owner would have taken her findings more seriously, she says. The company is now moribund and Triplett's equity is worthless, she says. Her advice: Obtain at least some monetary payment along with equity.
Kassandra Bentley had the opposite experience. In 1987, the writer was offered equity in a floundering start-up called Telescan Inc. In exchange, she produced technical software manuals for subscribers to the Houston firm's on-line investment analysis service. ``They were a young company and couldn't pay me any money,'' Ms. Bentley says. Fortunately, she could afford to work without pay.
``At the time, you have no idea if the stock will be worth anything,'' Bentley says. Telescan was listed on NASDAQ last November. Currently, Bentley's shares are worth more than double what she would have earned in salary during her several years of manual-writing.
``I'm very, very happy with what I did,'' she says. ``I do think it's an excellent way to acquire equity in a company - if you can afford to do it.''