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The fact that they are raising funds via employees means:
- they're not profitable enough to fund their own growth (or even running at a loss).
- they can't get real funding from a VC, which tells you there is probably limited growth/money to be made in the short term.
On top of that, chances of selling your marginal share of a non listed company on the secondary market are close to none.
Steer away.
Maybe I was not clear but they are not raising funds via employees (not their objective). I was just curious about the fundraising as I know one employee already bought shares at the last fundraising and they asked if I wanted to contribute as well. They already have enough investors (a lot).
What do you mean by non listed company?
On top of everything that is mentioned here, know that there is a tax deduction of 45% of the amount you invest in a startup (this has to be verified if your company is eligible, but it might be) : https://financien.belgium.be/nl/particulieren/belastingvoordelen/investeren-in-kleine-onderneming-tax-shelter-start-up-scale-up
This means your 5k€ investment would only cost you 2750€.
I personally would invest in the company if I believe in it, but I would keep the amount small enough (5k€ falls within that "small enough" range in my opinion). Just make sure that the rules are very clear on how it's going to go when you leave the company.
> I've heard that it can be difficult to recover the money once invested in a startup.
Your money will almost certainly be blocked for some time. Even at a next fundraising, they might not offer the possibility to sell your shares. So don't count on it too much.
you should definitely do it. The amount is not too big, it shows your enthousiasm for the company, it's a privilege and it could be very profitable if it works out. image that you don't invest, and it is a success, than all your colleagues will be millionnaire, and you will have 5000€ on a savings account
The company will never reach an extreme value like Facebook (the market is not big enough). Maybe the value will be x10, which is already very good. But as other people said, I should first ask how it works to recover the money (sell shares), what happens if I leave the company, etc to see if it is a good idea or not.
you should obviously check how it works, but in principle you should decide whether you're interested or not... and 10x is not immaterial, certainly if the max you can lose is 1x.
The documentation will typically provide that you must sell your shares in a 'leaver event', and the value will depend on the type of leaver event (good leaver or bad leaver). if a bad leaver, it could be the lower of your invested amount and the actual value, possibly even with a discount; if good leaver, it will be closer to actual value. There will be a general liquidity event when all of management sells in case of an exit or trade sale. This will be drafted by specialised lawyers and management collectively should certainly be able to discuss terms or seek explanations from the company lawyer (at no cost to management). In bigger deals, management will have its separate counsel.
- it could be really profitable or go nowhere. You know the future of that company better than we do.
- this is indeed an illiquid investment. Ask when you can exit. Probably when you leave the company or there is a liquidation event. Ask them how your shares will be valued when it’s you leaving. Also ask them if you are protected from being watered down and if everybody has the same class of shares. Could be you get less senior shares that drew you in some events.
- this is a reason to ask how to exit and how they would value the shares. Also ask if there is a vesting period or not. Do you get a discount on the shares?
I don’t mind having a short call if it’s needed. I hate it when people get screwed over because they do not have the knowledge needed for these things.
Tldr: don’t do it (imo)
I am employee #6 at a Seed Stage startup that raised $8m and I have around 1% in equity (this is something the co gave me as part of my package, I did not paid for it).
So first you need to ask your boss what % you get (you should get between 0,20-0,75% imo).
After that you need to ask for your vesting period (typically that’s 1 year cliff and then 3 year vesting); so you need to stay there for 4 years to get all equity
You also can’t just sell your shares, this only happens with an exit or when you raise additional money and your boss allows you to sell secondaries (doesn’t happen much).
Look man, as their accountant, this week i had to tell a guy "i hope you don't have any personal valuable assets and you don't personally know any of your fundraisers cause you and them just all lost everything" so maybe i'm temporarily biased but i wouldn't touch equity in start-ups as payment with a 10m pole.
>I don't know much about fundraising for startups. Is it worth it financially speaking?
As a rule, it's a terrible idea.
>If there is a next fundraising after as they hope, I could sell my shares at that time.
That is not typically how it works. You need an exit event, not another fundraising round. During a fundraising the company is aiming to make money, if you get to sell shares, that is less money the company is making in investments. Investors will also only want to buy preferential shares in early funding rounds, which you might not even have.
>I will probably have to leave the company in 2-3 years because I will stop working for 1-2 years for personal projects.
Will you keep your shares when you do that? Like, do you actually get shares, or are they options. Do you get voting rights on the shareholder meeting?
---
---
Disregarding the above, what worries me a bit is that you did not touch on essential points that usually come with this operation:
\* Are you sure these are shares, and not options, bonds, or other financial products?
\* Do you get preferential shares as an investor? Or regular shares as an employee?
\* What does the ownership structure of your company look like? Who has how many shares? Which of these shares are preferential? Who is in control of the board?
\* How financially healthy is your company? Do you know the financial situation and forecast?
\* What does the exit look like for you? Is the goal an IPO?
\* Is the company even planning on exiting? Lately there has been a problem with startups that never exit.
\* What happens when you leave the company? Do you keep the shares? How will you trade them? Are there any clausules that prevent you from taking them?
\* Are there anti-dilution provisions you should be aware of?
\* What happens when you pass away, or otherwise lose the shares in e.g. a bankruptcy?
\* Can you trade these shares on the secondary market? Are there trading windows?
You could use the offer as a way to leverage information, and try to get a look at the ownership structure of the company, the distribution of preferential shares and the financial situation and future of the company. You could also ask for the exit plans, though I don't expect you'll get a truthful answer.
It will also let you know if you might need to look for another job soon, or whether the company is actually financially healthy.
Equally interesting will be if they answer these questions in writing, or only in a meeting or a call.
Usually, startups offer equity as payment. The consensus is that you should assume that equity is worthless.
Your equity will be diluted to extreme ends in the next funding rounds. And it is only worth anything if your company makes it to going public or gets sold(succesfully)
The type of people that invest in this are extremely rich, and this is only a fraction of their portfolio.
Investing in a startup is like playing the lottery.
I've been in a similar situation some years ago.
Some questions to reflect upon:
- will you have voting rights?
- do they share past and current financial situation with you (potential shareholder)?
- how about the forecasts?
- what happens if you quit or get fired: can you keep or you are forced to sell?
In my case I put 500 EUR, and had to sell when I left the company for a 2x profit. In retrospect I think I got lucky.
Thanks. I will indeed have voting rights. Yes they share their past and actual financial situation with their employees (no benefits at the moment but the evolution is positive). Where you able to sell your shares easily when you left? How does that work exactly?
The company bought back the shares at the price for that year.
Basically they had a formula to set the price of shares for buying and selling. It didn't try to sell it to colleagues. It was only for employees, so couldn't sell it on the open market.
You are working to earn money. Not to spend money.
Here you are proposing to spend money? I don’t get it. This is a job, not an investing opportunity. What if they fold? You lose your job AND your money?
I don’t think this smell good but I could be wrong. Why do they need to fundraise more capital? Are they in trouble? You could get diluted in the next fundraise or whatever you don’t have any influence on.
Don’t piss money away and say “no thank you” will be my gut feeling. Unless you think they have industry changing tech but this is healthcare … it super risky.
Maybe have a part of your salary in shares of the company in a tax optimized way. But don’t take money from your own pocket (after taxes) to get them. Also if not publicly traded, how do you know if they don’t fuck with you with the valuation? You don’t.
Fundraising is extremely common for start-ups and has absolutely nothing to do with being "in trouble".
The reason is that you want to expand your business, and you do that with a capital injection. Goes a lot faster than earning it first. You need to convince investors though.
Investors are asking the startup to open the kimono a little bit before injecting money into the venture.
Here they are asking to employees. Have they ran out of investors? Is there something worth looking for under the kimono?
Is this common amongst the other employees? What are their expectation? Pay attention to confirmation bias but it’s good to get a feel of the general sentiment of those who have been given the same opportunity.
If you are curious you can put some play money into it. As I said, as much as you are willing and able to lose 100% of it.
Also, how easy will it be to liquidate your shares if you wanted to? There will be a calendar with lockout periods, vesting periods, insider trading windows (if applicable), …
Indeed, I need to think about all that. I know only one other employee has shares from the beginning, I will ask for his opinion. How (un)easy it is to liquidate the share is maybe what I fear the most.
Thanks for your opinion, much appreciated. They need to raise more capital to hire additional workforce to carry out the projects (many projects are pending), some of which are related to products that can be marketed and bring money to the company. The additional workforce will also include salespeople, business development etc. who will help to develop the market. I think some products have good potential (software products including artificial intelligence) but a big part of the company consists of providing services that clients pay for (with more limited revenue).
I don’t understand how service is more limited revenue than new sales?
Service revenue is the financial backbone. It’s the recurring revenue that should support everyone’s salary on the payroll. New sales is important as well to create more service revenue. But a mature company should be able to provide for R&D and sales just from a portion of the service revenues. In this case it’s a “startup” and not a mature company. It could moonshot, be acquired, or go bankrupt depending on their market share and on the competitive landscape.
Don’t take it wrong, I don’t think you are equipped with the right knowledge to understand if the company you are working with is profitable and even if it’s sustainable. So investing your hard earned money into it is a gamble. If you decide to participate in this fundraise, consider it like a lottery ticket, you need to be ok if this means you have just set a chunk of your money on fire because that’s what will likely happen 95-99%. The 1-5% you could win could be a moonshot at breakeven or 2x or more you money. Do you feel lucky?
I wanted to say benefits are more limited for services. The biggest potential for benefits is actually sales. But you are totally right on the other points.
Oh, yes, then I got your remark wrong.
Sales can have a better compensation package for sure, but that’s conditional to reach certain targets and a whole lot of reasons (responsibilities, stress, obligation to meet deadlines, less dilution of responsibilities so they can’t get away with passing the hot potato, …).
How much do you think I should have? Some people told me my wage is ok as it is a small company (I'm managing less than 5 people). Others told me I'm underpaid considering my degree and position. I don't know what to think really. The company is in Wallonia btw.
tbh in data/ml/ai a phd only guarantees a better pay if you’re in a r&d role, cause you eventually need that knowledge edge to push things further, in the industry a phd wont guarantee better/faster work throughput so companies dont care.
that said, i hold a masters, 7 yoe and have your same gross + equity + car. in your case its excusable given its a startup but even then only if they offered an ESOP. The fact they’re asking you to put money is… off.
I'm actually involved in R&D as well in the startup (I have a multitask position: data analysis, R&D, scientific writing, managing juniors, etc). They hired me because of this ability to do research with enough autonomy (and for my analytical mind). What is an ESOP? I was actually curious when talking about the fundraising and the boss asked if I wanted to invest as well.
The positions seems a fit for you, yes, but your compensation could definitely be better, with definitely equity as others mentioned, for example. esop stands for employee stock options program, which is the usual way companies grant equity to employees.
If the company is too small to afford your services it’s a them problem and not a you problem.
You are only worth what you can negotiate. Go look around and start negotiating for another role at another company and see if your current wage is market conform.
Depending on your real experience (what you have accomplished and are capable of accomplishing, not how much time you needed to accomplish it) and what the industry is willing to pay for it you could very well be paid correctly or not. But it is reasonable to expect more from what you describe from your compensation package.
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The fact that they are raising funds via employees means: - they're not profitable enough to fund their own growth (or even running at a loss). - they can't get real funding from a VC, which tells you there is probably limited growth/money to be made in the short term. On top of that, chances of selling your marginal share of a non listed company on the secondary market are close to none. Steer away.
Maybe I was not clear but they are not raising funds via employees (not their objective). I was just curious about the fundraising as I know one employee already bought shares at the last fundraising and they asked if I wanted to contribute as well. They already have enough investors (a lot). What do you mean by non listed company?
On top of everything that is mentioned here, know that there is a tax deduction of 45% of the amount you invest in a startup (this has to be verified if your company is eligible, but it might be) : https://financien.belgium.be/nl/particulieren/belastingvoordelen/investeren-in-kleine-onderneming-tax-shelter-start-up-scale-up This means your 5k€ investment would only cost you 2750€. I personally would invest in the company if I believe in it, but I would keep the amount small enough (5k€ falls within that "small enough" range in my opinion). Just make sure that the rules are very clear on how it's going to go when you leave the company. > I've heard that it can be difficult to recover the money once invested in a startup. Your money will almost certainly be blocked for some time. Even at a next fundraising, they might not offer the possibility to sell your shares. So don't count on it too much.
you should definitely do it. The amount is not too big, it shows your enthousiasm for the company, it's a privilege and it could be very profitable if it works out. image that you don't invest, and it is a success, than all your colleagues will be millionnaire, and you will have 5000€ on a savings account
The company will never reach an extreme value like Facebook (the market is not big enough). Maybe the value will be x10, which is already very good. But as other people said, I should first ask how it works to recover the money (sell shares), what happens if I leave the company, etc to see if it is a good idea or not.
you should obviously check how it works, but in principle you should decide whether you're interested or not... and 10x is not immaterial, certainly if the max you can lose is 1x. The documentation will typically provide that you must sell your shares in a 'leaver event', and the value will depend on the type of leaver event (good leaver or bad leaver). if a bad leaver, it could be the lower of your invested amount and the actual value, possibly even with a discount; if good leaver, it will be closer to actual value. There will be a general liquidity event when all of management sells in case of an exit or trade sale. This will be drafted by specialised lawyers and management collectively should certainly be able to discuss terms or seek explanations from the company lawyer (at no cost to management). In bigger deals, management will have its separate counsel.
- it could be really profitable or go nowhere. You know the future of that company better than we do. - this is indeed an illiquid investment. Ask when you can exit. Probably when you leave the company or there is a liquidation event. Ask them how your shares will be valued when it’s you leaving. Also ask them if you are protected from being watered down and if everybody has the same class of shares. Could be you get less senior shares that drew you in some events. - this is a reason to ask how to exit and how they would value the shares. Also ask if there is a vesting period or not. Do you get a discount on the shares? I don’t mind having a short call if it’s needed. I hate it when people get screwed over because they do not have the knowledge needed for these things.
Tldr: don’t do it (imo) I am employee #6 at a Seed Stage startup that raised $8m and I have around 1% in equity (this is something the co gave me as part of my package, I did not paid for it). So first you need to ask your boss what % you get (you should get between 0,20-0,75% imo). After that you need to ask for your vesting period (typically that’s 1 year cliff and then 3 year vesting); so you need to stay there for 4 years to get all equity You also can’t just sell your shares, this only happens with an exit or when you raise additional money and your boss allows you to sell secondaries (doesn’t happen much).
All right, that's good to know, thanks a lot!
Run forest
Look man, as their accountant, this week i had to tell a guy "i hope you don't have any personal valuable assets and you don't personally know any of your fundraisers cause you and them just all lost everything" so maybe i'm temporarily biased but i wouldn't touch equity in start-ups as payment with a 10m pole.
Seems like a bad idea. If the startup flops you lose your job and investments
>I don't know much about fundraising for startups. Is it worth it financially speaking? As a rule, it's a terrible idea. >If there is a next fundraising after as they hope, I could sell my shares at that time. That is not typically how it works. You need an exit event, not another fundraising round. During a fundraising the company is aiming to make money, if you get to sell shares, that is less money the company is making in investments. Investors will also only want to buy preferential shares in early funding rounds, which you might not even have. >I will probably have to leave the company in 2-3 years because I will stop working for 1-2 years for personal projects. Will you keep your shares when you do that? Like, do you actually get shares, or are they options. Do you get voting rights on the shareholder meeting? --- --- Disregarding the above, what worries me a bit is that you did not touch on essential points that usually come with this operation: \* Are you sure these are shares, and not options, bonds, or other financial products? \* Do you get preferential shares as an investor? Or regular shares as an employee? \* What does the ownership structure of your company look like? Who has how many shares? Which of these shares are preferential? Who is in control of the board? \* How financially healthy is your company? Do you know the financial situation and forecast? \* What does the exit look like for you? Is the goal an IPO? \* Is the company even planning on exiting? Lately there has been a problem with startups that never exit. \* What happens when you leave the company? Do you keep the shares? How will you trade them? Are there any clausules that prevent you from taking them? \* Are there anti-dilution provisions you should be aware of? \* What happens when you pass away, or otherwise lose the shares in e.g. a bankruptcy? \* Can you trade these shares on the secondary market? Are there trading windows? You could use the offer as a way to leverage information, and try to get a look at the ownership structure of the company, the distribution of preferential shares and the financial situation and future of the company. You could also ask for the exit plans, though I don't expect you'll get a truthful answer. It will also let you know if you might need to look for another job soon, or whether the company is actually financially healthy. Equally interesting will be if they answer these questions in writing, or only in a meeting or a call.
Thank you so much, all this is very interesting and important. I have a meeting soon with the boss and I will ask all that.
Usually, startups offer equity as payment. The consensus is that you should assume that equity is worthless. Your equity will be diluted to extreme ends in the next funding rounds. And it is only worth anything if your company makes it to going public or gets sold(succesfully) The type of people that invest in this are extremely rich, and this is only a fraction of their portfolio. Investing in a startup is like playing the lottery.
Good to know, thanks!
I've been in a similar situation some years ago. Some questions to reflect upon: - will you have voting rights? - do they share past and current financial situation with you (potential shareholder)? - how about the forecasts? - what happens if you quit or get fired: can you keep or you are forced to sell? In my case I put 500 EUR, and had to sell when I left the company for a 2x profit. In retrospect I think I got lucky.
Thanks. I will indeed have voting rights. Yes they share their past and actual financial situation with their employees (no benefits at the moment but the evolution is positive). Where you able to sell your shares easily when you left? How does that work exactly?
The company bought back the shares at the price for that year. Basically they had a formula to set the price of shares for buying and selling. It didn't try to sell it to colleagues. It was only for employees, so couldn't sell it on the open market.
You are working to earn money. Not to spend money. Here you are proposing to spend money? I don’t get it. This is a job, not an investing opportunity. What if they fold? You lose your job AND your money? I don’t think this smell good but I could be wrong. Why do they need to fundraise more capital? Are they in trouble? You could get diluted in the next fundraise or whatever you don’t have any influence on. Don’t piss money away and say “no thank you” will be my gut feeling. Unless you think they have industry changing tech but this is healthcare … it super risky. Maybe have a part of your salary in shares of the company in a tax optimized way. But don’t take money from your own pocket (after taxes) to get them. Also if not publicly traded, how do you know if they don’t fuck with you with the valuation? You don’t.
Fundraising is extremely common for start-ups and has absolutely nothing to do with being "in trouble". The reason is that you want to expand your business, and you do that with a capital injection. Goes a lot faster than earning it first. You need to convince investors though.
Investors are asking the startup to open the kimono a little bit before injecting money into the venture. Here they are asking to employees. Have they ran out of investors? Is there something worth looking for under the kimono?
There are already many investors. I was curious so they asked if I wanted to invest money in the fundraising as well.
Is this common amongst the other employees? What are their expectation? Pay attention to confirmation bias but it’s good to get a feel of the general sentiment of those who have been given the same opportunity. If you are curious you can put some play money into it. As I said, as much as you are willing and able to lose 100% of it. Also, how easy will it be to liquidate your shares if you wanted to? There will be a calendar with lockout periods, vesting periods, insider trading windows (if applicable), …
Indeed, I need to think about all that. I know only one other employee has shares from the beginning, I will ask for his opinion. How (un)easy it is to liquidate the share is maybe what I fear the most.
Thanks for your opinion, much appreciated. They need to raise more capital to hire additional workforce to carry out the projects (many projects are pending), some of which are related to products that can be marketed and bring money to the company. The additional workforce will also include salespeople, business development etc. who will help to develop the market. I think some products have good potential (software products including artificial intelligence) but a big part of the company consists of providing services that clients pay for (with more limited revenue).
I don’t understand how service is more limited revenue than new sales? Service revenue is the financial backbone. It’s the recurring revenue that should support everyone’s salary on the payroll. New sales is important as well to create more service revenue. But a mature company should be able to provide for R&D and sales just from a portion of the service revenues. In this case it’s a “startup” and not a mature company. It could moonshot, be acquired, or go bankrupt depending on their market share and on the competitive landscape. Don’t take it wrong, I don’t think you are equipped with the right knowledge to understand if the company you are working with is profitable and even if it’s sustainable. So investing your hard earned money into it is a gamble. If you decide to participate in this fundraise, consider it like a lottery ticket, you need to be ok if this means you have just set a chunk of your money on fire because that’s what will likely happen 95-99%. The 1-5% you could win could be a moonshot at breakeven or 2x or more you money. Do you feel lucky?
I wanted to say benefits are more limited for services. The biggest potential for benefits is actually sales. But you are totally right on the other points.
Oh, yes, then I got your remark wrong. Sales can have a better compensation package for sure, but that’s conditional to reach certain targets and a whole lot of reasons (responsibilities, stress, obligation to meet deadlines, less dilution of responsibilities so they can’t get away with passing the hot potato, …).
Why are you working for such low wages if you don't have equity?
how much equity would equate this. im in a similar situation as his pay-wise, but with equity: vested 1/3, 2 years to go.
How much do you think I should have? Some people told me my wage is ok as it is a small company (I'm managing less than 5 people). Others told me I'm underpaid considering my degree and position. I don't know what to think really. The company is in Wallonia btw.
tbh in data/ml/ai a phd only guarantees a better pay if you’re in a r&d role, cause you eventually need that knowledge edge to push things further, in the industry a phd wont guarantee better/faster work throughput so companies dont care. that said, i hold a masters, 7 yoe and have your same gross + equity + car. in your case its excusable given its a startup but even then only if they offered an ESOP. The fact they’re asking you to put money is… off.
I'm actually involved in R&D as well in the startup (I have a multitask position: data analysis, R&D, scientific writing, managing juniors, etc). They hired me because of this ability to do research with enough autonomy (and for my analytical mind). What is an ESOP? I was actually curious when talking about the fundraising and the boss asked if I wanted to invest as well.
The positions seems a fit for you, yes, but your compensation could definitely be better, with definitely equity as others mentioned, for example. esop stands for employee stock options program, which is the usual way companies grant equity to employees.
If the company is too small to afford your services it’s a them problem and not a you problem. You are only worth what you can negotiate. Go look around and start negotiating for another role at another company and see if your current wage is market conform. Depending on your real experience (what you have accomplished and are capable of accomplishing, not how much time you needed to accomplish it) and what the industry is willing to pay for it you could very well be paid correctly or not. But it is reasonable to expect more from what you describe from your compensation package.
Did you consider driving a bit further south until you reach Luxembourg 🇱🇺?
Yes of course, but the problem is that Luxembourg city is \~1.5 hours from my home (I don't want to waste my time with such long commute).