Getting paid in shares of start-up

[CrockettsRiver]

Talk to me about getting paid in shares.

A healthcare start-up wants to hire me as a consultant, and has offered to pay me either in cash or in stocks. I would rather have a big payday later if/when the company succeeds, but most start-ups don't make it so I'm not sure what the smartest course is. I don't have to invest any cash up front, just my time.

In the contract they offered me, payment would be: 2,500 shares/year, for two years. They didn't specify the extent of my services (number of hours or projects), so obviously that needs to be put in writing!
Does that sound like a reasonable number? I need to find out how many shares the company is issuing so I know what percentage that is.
should I ask for cash as well? over a certain number of hours?
should I ask for some other form of ownership stake?
anything else I should be looking out for? this is all new to me.

many thanks in advance!

[CordMcNally]

There's probably not a whole lot of people with in-depth knowledge of this situation here since most physicians aren't in this position. You can always try the app Blind. It's an anonymous tech-leaning app where people will have much more knowledge of these scenarios. I'm not sure what the forum equivalent of Blind would be.

[Tim]

Tons of risk in "all stock", regardless of how you research it. The "ownership control" is the problem. Whatever number or amount, you can always be diluted. Another round of financing.
Typically you want some cash at bargain rate and some shares thrown in on speculation. Pre IPO is a crap shoot. I would not do it that way unless I was an active participant getting the startup off the ground. That is not the role of a consultant, which you need a definition. In a startup, its all hands on deck putting out fires.
Good luck.

[Ozarka]

Interesting situation I would say. A lot to unknowns and questions I would be wanting to know include, but not limited to:

Current valuation based off the 2500 shares - Not that it means much now if they're just a startup but I would assume some funding/financing has occurred
How many shares outstanding; additional rounds of funding anticipated; etc. That 2,500 share count could be .0001% or 10%.
Is it possible to have a combination of cash and stock? $X and XXX shares for each year.
Is there a contract? Let's say it's successful, are your services needed beyond 2 years? What happens if they don't need you anymore after Year 1?
What are the expectations of your services? So many hrs/week or year? Will you get additional compensation beyond the agreed upon time?

Maybe others can chime in, but as a consultant and in this scenario, is there a better set up for tax and liability purposes? LLC, S Corp?

[Random1]

What is the estimated value of the company?
How many outstanding shares are there? I would assume it is a private company and not publicly traded. Can they issue new shares for capital funding?
How about a paycheck and stock options?

I would take the cash , most start ups go no where quickly. Maybe you will get lucky but then a pay check and stock options may be a better option.

[Hatton]

Do the founders have a track record? Have they taken a start up public? Have they worked with venture capital? Do they have any patents?

[wideopenspaces]

My husband just started a new job with a new private health tech company that's expanding to the US. They are currently drawing up paperwork for a small % ownership in the company. Who knows what or if anything will come of this and we discussed that he had to be happy with the current compensation assuming ownership never nets anything. So I'd tell you the same. If you'd be upset if you got nothing for your time, ask for whatever amount in cash you need to feel it's not a waste.

Good luck and let us know if you end up striking gold 😁

[Hank]

Get a reasonable amount paid in cash, plus share of stock and/or magic beans.

[CordMcNally]

Get a reasonable amount paid in cash, plus share of stock and/or magic beans.

I'd be careful about specifically asking for 'magic beans' these days. There is a very real chance you could end up with some new designer drug.

[CrockettsRiver]

Thanks for all your responses. Thinking I will ask for cash + options.

If nothing comes of it, I will at least have an interesting experience. And if the company goes big, you all are invited to celebrate with me on my ranch.

[The White Coat Investor]

Talk to me about getting paid in shares.

A healthcare start-up wants to hire me as a consultant, and has offered to pay me either in cash or in stocks. I would rather have a big payday later if/when the company succeeds, but most start-ups don't make it so I'm not sure what the smartest course is. I don't have to invest any cash up front, just my time.

In the contract they offered me, payment would be: 2,500 shares/year, for two years. They didn't specify the extent of my services (number of hours or projects), so obviously that needs to be put in writing!
Does that sound like a reasonable number? I need to find out how many shares the company is issuing so I know what percentage that is.
should I ask for cash as well? over a certain number of hours?
should I ask for some other form of ownership stake?
anything else I should be looking out for? this is all new to me.

many thanks in advance!

Depends on what shares are worth and will be worth. It might be a very generous offer, but I doubt it. Why not take a combination of cash and equity?

[Tim]

Combo is the only way to go from an arms length negotiation.