Hired, no paycheck (Entrepreneur trades in employees who work for startup equity)

San Francisco Chronicle ^ | November 4 | Ilana DeBare

[nickcarraway]

Reynaldo Gill and Ken Crittendon, founders of a Fremont startup called Commendo Software, were in a common catch-22. They hoped to get venture capital funding. To attract that funding, they needed a team of experienced sales and finance executives. But since they didn't yet have funding, they had no money to hire those people.

Many startups founder at precisely that impasse. But Gill and Crittendon found an unusual solution. They contacted a small San Francisco search firm called PeopleConnect that specializes in placing executives and tech professionals who are willing to work without pay until VC funding comes through. The firm found them a vice president of sales and director of finance who agreed to work for equity. PeopleConnect and its CEO, Max Shapiro, have carved out a small but unique niche in the recruiting world with what they call their "Employees Without Paychecks" program.

Even more notably, Shapiro developed this program as a response to the dot-com bust -- taking what could have been a lethal business slump and instead using it to create a new business model.

"I have not heard of this in my 25 to 30 years in this industry," said Robert Zahra, chairman of the National Association of Executive Recruiters. "It sounds like they are on the cutting edge."

'Angel employees'

The basic concept of tech executives working for equity isn't new. For years, founders of startups have compensated themselves and a few key employees with stock options instead of cash. Recruiters have occasionally placed executives in such situations and taken their own payment in the form of stock.

But PeopleConnect is the first search firm to market a program of recruiting employees who will work for equity. "A friend of mine calls them 'angel employees,' " Shapiro said, comparing them to angel investors, who

[the invisib1e hand]

will work for equity.

I was gonna have this put on a T-Shirt a while ago. shoulda copyrighted it. Should copyright all my one liners.

[TCats]

Got news for these folks. Working for equity is the rule in most unconnected, high tech startups. There may be a little pay but usually the majority of any money is on the come line.

[Christian4Bush]

curiosity BUMP

[lewislynn]

Many people did that very same thing only in trade for future company stocks in the Dot-Com scam....

[p23185]

Reynaldo Gill and Ken Crittendon, founders of a Fremont startup called Commendo Software, were in a common catch-22. They hoped to get venture capital funding. To attract that funding, they needed a team of experienced sales and finance executives. But since they didn't yet have funding, they had no money to hire those people.

Isn't this what the Clintoon economy was running on in the 90s? I thought all those software startups were financed on labor that was promised a piece of the stock run-up - thereby there was no real equity underlying the stock. NOBODY made profits, I remember reading the twentysomething stock analysts telling us old farts how the "new rules under Clintoon" were there only had to be a promise of profits maybe someday - didn't matter that the business models used to start the company were all made on a base of sand. Well I am proud to say that no one sucked me into any of those "new" internet investments. Those were the days when EVERYTHING was going to be done over the internet - I even worked for a Fortune 100 company that believed this also and invested over $5B into a satellite phone system that was eventually purchased out of bankruptcy for less than a penney on the dollar.

[Sundog]

I might need this.

[Keith in Iowa]

How do you cook equity?

Kind of hard to live off of equity unless you have another source of income that takes care of those little necessities of life...

[glorgau]

I even worked for a Fortune 100 company that believed this also and invested over $5B into a satellite phone system that was eventually purchased out of bankruptcy for less than a penney on the dollar.

Why not just say Motorola and Iridium? ;-)

[VOA]

bump

[Nik Naym]

Well, it could be some other fortune 100 company that peed away 5 billion on a space based communications system without doing adequate market research......

Never mind.

[nickcarraway]

People worked for equity long before the 90's. A lot of U.S. companies bootstrapped this way, going back to before the last century.

A friend of my Mother's who lived next door in the 70's, went back to work for a local junior college after her kids went to school. Two guys in their twenties who were trying to make computers, but had absolutely nothing, asked her to help them out, and do the work for equity. Those two guys were Steve Jobs and Steve Wozniak. She was their first employee before there was an Apple. Was she a fool? Maybe, but she isn't complaining.

[Hank Rearden]

A friend of my Mother's who lived next door in the 70's, went back to work for a local junior college after her kids went to school. Two guys in their twenties who were trying to make computers, but had absolutely nothing, asked her to help them out, and do the work for equity. Those two guys were Steve Jobs and Steve Wozniak. She was their first employee before there was an Apple. Was she a fool? Maybe, but she isn't complaining.

And I used to work with a guy (who is in most of the books on the early history of Silicon Valley and the hobbyist PC revolution) who passed up the opportunity to do exactly the same thing with Steve and Steve. He stayed at his desk until he retired. Then he died.

His story gave me the insight to always examine *every* opportunity that comes along.