Taking it Public: Salaries, Stock
Corrections or additions?
These articles by Barbara Fox were published in U.S. 1 Newspaper on June 30, 1999.
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Web Start-Up Job: For Real, or Pie in the Sky?
Out of the blue, a headhunter calls you. You have a
comfortable job with a comfortable salary but now you are being offered
the moon. Come with us, says a young high-tech firm, and you will
be rich. You won’t make much more than you are making now, but we’re
going to go public, and you will own stock. And even before we go
public, we might get bought out by a public firm — the 900-pound
gorilla of our industry. Either way, you will be a millionaire many
times over.
Wait a minute. What is really being offered here? Is this offer a
sure thing, or pie in the sky? How would you proceed if you were entertaining
such an offer? We asked career counselors, venture capitalists, corporate
consultants, and professional negotiators for their advice.
Research is key, says Susan Guarneri, who has a career counseling
practice on Lawrence Road (E-mail: resumagic@aol.com) If you
don’t know how to do the research, through public means and networking,
find someone who does.
Investigate the marketplace. “If the company is notpublic and you don’t have any means of investigating the financialbackground of the firm, you can investigate the industry,” saysGuarneri. “Contact people in the industry with a heads up on thisparticular kind of product or service and whether they think it willcompetitively fly. Or lurk in chatrooms and put the right kind ofquestion out there.”If the potential buyer is named, check in the Edgar database to seewhat is happening. Look at how the potential buyer treated its otherbuyouts.Investigate the management team. “I’m a great believerin people and not the financial analysis,” says Stephen Shafferof the venture capital firm Penny Lane Partners LP (609-497-4646).”Know the people you are talking to. You need to be comfortablewith those people. Be cynical. Entrepreneurs are very difficult people.”Do research on the backgrounds of the principal parties involved.”See what their track record is. Everyone leaves a paper trail,”says Guarneri. Ask for referrals realizing that the direct referralswill give glowing remarks. “But then the second level of referrals– that’s when you may start hearing things.”Ask the venture capitalists who are investing in the firm.You can probably believe them, says Shaffer: “We hire professionalrecruiting firms to tee up the best people possible and we tell thosepeople what we think.””If the firm has credible venture capital, that’s a big plus,”says Wood Tate of Development Management Inc. (E-mail: woodtate@worldnet.att.net).Tate is a consultant on corporate strategies for technology companies.”What you can believe depends on the credibility of what the venturecapitalists are saying. If somebody has a really insightful idea thatlooks quite defensible, that could fly 100 percent.”Consult a financial advisor. To take a job with a start-upis a penny stock investment, says Niels Nielsen of PrincetonManagement Consultants (E-mail: pmcnielsen@aol.com). He notesthat the issue of whether stock options should be charged againstcompany assets is being argued, and companies are very apprehensivebecause they have a tremendous potential liability.”What you are really doing is making an investment decision,”agrees Lee E. Miller, author of career strategy books. “Ask,is this a company I want to sink my money into? In essence, you aretaking less of a salary in hopes that down the road you will makemoney in terms of stock equity. Make that decision with whatever appropriateadvice you need — an investment advisor, an accountant, or a lawyerto protect you in case you are laid off before you are vested.”Watch out for the “lock-up” periods that forestall quick profits.”If you do an IPO today it is doubtful anyone can exit beforesix months,” says Shaffer. “For insiders who are managersof the business it could be considerably longer.” As for the buyoutthat could replace an IPO, he cautions against buyers with inflatedstock prices; they want to use this stock for the acquisitions.Ask the executive search firm. Shaffer thinks the executivesearch firm will keep the jobseeker’s best interests at heart. “Thesearch firm is clearly being paid by the company but is a resourcefor the individual as well. It is not in the search firm’s best intereststo put someone at a company who will be unhappy or leave in a shorttime. There will be a definite desire on the part of the search firmto make sure that the technical, professional, cultural, personalaspects — all of that has to be right.”But Guarneri, the job counselor, says she wouldn’t trust the headhunters:”Probably all are honest except one, and all you need to is tobe stuck with that one.”Contract for the services of a negotiator. Miller, whoworks at a consulting firm in Westfield (E-mail: lmiller@getmoremoney.com ),says that to use a negotiator might cost $350 an hour for consultingon getting the best deal for a mid-level position, or several thousanddollars to work on a CEO’s behalf — or $14.95 to buy his bestselleron Amazon’s career list, “Get More Money on Your Next Job:25 proven strategies for getting more money, better benefits, andgreater job security” (McGraw Hill, 1998).Consult a good employment law attorney. If the companyflops or the top people are let go, you can be sure they will havegold-plated exit strategies in place. Make sure you do the same. Amongthe points to ask for:A year’s contract.Double the relocation allowance if you have to move.A buyout if the company moves.A three-month performance review rather than six months.Stock vested in the event that the company changes.A protected investment in case you are let go.”If there are a lot of `what ifs,’ you have to have theother issues nailed down,” says Guarneri. But most of all youshould listen to your gut instincts. “Keep track of what peopleare telling you. Write it down, not just the facts but the impressionsyou are getting.”In good economic times there can be a certain degree of speculation,and everyone can get caught up in that rosy glow. One of Guarneri’sclients took a job with a small high tech company and negotiated withstock options in lieu of one-time bonus. “He couldn’t use it whilehe was employed, but five years down the line, the company got boughtout and the stock split twice. He got better than $1 million or 10times more than the one-time bonus.”But Miller and Tate caution against those rose-colored glasses. “Youread about all the high flyers that do so well, but what you don’tread about is the ones that fall on their faces,” says Tate.Nielsen gives a for instance: A Princeton-based start-up firm thatwent down the tubes, and “a very promising middle-aged guy”lost his job and lost his house because the stock he was countingon just never appeared. “Don’t get starry eyed and go out andbuy a million dollar house,” says Nielsen, “Don’t mortgageyour house to buy the shares. Take all the precautions to mitigatethe downside.”Consider the job as an investment, yes, but also consider the jobas a job. “Ask is this the kind of job that I want with the opportunitythat I want, with the growth potential I want,” says Miller. “Takinga job just for the money is usually a mistake. Pick a job that youwill want, that you will enjoy, that will let you grow. Then negotiatethe best possible deal you can get.”Top Of PageTaking it Public: Salaries, StockSetting salaries for high-flying web companies, saysKevin Conner, is very difficult. Conner & Associates PC, a CPAfirm specializing in Internet startups (E-mail: connercpa@aol.com).Conner worked with Jeff Bezos before his Amazon.com wentpublic and has helped a number of high-tech firms enter the capitalmarket. “Salaries are the biggest problem we are having. The Internetcompanies are paying 25-year-old kids, $80,000 plus stock optionsworth a million bucks.”If the company has yet to go public, how does the prospective employeeknow what the stock options are worth? “What you are doing isbuying into a dream,” warns Conner. “You are really buyinginto the individuals. Look into their backgrounds, and at the venturecapitalists.””If you can double your money on the stock option price, you havea winner, but you are not going to be able to sell for from 6 to 24months anyway,” says Conner. “It comes down to the integrityand credibility of the people you are working with.”You don’t have to be an employee of a fast-rising high-tech companyto profit from their success, says Conner. He learned this from hisotherwise unfortunate encounter with Bezos: “I read his originalbusiness plan and was attempting to be his CPA. He decided to go withanother firm, a big firm.”As much as that hurt, Conner admits that for a company going public,”having a big firm as your accountant is an absolute necessity.”Still, he sees a big window of opportunity. “We can provide theback office support. At this point I am helping in several roundsof financing and raising money from other clients.””As a small firm we’ve taken business plans, revamped them, preparedprojections (up to and including tax returns) and then passed it offit to the large firm.” Young companies need these services fortheir “red herring,” the initial filing to the Securitiesand Exchange Commission. “They can afford us until they are requiredby market forces to go with the larger firm,” says Conner. “Thelarger firms feel comfortable with our passing the information on,and they throw us the small fish. It’s worked for me so far. It’sa good way to get into start-up and emerging growth businesses, becauseI can take an equity position when I pass it off.”Conner grew up in Philadelphia, and went to West Chester University,Class of 1984. He worked for both large and small firms and likedsmall firms better, because they focused on the client rather thanon billings. His wife, a retail and marketing manager, is at homewith their preschool children. Conner founded the firm with his brotherJoseph, who is president, and they have offices in Princeton and Newtwon.Conner, a member of the New Jersey Entrepreneurial Network, providescorporate finance advisory services such as raising money, perfectingbusiness plans, coordinating bankers and lawyers. He started doinginvestment banking in 1992 and has accumulated enough funds that hecan also do venture capital. “I will not get involved unless Ican become a principal,” says Conner.He suggests asking these questions when evaluating a company thatexpects to go public:1. Does it have a solid and very distinct business plan?2. Are projections realistic?3. Does the CEO know the business and the industry?4. Does it have a top-notch management team, perhaps witha vice president of sales who has done it before. “The core partof the group has to be good at what they do.”Taking a personality test borders on discrimination, says Conner,so instead, “spend time with them, feel them out. I have goneas far as hiring a private investigator to do background checks.”In summary: If you are potential hire or a potential investor for astart-up, take a close look at who is at the top. And if you are asmall company looking for business with young companies, be ready togo bottom fishing. Look for the little fish — and be ready to passthe business off to a mega company when the little fish matures.– Barbara FoxNext StoryCorrections or additions?This page is published by PrincetonInfo.com— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
