Taking it Public: Salaries, Stock

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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 not

public and you don’t have any means of investigating the financial

background of the firm, you can investigate the industry," says

Guarneri. "Contact people in the industry with a heads up on this

particular kind of product or service and whether they think it will

competitively fly. Or lurk in chatrooms and put the right kind of

question out there."

If the potential buyer is named, check in the Edgar database to see

what is happening. Look at how the potential buyer treated its other

buyouts.

Investigate the management team. "I’m a great believer

in people and not the financial analysis," says Stephen Shaffer

of the venture capital firm Penny Lane Partners LP (609-497-4646).

"Know the people you are talking to. You need to be comfortable

with 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 referrals

will 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 professional

recruiting firms to tee up the best people possible and we tell those

people 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 venture

capitalists are saying. If somebody has a really insightful idea that

looks quite defensible, that could fly 100 percent."

Consult a financial advisor. To take a job with a start-up

is a penny stock investment, says Niels Nielsen of Princeton

Management Consultants (E-mail: pmcnielsen@aol.com). He notes

that the issue of whether stock options should be charged against

company assets is being argued, and companies are very apprehensive

because 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 are

taking less of a salary in hopes that down the road you will make

money in terms of stock equity. Make that decision with whatever appropriate

advice you need — an investment advisor, an accountant, or a lawyer

to 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 before

six months," says Shaffer. "For insiders who are managers

of the business it could be considerably longer." As for the buyout

that could replace an IPO, he cautions against buyers with inflated

stock prices; they want to use this stock for the acquisitions.

Ask the executive search firm. Shaffer thinks the executive

search firm will keep the jobseeker’s best interests at heart. "The

search firm is clearly being paid by the company but is a resource

for the individual as well. It is not in the search firm’s best interests

to put someone at a company who will be unhappy or leave in a short

time. There will be a definite desire on the part of the search firm

to make sure that the technical, professional, cultural, personal

aspects — 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 to

be stuck with that one."

Contract for the services of a negotiator. Miller, who

works at a consulting firm in Westfield (E-mail: lmiller@getmoremoney.com ),

says that to use a negotiator might cost $350 an hour for consulting

on getting the best deal for a mid-level position, or several thousand

dollars to work on a CEO’s behalf — or $14.95 to buy his bestseller

on Amazon’s career list, "Get More Money on Your Next Job:

25 proven strategies for getting more money, better benefits, and

greater job security" (McGraw Hill, 1998).

Consult a good employment law attorney. If the company

flops or the top people are let go, you can be sure they will have

gold-plated exit strategies in place. Make sure you do the same. Among

the 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 the

other issues nailed down," says Guarneri. But most of all you

should listen to your gut instincts. "Keep track of what people

are telling you. Write it down, not just the facts but the impressions

you 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’s

clients took a job with a small high tech company and negotiated with

stock options in lieu of one-time bonus. "He couldn’t use it while

he was employed, but five years down the line, the company got bought

out and the stock split twice. He got better than $1 million or 10

times more than the one-time bonus."

But Miller and Tate caution against those rose-colored glasses. "You

read about all the high flyers that do so well, but what you don’t

read about is the ones that fall on their faces," says Tate.

Nielsen gives a for instance: A Princeton-based start-up firm that

went down the tubes, and "a very promising middle-aged guy"

lost his job and lost his house because the stock he was counting

on just never appeared. "Don’t get starry eyed and go out and

buy a million dollar house," says Nielsen, "Don’t mortgage

your house to buy the shares. Take all the precautions to mitigate

the downside."

Consider the job as an investment, yes, but also consider the job

as a job. "Ask is this the kind of job that I want with the opportunity

that I want, with the growth potential I want," says Miller. "Taking

a job just for the money is usually a mistake. Pick a job that you

will want, that you will enjoy, that will let you grow. Then negotiate

the best possible deal you can get."

Top Of Page
Taking it Public: Salaries, Stock

Setting salaries for high-flying web companies, says

Kevin Conner, is very difficult. Conner & Associates PC, a CPA

firm specializing in Internet startups (E-mail: connercpa@aol.com).

Conner worked with Jeff Bezos before his Amazon.com went

public and has helped a number of high-tech firms enter the capital

market. "Salaries are the biggest problem we are having. The Internet

companies are paying 25-year-old kids, $80,000 plus stock options

worth a million bucks."

If the company has yet to go public, how does the prospective employee

know what the stock options are worth? "What you are doing is

buying into a dream," warns Conner. "You are really buying

into the individuals. Look into their backgrounds, and at the venture

capitalists."

"If you can double your money on the stock option price, you have

a winner, but you are not going to be able to sell for from 6 to 24

months anyway," says Conner. "It comes down to the integrity

and credibility of the people you are working with."

You don’t have to be an employee of a fast-rising high-tech company

to profit from their success, says Conner. He learned this from his

otherwise unfortunate encounter with Bezos: "I read his original

business plan and was attempting to be his CPA. He decided to go with

another 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 the

back office support. At this point I am helping in several rounds

of financing and raising money from other clients."

"As a small firm we’ve taken business plans, revamped them, prepared

projections (up to and including tax returns) and then passed it off

it to the large firm." Young companies need these services for

their "red herring," the initial filing to the Securities

and Exchange Commission. "They can afford us until they are required

by market forces to go with the larger firm," says Conner. "The

larger firms feel comfortable with our passing the information on,

and they throw us the small fish. It’s worked for me so far. It’s

a good way to get into start-up and emerging growth businesses, because

I 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 liked

small firms better, because they focused on the client rather than

on billings. His wife, a retail and marketing manager, is at home

with their preschool children. Conner founded the firm with his brother

Joseph, who is president, and they have offices in Princeton and Newtwon.

Conner, a member of the New Jersey Entrepreneurial Network, provides

corporate finance advisory services such as raising money, perfecting

business plans, coordinating bankers and lawyers. He started doing

investment banking in 1992 and has accumulated enough funds that he

can also do venture capital. "I will not get involved unless I

can become a principal," says Conner.

He suggests asking these questions when evaluating a company that

expects 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 with

a vice president of sales who has done it before. "The core part

of 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 gone

as far as hiring a private investigator to do background checks."

In summary: If you are potential hire or a potential investor for a

start-up, take a close look at who is at the top. And if you are a

small company looking for business with young companies, be ready to

go bottom fishing. Look for the little fish — and be ready to pass

the business off to a mega company when the little fish matures.

— Barbara Fox


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