There are always risks to finding a job, one of the ways you can look for something to do while you are looking for the perfect gig is to do many forms of volunteerism. One other option though is the “Freemium Model” of employment where you give your time to a company for a percentage of the company should it ever hit it big. There are significant downsides, but the possibility of the upside win to go along with that.
This helps if you do not have to pay bills, which most of us have to do. So this is not an answer for the lagging job market for many people. What was interesting though is that when I asked a lot of my start up friends on how to get into a startup almost all of them brought up the Freemium model, you give time for a percentage of the company. Admittedly this will not be a huge percentage, and the whole deal will have to be carefully documented to ensure that there is a payday, someday, if the company does not go under.
The other downside is that this is a form of “lottery thinking” in that “if we only work 120 hours a week we will win the lottery of pre-IPO stock options. The odds of winning the lottery are 1 in 43 million here in Seattle, the odds of a company failing for the first five years is between 40 and 60%. If you can do the fermium model though, and understanding the risks is the first big step in this, there are ways to negotiate a contract out of this that will at least address the risk. There are also companies to look for that are already funded, or at least stable enough to make this model possibly pay down the road. Here are some things to consider before you do this.
1. How stable is the company? Are they funded, either through Angel or VC funds? If they are working out of their parents basement that might be one thing, but if they have a well funded company that shows promise and stability they might be worth working the Freemium model of employment.
2. You are working for a portion of the company, make sure you represent your rights well, if they are funded the company owner has already given up a portion of their company to someone else. You need to ensure that if the company goes public, if the company fails, you are one of the first people in line to get a payout. Always ask for preferred stock options, or senior notes, or get the contract in writing that you are somehow in a better position than anyone else to be paid first.
3. Understand that there is going to be a time lag in the payment process, most companies are not looking to go IPO, they are looking to be bought out. Make sure that when the exit comes, you are first in line regardless of how the company decides to go on an exit strategy.
4. Check the valuation of the company against what you would normally charge as a contractor, and work out a package from that. If your normal pay rate is 200 dollars an hour and the company’s valuation is 500,000, with you looking at putting in 2000 hours of work, you are asking the company to give up 80% of its valuation for you working there a year. Odds are highly likely this will not work and make the company owner balky leading to the big turn down. You would be looking for a 1 to 2% cut when all is said and done, under the scenario you could only realistically give the company 25 hours of work for every 1% of direct value or worth of the company. You would need to work out a charge rate that makes sense for the task that keeps you at the right percentage to make everyone happy. Realistically you should be looking at only 1 to 5% of the total company valuation when making the deal. Odds are likely that the owners are going to have a very hard time giving up even 5% of the total valuation of the company to anyone.
5. Get the best contract lawyer in town; make sure the contract represents your best interests in relationship to the risks you are taking. You are in business to make money, not lose money, and Freemium is already risky.
6. Know the risks – how likely is it that the company is going to “pay off”, stay away from lottery thinking, wishful thinking, and other nonsense. When making the deal, ensure you are working in your best business interests. No matter how exciting the company is, no matter how compelling cat fur clothing can be, understand their market, where they are placed, and what their actual customer base looks like.
7. When the work is over with, get a sign off on it. That way everyone knows you did the work, everyone agrees that the work met the contract specifications, and that no one can later on deny that the work was done, or that the work was done poorly not fit to be paid for under any circumstances.
8. Keep in touch with the company when the work is over with, now that you have a vested interest in their success because eventually you do want your payday, it is always a good idea to keep tabs on the company.
This could be an interesting way of making money down the road, and help a person who is unemployed to keep their skills up to date. In addition, it helps you not show a huge gap in your resume when you go for a job next. While the bills need to be paid, and the risks are high with this kind of employment (you also need to check out the barter rules at the IRS) it might be at least one way to get you into the startup community, show your skills, and land a real gig with that company or a different one later on. This can also give you a way of working out how well you can adjust to working in a startup community and see if it is the right thing for you to do.
(Cross-posted @ TechWag)