
Ask HN: How to get stock as a contractor or consultant? - anonconsulter
I make good income contracting with startups, but startup employees at top startups will be handsomely rewarded with stock, not salaried income. How do you position the conversation to earn stock while still not being an employee?
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patio11
This is a very difficult sell at most startups, particularly those who have
done A rounds, as it requires legal maneuvering in most cases.

If you want startup stock, I'd think "Charge biggest/most sophisticated
companies a LOT of money, reinvest a portion into angel rounds." This does
mean that you'll have stock from companies you didn't work for.

Note that angel investing is, for most angel investors, a fun way to lose
money. (I have three small angel investments.)

An angel who invests $50k into a startup at a $5 million valuation gets a MUCH
better deal than an employee who is offered 1% of the company, by the way. Ask
me why if this isn't immediately obvious to you.

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anonconsulter
Not a bad idea about charging more and then just angel investing. Although
then you have to be a competitive angel investor in order to get into the best
deals, essentially taking on a new angel investor job in addition to
consulting.

Have you successfully got stock as part of your consulting compensation and if
so, why do you think you succeeded even though it's a really tough sell?

For the $50k angel investment, I'm guessing that you mean because its
preferred stock with no vesting?

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patio11
Never asked for stock from clients; very happy with that decision.

I wrote up the reasons for angel stock being better than employee stock on
Twitter and, as I am on a phone right now, cannot conveniently paste it. Can
someone please link that conversation here?

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anonconsulter
According to [http://www.kalzumeus.com/2015/05/01/talking-about-
money/](http://www.kalzumeus.com/2015/05/01/talking-about-money/) you are
asking for ~$30k/week when consulting. I just read some of your year-in-
briefs, and it seems like the most you ever made consulting was $150k in 2012.
Is that correct? How much income are you making per year consulting? Because
I'd want to make much more than $150k in order for it to be worth it.

The numbers I'm going through right now show that, even if I can make a lot of
income consulting, if I just join the right startup I could earn stock options
worth effectively more than I'd ever be able to make consulting (assuming I
don't get stock consulting).

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tptacek
Most people who make more than 150k annually consulting do it by managing a
team of consultants. An important reason we're always telling people to raise
their rates is that --- unless your rates are _way_ too low --- a sole
practitioner can almost never extrapolate their rate to figure out what their
annual take-home will be.

~~~
JoeAltmaier
I'm not so sure. Not this guy anyway. Our partnership makes quite a bit more
than that, and its just us chickens doing the work. And we stay as busy as we
care to. Caveat: we each have decades of expertise in our field.

~~~
tptacek
Well, let's just say that I speak for my own 10+ years co-running Matasano,
_plus_ Patrick (my current cofounder), _plus_ everyone I know personally who
has run a contracting firm, including a few besides Patrick that also had
nosebleed rates.

Generally, unless you have a team, if you're finding that you can multiply
your hourly rate by 2000 and get within shouting distance of your annual
gross, that means you're not charging enough.

There are a lot of good things that come from jacking your rates up, beyond
just being able to make the same amount of money while doing far less work.

~~~
JoeAltmaier
I must be running a public service then. We find it easy to stay 100% busy,
and 2000 X rate is well north of the number this thread started with. No need
to up the rate; maybe the market would support it. Working less sounds
attractive though!

~~~
tptacek
If you back out your hourly rate, is it within $100 of an effective hourly
rate you think you could get (maybe with some hustling) as a full time
engineer somewhere?

~~~
JoeAltmaier
Sadly, no, I could never earn like this as an employee.

~~~
tptacek
Nice. If you're billing over $2k/day, I don't get to be patronizing to you.

A pretty common strategy is to dial your rate to a point where you're
consistently between 70-80% utilized, and to raise your rates some % for all
new clients annually.

At a consultancy with a team of people, a utilization rate over 85% might be
considered overheated, risking burning people out.

(Though if you're running a body shop you don't care about overheating).

If it was just me and a partner consulting, I'd use rates to dial utilization
back to 50%.

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tptacek
You don't. Employee options vest; there's no such thing as contractor vesting.

There is a sense in which stock compensation to a contractor is equivalent to
raising cash from an investor and exchanging that cash with a contractor for
services. During the first dot-com bubble, equipment vendors famously did that
with startups; it allowed those vendors to book totally unrealistic sales
which juiced their numbers even though they'd never see a return on the stock.
It was, in effect, channel stuffing.

Today, though, a company that is willing to, in effect, raise an ad-hoc random
funding round in order to get a contractor programming job done is a company
whose stock is not going to be worth anything.

~~~
JoeAltmaier
I've negotiated stock as part of a contracting deal (in exchange for reduced
rack rate). I'm not sure why 'there's no such thing'?

~~~
tptacek
Is that stock liquid now?

There are a lot of people who will trade you stock for things. I'm certainly
not saying nobody will offer you stock!

~~~
JoeAltmaier
Then you've lost me. I consult; I have option; they vest. It's the same stock
that employees would have been vesting.

~~~
tptacek
Liquid meaning, has the company sold or gone public, or is there some internal
market available today that will put a cash value on them?

When did this equity compensation deal start? The most important feature of
employee options vesting is the cliff; your deal was something like "if I'm
still consulting for you 12 months from the start of our first statement of
work, I get 1/4 of the promised options"?

How does tax treatment of those options work? Most of the reason that
employees are put into a crunch period after they leave where they have to
spend real money on shares is that US tax law requires employee options to
expire within some number of days after the employee relationship terminates.
But you're not an employee at all; how can you have employee stock options?

~~~
JoeAltmaier
Ok that's the critical difference - I have warrants. Due to all the reasons
you mention. They vest; they have a cliff; they expire 2 years after severing
our relationship (which has never happened).

And what startup has liquid stock? I'd love to work there.

~~~
tptacek
I think I'm being too elliptical. I'll be blunt: my prediction is that the
overwhelming majority of startups that are willing to offer equity in exchange
for contracting work are going to fail, and fail at a higher rate than other
startups.

A willingness to pay in equity for consulting would to me be a red flag that
the startup I was talking to was poorly managed.

~~~
JoeAltmaier
I'm guilty too. To be clear: this startup tried to recruit me as CTO; I
insisted on remaining in my partnership. They wanted very much to keep me
invested in their idea, and warrants etc were a way of doing that. So not the
usual kettle of fish.

Further I too would never consider stock _instead_ of pay for any consulting
activity. That's a loser move.

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gesman
You may ask and decision makers quite often will be happy to grant you N
worthless stock options for reduction of your today cash rate.

You may ask for an actual stock but it still won't be a fully vested grant but
some conditional trickery promise.

I'd rather take maximum cash squeeze and re-invested [part of] it into some
more dependable.

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jeffmould
Personally I wouldn't put a lot of effort into getting stock as a
contractor/consultant. The chances of being "handsomely rewarded" in terms of
future fortunes are very slim and far between. By the time you throw in the
cost to exercise and the tax obligations, it may not be as much of a reward as
you think.

With that said, you may be able to negotiate to reduce your hourly rate in
exchange for earning a equity position. You could also work out a convertible
debt type arrangement. But again, I would walk cautiously here. Having $100
today can be worth a lot more than the gamble on possibly having $1000 five
years from today. Just because a company is offering employees stock does not
mean that the stock will be worth anything or that the employees will be
rewarded on an exit.

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husseiny
You may be able to negotiate to be paid in stock versus $$$. Very early stage
startups that have not raised a round of funding might go for that deal.

I am working on a startup that is currently bootstrap and am very open to
getting work done for shares vs salaries.

