
Ask HN: Have you ever been granted profits interest units? How to evaluate them? - throwaway54599
I have an offer from a fairly young tech startup as a software engineer. The startup is an LLC. They have granted me &quot;profits interest units&quot; instead of stock options or RSUs. All they have told me is that you have N units of profits interest in the company. They won&#x27;t disclose a percentage number as to what this represents as a percentage of the total &quot;profits interest units&quot;.<p>HN has a lot of discussions around evaluation stock options, but I haven&#x27;t seen any on &quot;profits interest units&quot;. Have you ever been granted profits interest units? How to evaluate them?
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shoo
To fairly evaluate the value of these things, the company would need to
provide you with additional data. E.g. if this were a public company you'd
want to know the total number of these units, and how profit would be split
between these units and other things (dividends, reinvesting profit in the
business, options for senior executives, etc).

You'd also want to look over the financials of the company from a few annual
reports to get a feel for if this company was likely to even have any profit.

Since this is a young startup and they are not willing to disclose information
that would let you estimate fair value of these units, regard them as having
zero value.

Make sure you get paid in enough cash + bonuses with contractually agreed
conditions (Non discretionary) + benefits for the total comp to be competitive
with other options available to you.

you could suggest in negotiations that the profit sharing units allocated to
you vest over a number of years so they could serve as a tool for retaining
your services and aligning your interests with the business in the long term,
but not as a factor in evaluating your compensation package.

(you don't have to point out it will be an ineffective tool if there is no
profit/the units are constructed to be otherwise worthless)

~~~
shoo
More entertaining idea: instead of agreeing to work e.g. 40 hours a week you
could instead propose to sell them 100 labour sharing units in exchange for
cash + profit sharing units, whereby each labour sharing unit entitled the
company to some fraction of your annual labour output.

You would need a compelling and charismatic argument to distract from the fact
that you don't disclose information that allows the value of a labour unit to
be estimated.

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mtmail
Never heard of those. I wouldn't trust profit. It's way too easy for a
company, especially a growing one, to spend a little extra which lowers the
profit (and thus payout to employees, but also less corporate tax). You also
risk emotional blackmail (maybe the word is too strong): founders telling you
by paying out those profits interest units you're lowing the profit for
others.

[http://www.ibtimes.com/amazon-nearly-20-years-business-it-
st...](http://www.ibtimes.com/amazon-nearly-20-years-business-it-still-doesnt-
make-money-investors-dont-seem-care-1513368)

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icedchai
I was granted 5% profit in an early startup. There never was any profit. Big
surprise

~~~
partisan
Having been offered a profit interest, my lawyer made it very clear that I
should not expect a dime from that interest. Why? Well the company could
choose to spend until there are no profits. In my case, there was a history of
nepotism by the controlling party and the assumption was that everyone
remotely related would soon work for the company. At that point, it was easy
to turn down the offer.

