Brief: If I am offered vested ownership of a company, how do I eventually make money off of that?<p>I am being offered a job where I start out with .25% ownership to increase to 2% in 3 years. Salary will shoot up along with that and I'm confident I can get both of those things in writing.<p>My question is, when I'm at the point where I own 2%, how do I make money off of that? The company wants right of first refusal (which is a concept I understand), but what if nobody wants to buy the stock? I don't know that they will go public, so who do I even sell it to at that point? Does that make it essentially worthless?<p>Are there any good blogs or websites that can help me get a handle of these things better?
Long story short... you will likely need a liquidity event for your shares to be sold for cash.<p>This could be though an acquisition, IPO, or the board deciding to let you sell your shares (usually back to the company via the right of first refusal).<p>Your shares are sort of "worthless" until one of these events, that is the risk you take by allowing some of your compensation to be delivered in private stock.<p>The good news is they are offering you a .25% vested stake and a shorter-than-normal vesting period of 3 years. Once those shares vest they are yours forever, or until you sell. If you decide to leave the company there is a chance they will offer to buy you out of your vested shares, that is where you can make some cash.
jacksondeane has a great answer if you're at a traditional startup who's goal is acquisition or IPO.<p>Not all small businesses are startups though. If you are working for a lifestyle business, or even a larger company that has relatively slow but steady growth, then the board may decide to issue dividends.<p>It's important to remember: your equity is worthless, but so is everyone else's. If you trust the company leadership and they aren't just using this as a way to get cheap labor (i.e. they will pay dividends, buy back your stock later, get acquired, or IPO) then it could be a good deal.<p>My recommendation: if the company isn't a traditional startup and offers fair pay (or will increase compensation down the road if they are early stage now), then add some terms that require the company to buy back your vested shares when you leave. You can set a predetermined price (like 2x the current value), or base it on milestones (time you spent there, revenue milestones, etc). Just make sure that you don't have to sell at that value if they are worth more- you can always hang on to them, negotiate a higher price with the company, or sell them to someone else.
Ask the owners: "Can you tell me how I make money off this equity?"<p>Possible answers (not exhaustive):<p>1. We plan to exit<p>2. We plan to pay dividends<p>3. We plan to build and support a private market<p>4. We plan to institute a buy-back program with the valuation based on some objective criteria (FMV / x revenue multiple / x profit multiple)<p>In all cases, the thing you want is that the owners make money off of the stock in the same way you do and that they have the same class as you.