Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 2 down vote favorite

I am planning to join a start up (LLC) in a management role. They are in the midst of raising series A, the have agreed to pay me an hourly salary with a cap on the hours, if I go over the hours, they will pay me back when they get investment. In addition, they are offering me a % commission on deals + 5 basis points equity (up to 3 deals) per signed deal I bring in. I will be working as a consultant, not employee.

Questions

  1. If I go over capped hours per week and am owed a certain $, which they have agreed to pay me when investment comes in (I lose all if no investment is raised) - can I ask for this amount to be added to a capital account in my name? This would make me an "investor" in the company, correct? Rather than, just a consultant they owe money to.

  2. How do I can find out the value of 5 bps vs. the entire pool? What is my % share in the company? Should I be asking them for cap tables so I know what my value will be? I'm not sure how bps translate to % and don't completely understand how LLC works.

  3. I would one of the first main senior mgmt people to join the company before series A - what should i keep in mind to make sure i am getting a fair deal?

  4. Is it possible to ask for undiluted?

share|improve this question
2  
How are they raising series A while being a LLC? Normally VCs do not invest in LLC; they need the company to be C corp. – Rahul Jul 18 '10 at 0:00
1  
Is that a question I should ask? I read their Op Agreement and they are listed as LLC, I suppose when they raise they will convert? Would you mind helping me out with some of my other questions, please? I'm really trying to understand this space well and could really use your expertise. Any resources you could recommend to read would be okay too. – dscp Jul 18 '10 at 5:26

3 Answers

up vote 1 down vote

Hmmm - something seems amiss. In the US - I believe that the company needs to be a C corp to issue stock - not an limited liability company. Regarding the commission, a max draw of .15% equity seems to be small, but without any insight to pre valuation and shares outstanding, is is near impossible to determine (a good post on VC algebra can be found here)

Owning stock does mean that you're a shareholder in the company (just like owning stock in intel would) but it doesn't automatically grant you any additional rights (depending on the type of share - common vs preferred).

And while we would all love non-dilute clauses, they are typically deal breakers for VC investments. YRMV.

share|improve this answer
up vote 0 down vote

It's a big mistake to form an LLC and look for funding. You can't simply convert from one an LLC to a C-Corp the way you can with S-Corp to C-Corp. It would have to be reincorporated or sell all assets to a new (C-) corporation, at which point all prior deals would be erased. You should absolutely ask what percent (read the cap table) the offer represents. Why would this position be a contractor rather than an employee? Makes no sense. Frankly they do not sound like they have a clue. VCs and other investors that have a clue will NOT put funds into a vehicle like you describe. FYI stock IS equity.

share|improve this answer
up vote 0 down vote

The position is a contractor because they cannot afford to pay a salary, so it's hourly wages for a certain # of hours per week. When they raise money then the would hire full time.

Are you saying that if I were to be granted equity in an LLC, it could go away if they converted to a C-corp?

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.