Equity-only jobs

Is it a scam, or just misplaced enthusiasm?

Scam or Ignorance?

Here's a scenario for you. Just take a few seconds, make yourself comfortable an picture this.

Imagine you're working a full-time job - that's 40 hours per week -, for free for an entire year and at the end of that year you might receive some Monopoly money.

And I do mean Monopoly money in the literal sense, this is not a metaphor. Yes, those tiny pieces of paper that you could get yourself from any toy store.

This is not a scenario for some Cannes Festival Indie movie or the beginning of a Socialist Manifesto, this is a real thing, a real scam happening today.

Welcome to the shady world of "equity-only" jobs.

Enthusiasm is key here

What's the difference between a scam and misplaced enthusiasm, really, if they both end up hurting people?

One might argue that those posting equity-only job adverts are simply victims of their own ignorant enthusiasm maybe born out of desperation, but maybe they are fully aware of what they're doing and they're just trying to take advantage of your fervor instead.

I have long held the belief that enthusiasm is everything. Odds are never in your favor so you need that blind force pushing you in the direction of your dreams, despite all obstacles and against all practicality.

Our society is built on enthusiasm, brick by brick. Humanity has risen above the absolute poverty of the stone ages and it persevered and even thrived through wars, famine and disease and I would attribute all of that to enthusiasm.

Hope is passive, hope is a drug numbing your mind to the pain of the present. Enthusiasm is active, it's a stimulant, it's the fire that actually makes tomorrow brighter.

I honestly believe enthusiasm is the only thing that kept our species from extinction during the darkest of times, but for all its merits, enthusiasm is not a source of truth.

Equity-only

There's a recent trend - and I wouldn't necessarily call it entirely a scam -, but a very shady trend of people posting job listings that are paid entirely in equity.

Since "equity" is such a "businessy" word, I'm guessing people just assume these job listings are legitimate, and the job titles are impressive to say the least (they're mostly C-level executive roles) - but in fact they are borderline illegal and absolutely immoral.

No respectable company on Earth would just give away equity for labor for the same reasons you wouldn't sell your house for backrubs.

And that's the first red flag - it seems to good to be true, right? That's because it is.

See, you're not getting "real" equity from an established, profitable company, you're getting the promise of equity in a pre-seed, pre-revenue private Company, with intentionally vague terms, a 1 year cliff and 4 years vesting period.

Confused yet?

Let me translate that to English: you're getting let's say 10% of the startup - which is zero dollars today because the company has no product, funding or revenue -, spread over 4 years starting 12 months from now (that's the vesting and cliff), and only if the board (which is usually one or two founders) decides you delivered some very vague results and - this is the funny bit - only if the company is not bankrupt by then.

I wouldn't call this an outright scam simply because I believe a portion of these job posters are blinded by enthusiasm - which is a very polite way of saying they have absolutely no clue what they're doing.

Maybe they mean well, and maybe they truly believe so much in their idea that they're willing to face the embarrassment of just screaming into the darkness - "can somebody help me make this real - please?"

But then again, maybe they know exactly what they're doing and they just want free labor.

Equity is (not yet) fiat

Equity is a form or capital. It's what the company is worth in the eyes of the public or the IRS divided amongst company shareholders. It is, in essence, a way to legally "print your own money" - but with many conditions including financial viability - i.e. your company actually bringing value to the marketplace.

If you've convinced the public your company is worth $10M dollars - and by "convinced" I don't mean conned -, and you own 10% of the shares, you get a tenth of that pie, which almost makes you a millionaire on paper - again conditional on someone buying those shares from you and don't forget about your capital gains taxes.

Don't be fooled by fancy terms and legal speak and business terminology, at the end of the day equity is just one possible measure of the financial success of a company. In startups, equity is generally a big fat zero.

Even if you get to a seed round, and a Series A round and the company has some money in the bank, and some traction, you are usually not allowed to sell any of your shares early and there's nothing you can do about this.

Usually you'll find yourself keeping a smaller and smaller slice of the pie in both relative and absolute terms with each new investment round, and that's if you're lucky to avoid bankruptcy in the first 4 years.

This is all to say that even in the highly improbable scenario of multiple successful VC rounds, and surviving the odds, your equity is mostly worthless until you get to that big exit event or an IPO, and the chances of that happening are extremely low.

But this is all a page from the script for Silicon Valley, you know, the sitcom with those nerdy billionaires.

In real life private companies start at zero, grind away for a couple of years, then crash back to zero not with a bang but with a whimper.

Free labor

Your labor, however, is always valuable - there are no probabilities attached to it -, and your time is both irreplaceable and the only non-renewable resource we all have, so exchanging that for shares in a newly incorporated entity is what Kevin O'Leary would call a "poo poo deal".

But there's a real legal issue here as well. With the exceptions of volunteer work and non-profits, it is illegal to work without compensation anywhere because that's slavery - even if you agree to it.

It is therefore at least morally wrong to suggest someone should exchange their time and expertise for shares in a company that is worth nothing today and has minimal chances of survival.

You only need to look-up the statistics for the survivability of startups. 99% of them die within the first 3 years - long before you had a chance to vest your shares, and even the few that survive never reach any liquidity event.

What makes this equity-only arrangement completely illegal in my opinion - and I'm not an attorney - is the unspoken assumption that equity has "eventual value" and that your labor will definitely be compensated in the future.

This is a promise, or a form of credit; however the expression is "buy now, pay later", not "buy now, maybe pay later, we'll see, but most likely not". That's such a stupid deal it should be illegal.

The probability of equity in a startup having a strictly positive value in the foreseeable future is so close to zero that you are, in fact, betting on becoming a slave if you exchange your time and expertise only for equity in a startup.

Always bet on yourself, be greedy with your time and never ever accept anything less than fair market value for your time, regardless of the equity offered!

Let's switch chairs

Let's play a very simple game called switching chairs.

This is a game for 2 players. One of the players is you, of course, and the other player is Bob - let's call them Bob - and they are the Founder of "Rug-pull, Inc."

Now Bob has this great idea for a startup but no product, no funding, no skills, nothing. They need your help to build the thing in exchange for equity.

You are a builder. Maybe it's design, maybe it's programming, maybe it's copyrighting, or something else entirely - but you have an actual skill and you have built a career around it. You're a domain expert.

The game ends quickly with a question: can you switch chairs? Well, can you?

Bob only has an idea and some C-Corp they incorporated yesterday on Stripe Atlas for a couple of bucks. You have years of experience.

You can absolutely take Bob's chair if you wanted to, incorporate a C-Corp yourself and keep 100% of the equity.

But can Bob magically take your chair and do what you do?

You might be tricked into believing that there's a disproportional exchange happening here, and that you have a small chance, but a real chance, of your equity becoming something very valuable soon.

Please understand that equity is something anyone can produce out of thin air and what makes any of it valuable is you.

Don't work with Bob.

Ideas are worthless

There's a common saying that ideas are worthless without execution but I would also add to all of this thousands of hours of work and a ton of luck.

Best ideas executed superbly at the wrong time are still failures.

In my opinion if all you have is an idea, you shouldn't be allowed to say you have nothing yet. You're so far away from nothing it's ridiculous.

Nothing is a company with 50 employees that needs to shut down because it couldn't achieve product-market fit and no VC want to touch them anymore.

Less than that is a 2-person startup with a great product but very little visibility and close to zero annual revenue.

Less then that is a great MVP built on the weekends with a lot of promise.

Less than that is a C-Corp you incorporated on a whim, and a domain you bought when you felt this urge to do something about your great idea, and you and your co-founder in a garage working tirelessly on an MVP

Less than that is you spectacular, flamboyant, out-of-this world, Earth-shattering idea.

An idea is 10.000 hours away from being worthy of being called "nothing".

Be nice

Enthusiasm is the driving force of our species, it's what makes humanity thrive, but for all its merits enthusiasm not a source of truth.

Enthusiasm lights a fire in your heart, but it doesn't help you see things clearer, and sometimes it is that same fire that completely blinds you and turns extasy into agony.

In the context of equity-only positions I still believe that innocent enthusiasm might play a role from time to time, but usually it's just ineptitude that brought someone to offer such an outlandishly unethical deal.

If you are looking for a co-founder and you have no funding and no skills, then you have nothing to offer. The second you understand that deeply, the second you can begin working on yourself.

If you have skills, then I'm sure you'll make it work on your own. You don't need a C-level in a startup, you don't need VPs of anything, you don't need a Financial Officer or GDPR compliance from day one. You just need to start working.

If you truly get stuck, then maybe look for a partner, but don't disguise it as a fake job, just offer 50% of the whole company and call it what it is - volunteer work to turn an idea into maybe a little bit more than nothing.

If you ever get contacted by someone to work for equity only - remember to refuse gracefully.

We're all humans and there's truly a real possibility that on the other end of the line there's someone who doesn't yet fully understand how crazy they are - and that might be a great thing for our species overall.