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How do I renegotiate my equity agreement?

I currently have a single-digit equity share in a company for which I work full-time. I came up with and idea that is completely unrelated to the current business, and I've been working on the project for about six months ... mostly on company time and with the president's approval. This was 100% my idea and I have done 100% of the work, though we'll eventually have our salesman selling ads on it. I think I deserve a bigger share of this property. How do I renegotiate my equity agreement and what is a reasonable percentage to ask for?

15 Replies

Clive Butkow
3
2
Clive Butkow Entrepreneur
Chief Executive Officer at Grotech Venture Capital Company
Nathan as you did this on your employees time they own 100% of the IP to your new technology. Legally you have no rights to any equity in the new venture or more equity in your current company. With that said a conversation with your CEO to see if he/she has an abundance mentality and is open to this conversation can cost you nothing, as long as you do this appropriately. Best of luck
Shobhit Verma
9
5
Shobhit Verma Entrepreneur • Advisor
building an adaptive recommendation engine
No you don't.
You took minimal risks and don't seem to value the infrastructure around you which made it possible.
If your idea doesn't work, will you pay back your salary? Will you pay back the lost opportunity cost of the value the company would have derived from you and other people's time that were involved? (Much more than your salary).
If you do not take risks you do not deserve the rewards.That is just the way things are.
The right way to do it next time is to take the risk, quit your job and see if you can still develop partnerships in a way to create and share revenues.
Way harder than working on the project full time for six months without worrying about salary.
It would suck to have an employee like you.
Gabor Nagy
1
2
Gabor Nagy Entrepreneur
Founder / Chief architect at Skyline Robotics
If this new product is a significant part of the company's business, any reasonable president should be open to re-negotiating the equity share, especially if it's a small company.
Good talent is hard to find and those people have tons of options in today's market, so I wouldn't want to lose a good employee over this.

Steven Mason
4
3
Steven Mason Entrepreneur
Brand Strategist & Ideator; Patent Strategist; Patent Broker; Negotiation Expert
Nathan:

The situation you're in illustrates an essential point: never -- but never -- enter into an arrangement of the type you have until you have in advance worked out and agreed on the terms that will apply should certain outcomes be achieved. I'm not saying this to be captious, but because I see this time-and-time again. Agreements should anticipate all reasonable -- and even unreasonable -- outcomes; and then specify what will happen if and when those outcomes occur. This is how lawsuits are avoided!

Now, in your situation, this is somewhat complicated. The President approved it, but with what understanding, if any? Depending on the state you live in, you may otherwise have rights if it's unrelated to the company's business, but that depends on your employment agreement (yes, it's really worth reading this and negotiating them!). But as, Clive rightly points out, if you've done this on company time,then any rights you may have otherwise had likely revert to your employer unless you have an express exception codified in writing and signed by the relevant parties.

If your President has, as Clive says, an abundance mentality, then you may be able to clarify and codify additional benefits to yourself. But even if the President doesn't, that doesn't mean you have no possibilities here. For example: are your skills needed going forward and in a significant way? That's negotiating leverage. Will the project fall apart if you're not there? An abundance mentality isn't needed for you such leverage if you're a critical success factor. If that's not the case, then your leverage is weak. Renegotiating is muchharder than negotiating properly and fairly in the first place.

Last, you need to look at this objectively. Perhaps the deal you have now isfair. You did all the work, but how much work, how much brilliant ideation? You won't be selling it. Will you be marketing it? If you invent something and another company manufacturers, distributes, markets, and sells the product, then 5% isn't unreasonable. So perhaps your single-digit equity share is fair. Good negotiators are looking for something that is fair and equitable to both parties, that avoids litigation in the future. In some cases, a 1% share is fair; in others, it's 80%. It all depends. So before you even consider renegotiating, you need to determine if you've already been treated more than fairly, and if so, you should be ecstatic. If not, then you can apply some of the points I've made above. Good luck to you.
Frank Agliotti
1
0
Frank Agliotti Entrepreneur
Financial Advisor
Dear Nathan, don't despise small beginnings. As an employee and shareholder as revenue increases from the team within the company you collectively share in both the upside and downside. Allow your dividends to accumlate and when shares are made available position yourself to acquire. Take a long term view in accumulating wealth.

Kindest Regard,
5 Star Film Co.Ltd. *
0
1
5 Star Film Co.Ltd. * Entrepreneur
Agents for an Award Winning Television Channel Franchise
Best to seek professional consultation,its impossible for anyone who doesnt have all the project details,to make even a guesstimate.
There is a lot more to deal making that being offered or asking for equity.
Did You ask the President to draw up a Company special Resolution which names you the I.P legal Owner and publish the document? Handing of intellectual property to the Senior Management,without drafting exist clauses,and endemities is always a bad idea.
Daniel Marques
1
0
Daniel Marques Advisor
Director of Application Development at Pragma Securities LLC
Your company compensates you for the time you work for them, but it also compensates you for the value you add to them. Part of that value is bringing ideas to them.

Employees give ideas to their companies, rather than go off on their own, all the time. Once you gave that idea to them, it became the company's idea, and the fact that you came up with it is no longer relevant. The fact that you're the only employee working on it is entirely irrelevant.

The only thing that is relevant is if you believe you are under compensated, and if you can convince your boss of that. A strong argument might be based about the really good ideas you've given them, and the good ideas you'll presumably give them in the future.

Good luck!
Rob Gropper
1
0
Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
Take the long view. As has been said, your employer owns the IP. Your compensation is based on the value you bring to the company. Part of that value is the gray matter between your ears and how you leverage that to the benefit of your employer. You already have equity and thus as implementation of ideas such as your new idea add value to the company (with no risk to you), you are rewarded by the increasing value of your equity. employees that bring and share good ideas are typically rewarded with continued employment, promotions, bonuses, etc. Employees with the attitude that they should receive additional compensation for doing their job tend to not last long.
Mark Wing
0
0
Mark Wing Advisor
Client Engagement Director at Small Back Room
Thought you might find this interesting:

How 3M Gave Everyone Days Off and Created an Innovation Dynamo

Gabor Nagy
1
2
Gabor Nagy Entrepreneur
Founder / Chief architect at Skyline Robotics
Comments along the lines of "your employer owns the IP" are missing the point:
This makes assumptions about the exact position of the employee in question (his / her level in the hierarchy), his job description and pay level.

If you are the CTO, "reinventing the company" and creating market-disrupting breakthroughs is your job.
It is expected and your are properly compensated for it.

However, if you are a low-level engineer and your job is to refine the user interface of the company's app, that's all you get paid for, say 8 times less than the CTO.

If you then invent and build a completely new product that allows the company to break into a 5 billion dollar industry, you essentially did the CTO's job, for a low-level engineer's salary.

A company that doesn't recognize and reward that, is not a place where I'd want to work.
Most talented people will leave that company.
Word will get out and no one will go work for that company.

The "we own your brain, no matter what" corporate mentality kills innovation.
It encourages people to hold on to exceptional ideas and pursue them after they leave the company.
Either on their own, or at their next job, at a company that does reward going far above and beyond expectations.

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