noun, company stock that is not liquid, that can’t be sold

There are lots of companies with great technology and no nickels just now.  Should you work for no cash and vapor paper, on-the-come, for an exciting company?

Just as we have “vaporware” – software that isn’t really there, we have “vapor paper” – stock and stock options which cannot be sold, from companies that are so early stage that there is no liquidity event available in the foreseeable future.

Folks will do great damage to themselves and each other in deals over vapor paper, even when it means nothing, when there is no notion this company will ever go anywhere, when its value is a dream in some entrepreneur’s eye.   

I’m a cash girl myself.  I like to know it is in the bank and under the mattress.  Yes, I take a certain percentage in stock or stock options of companies I work with, and it is in addition to my cash fees.  And, as much as I believe in the company and its founders (my clients) and as much as I give my absolutely best efforts for the venture, I do not count vapor paper as money before it is liquid.  You shouldn’t either.

Now, my approach isn’t always the right approach, but it is right a lot of the time.  Always the question is, is it this time?

Some folks will discount their fees or salaries, perhaps up to one-third or one-half, in exchange for stock or options.  Some will work for stock only.  One consultant I know has a sophisticated way of deferring part of his fees for 12 months, with interest, with a stock options kicker based on when the deferral (debt) is repaid. He is very selective about which clients are offered such a deal. Notice he gets 66% of his fees in cash.

A close friend and I were both invited to participate in an early Internet startup – for stock and no cash.  I said no.  He said yes.  He is cleverer than I, because 5 months later he negotiated a retainer in addition, and consulted to the company for several years.  That company was offered $584M to sell to a larger company.  Payoff time!  Wait. No.  The CEO turned it down, heading for an IPO.  It was the heady times that got him, I bet.  In the end?  Nothing.  Zero.  Stock worthless.  But a good e-ticket ride.  You’ve got to keep a sense of humor in this business.

A client of mine, a young fellow (back then) just arrived into Silicon Valley with his newly minted Ivy League MBA, did a stint at a Famous Company for a couple of years, early-1990s, getting the feel of things out on the Left Coast.  Then he left the Famous Company to work for a startup. He was now a 26-year-old VP at a no-name company with no salary and a lot of vapor paper.  He was bright and energetic and eager and fearless.  It is maybe 1995 or 1996.

Our friend the consultant who would sometimes exchange partial fees for stock, was offered the same deal — no cash/stock only — for a long term consulting gig.  “Naww,” he said, “… not without some fees.  I’ll discount the fees, and then I’ll take stock for the discount.”  And No Name Startup said, “Nope, it’s gotta be our deal, give it to us for nothing, for the start up stock, or we can’t play.”  He passed.

And don’t you know, No Name became Yahoo.

So, you can play and lose, or you can play and win, or you can play and almost win and then lose, or you can not play and see how it turns out.  A lot of it has to do with “lost opportunity costs” – that is, what does it cost you in real business or real career advancement to spend your time with a risky opportunity?   Remember, there is no two-year flip – these commitments take years of your life.  The near-misses and big wins are fun stories, but you must make a fast decision in real time in precise economic conditions.  You pays your money and you takes your pick, as they say.