I was recently in New Orleans sitting by the pool at our villa when a coaching client sent me an email.
His question “I have an early-stage prospective client and they really want to work with me. Before any pricing, he said that they might pay part in cash, part in equity. Good? Bad? What else could I offer?”
The reality however is that very few companies that issue shares end up going public.
I’ve received this same question over the years from other consultants too.
I thought I’d take a few minutes right now and share how you can deal with this too.
Where’s the Value?
The first thing to recognize is that when a private company gives you shares they are essentially giving you a share of their business.
In almost all instances you’ll receive shares or a percentage of the company with non-voting rights. Which simply means that you can’t have a direct say or influence on the company, how they pay dividends, etc.
Essentially, your shares have no value to them at that time. They are a piece of paper and that’s really what they are worth.
If you believe that the company has exceptional growth prospects than those shares may end up having great value to them.
In order for this to happen you’d either have to find a buyer for those shares if the company is still private. Or, the more likely case, sell those shares once the company goes public.
The reality however is that very few companies that issue shares end up going public. I have share certificates from companies who gave me hundreds of thousands of shares. They told me they were going public. And because this happened many years ago before I knew better those shares ended up being worth nothing. The companies never went public.
But if you see a company that really does have that fast growth potential and you’re willing to wait a 1-5 years those shares could be worth a substantial sum.
My suggestion to my coaching client was to ensure that the cash amount they receive from the buyer is sufficient.
That he’d be happy with the cash payment regardless of what happens with the shares. Continue Reading