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Joining A Startup? Do This - Before It's Too Late

Ask before you leap.
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Before joining a founding team, ask yourself: are you a co-founder? And if so, do you have the same terms as other members of the founding team? This may seem obvious to the entrepreneur, but if you jump into the entrepreneurial whirlwind as employee number two or three, you may not realize your importance.

What is your risk, and what is your reward?

If you are going to quit a position with a guaranteed salary and benefits to join the crazy roller coaster of start-up life, you need to be very clear on the tradeoffs. What are you getting in return for heading into the unknown?

A friend was about to join a cosmetics company as head of marketing. She was the first non-founder employee. She was willing to take on an enormous workload equivalent to that of two full time jobs. Her pay? The equivalent of one part-time minimum wage employee. And what else would she get? Well, no ownership, no benefits, no guarantees of a raise and no equity in the company. This plan was crazy.

Although she'll be living on ramen noodles and Red Bull with the rest of this tiny team, she has taken all of the risk with none of the potential for reward. She is, in effect, a highly skilled paid intern.

Ask yourself, "Does this include ownership in the company's potential success?" Are you simply trading in your job and income security for a huge question mark? Are you pondering these famous last words: "I'll ask for it later?" Or,"They will take care of me, I just know it."

Every team has a captain

Ownership is one thing, and job security is quite another. Don't think that just because you're on the founding team, you're immune. Once startups take funding, founders are let go all the time. You might have been the one to raise this idea from its infancy, but just because you took your baby from point A to point B doesn't mean they'll keep you in charge from B to C.

This is true even among friends. One friend of mine, we'll call him Dean, once founded a company with a good pal, Andrew. The two young entrepreneurs met here in NYC, became fast friends, and went on to start a company together with venture capital backing. Andrew was the CEO. Dean was the co-founder. Andrew drew up the initial contract. Dean signed it. Well, that contract let Andrew do pretty much everything, including fire Dean. Which Andrew soon did.

Andrew gave Dean a nice story about needing to free up the cash flow to fund other salaries, akin to how one might amputate one limb for the good of the whole body. But no matter how you gift wrap it, Dean was a co-founder--who got fired. Not by the board, but by his fellow co-founder and friend.

Dean didn't even realize that this could happen. His explanation is that he was twenty-three and very green at the time. I'm sure that was true, but if you're old enough to start a company then you're old enough to get legal help with your contract. And yes, you're old enough to get fired.

The moral here: don't forgo legal help. Too many entrepreneurs think that they'll save money upfront by skipping lawyers' fees, but this is not the time to DIY. You might well end up paying those fees after the fact, many times over.

As a starting point, many universities have legal information and resources for entrepreneurs, from the University of Maryland to Harvard. The Small Business Administration provides guides to all kinds of legal topics affecting business owners as well as links to further resources.

What's your favorite C.Y.A. resource? Feel free to leave it in the comments below.

Last updated: Aug 28, 2014

ELLE KAPLAN | Columnist | CEO, Lexion Capital Management

A finance expert and self-made entrepreneur, Elle Kaplan is the CEO and founding partner of Lexion Capital Management, the only 100 percent woman-owned asset management firm in the U.S.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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