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Presented by Robert Coleman President, Pacific Venture Club

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1 Presented by Robert Coleman President, Pacific Venture Club

2 I am not a lawyer or CPA- this is NOT legal or tax advice! This is a strategic guide. The goal is to stretch your cash while hiring quality employees If you are an employee (or want to be) you can offer to negotiate on these terms

3 Some form of ownership Future income for work today Goods and services at a discount Intangible benefits

4 Generally speaking, if you give somebody something of value TODAY you create a legal or tax consequence for your company or your employee Also generally speaking, if you give somebody something that is not valuable today but will be at a later time you postpone the legal and tax consequences. Did I mention that I am not a lawyer or CPA?

5 Is your company charismatic? Is it likely to generate significant future value? Is it likely to generate significant future income? Is it likely to be acquired for a high return? Do your employees consider your company valuable beyond the Founders’ expertise? Do you have an inside track on low-cost goods and services?

6 Charismatic companies that generate future value or might be acquired for a high return lean towards compensating employees with some form of equity such as stock options, or warrants This is particularly the case when the company does not rely on the Founders’ expertise.

7 Companies that will likely generate substantial future cash and income lean towards compensating employees with bonuses, profit- sharing, and debt instruments.

8 Companies that have access to goods and services for a lower cost than employees can obtain them individually can compensate with these goods and services This includes healthcare, retirement plans, company cars, and other valuables. In the Dot Com days it even included massage therapists, childcare, and company gyms!

9 Founder’s equity Stock options and warrants Phantom stock (Not really!)

10 Are you really willing to have your employees as your partners? If you hand out stock today, your recipients will have a potentially taxable event The window of company formation is a great time to offer stock with fewer tax consequences

11 Options typical for employees, warrants for consultants and outsiders Vest over time or defer the acquisition of stock Allows the company to increase in value while also ensuring employees earn ownership Postpones tax consequences (not always a good thing)

12 Boo!

13 Commissions Bonuses Notes Debts and obligations Profit-sharing Check your CA employee regulations

14 Healthcare Company car Retirement plans Debts and obligations Ability to work from home Work environment and atmosphere

15 How much saved on healthcare? Equivalent compensation for car and other allowances? Savings in childcare, etc.

16 Cash is not always the motivating force Ownership and participation can change attitudes Intangibles matter more than you think

17 Robert Coleman President Pacific Venture Club


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