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Taking Stock

Should you offer employees stock in your startup? Here's how to weigh your options.

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This story appears in the February 2007 issue of Start Up.

Question: I've got a great idea for an internet software company but don't have the money to pay a developer, and I've been told I need a prototype before I can raise venture capital. Assuming I can convince a developer to work for stock instead of cash, what are the pros and cons of giving an employee a piece of the action?

Answer: Apart from letting you build your company on a shoestring, giving away stock options, warrants or restricted stock grants to key employees aligns their interests with yours and gives them an upside in the sale or IPO of your company. Depending on how the deal is structured, however, your employees may also get the right to weigh in on management decisions and share in profits--rights you may not want to give them.

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