Succeeding in Your Business by Cliff Ennico

"I have been out of work for the past six months, but have been in intensive discussions with a relatively new company that needs a chief executive officer. The company received its first round of venture capital financing last year and is getting ready to close on a second round. The compensation package isn't bad, but obviously, my goal will be to help them either go public or sell out to a bigger company within the next few years so that I can cash out big time. What are some of the things I should consider when negotiating with this company?"

First of all, congratulations! One of the surest paths to getting rich — in ANY economy — is to grab a top management slot at a fast-growing entrepreneurial company. Of course, there's no guarantee this company will go anywhere, but, hey, if the paychecks are clearing the bank ...

There are three things you need to know about a company that's backed by venture capitalists:

VCs are not long term-investors — they will want this company to either go public or sell out to a bigger company within the next two to five years maximum so that they can cash out their investment — don't count on this being a long-term commitment.

VCs will push you to grow the company as fast as possible in order to reach the above objectives — count on working seven-day weeks and no vacations for the next couple of years.

Many VCs are not very nice people to work for — they often are rude, demanding and require lots of very delicate handling and "people skills" on your part — there will be days and even weeks when you will feel like you're walking a tightrope over a vat of boiling oil trying to do your job and keep these people happy at the same time.

Because of the above, you will need to negotiate your employment terms with this company very carefully. Here are some tips to run by your attorney (yes, you definitely will need one for this):

1. Get It in Writing: Handshakes won't cut it here. You will need a written employment agreement with this company, approved by the board of directors. Three years is a standard term of employment for a new venture CEO, but I would ask for five years, along with an "automatic" renewal so they can't renegotiate your deal right before selling the company.

2. Make It a "No Cut" Contract: The company should not be able to fire you just because they find someone they like better.

3. Maximize Your Incentives: Don't be afraid to be aggressive here because this is how you will get rich. Consider asking for a bonus based on annual increases in revenue, profit or other performance targets (your accountant or lawyer can help you figure out what's fair), lots of stock options and incentive stock awards (make sure these fully "vest" when the company goes public or is sold).

4. Get a "Golden Parachute" and a "Change in Control" Agreement If Things Don't Work Out: If you are fired for any reason without "good cause," make sure you get at least two years' severance pay, continuation of health insurance and other benefits and full vesting of all outstanding stock options and other stock awards. Also, once the company is sold to a bigger company, they probably won't need you anymore. Be sure to include a clause giving you an extremely generous severance package if your employment is terminated within one year after a "change in control" of the company.

5. Get Paid If They Close the Deal After You Leave: You don't want them to fire you right before closing a deal to sell the company. If you leave the company (again, except for being terminated "for good cause"), and they go public or sell the company within the next year, make sure your agreement requires them to pay you all incentive compensation you would have received if you had been CEO of the company at that time.

6. Get a "No Jerkaround" Clause in Your Agreement: When companies want to get rid of you, they often don't fire you outright. Instead, they make your life so miserable, you end up quitting, which releases the company from its obligation to pay you severance. You should have the right to pull the plug AND get your "golden parachute" if the company "jerks you around" and treats you with less respect than a CEO deserves.

7. Watch Out for Flaming Noncompetes: Venture-backed companies are paranoid about senior executives leaving and going to work for a competitor. While you probably will have to sign a noncompete with this company, make it as narrow as possible, and make sure it doesn't apply if the company fires you without "good cause" or if you quit because the company is "jerking you around."

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com.

COPYRIGHT 2010 CLIFFORD R. ENNICO.

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