like many others I was just starting out working in Tech I thought the only people that made money were Founders or CEOs or somebody who worked for early stage startup but I ultimately learned that I was wrong I saw so many people in my network that were doing very well for themselves working for these different types of companies and so I had to know how and this is where the mindset shift thinking like an investor with your time and talent is so important because this is an investment meaning that there are fundamental rules there are people at the negotiating table and they have different interests and wants if you understand the rules and you understand how to play the game then of course you're going to be able to win this is when things got really [Music] exciting hello and welcome to this episode of tech equity and money talk my name is Christopher Nelson I am your host and today we're going to dig into the fundamentals of trading your time and talent for Equity right this thing that we do going to work for Equity is what many people call it but I want to break down the fundamentals of what this exchange of time and talent for Equity really looks like a lot of people are frustrated and they believe that the game is rigged they want to win they want to be able to get high value liquid Equity but unfortunately because this isn't taught in school because there's not a lot of fundamentals out there people don't know where to get educated so that's what I'm going to break down with you today and we're going to start at high level fundamentals that anybody who is thinking about going to work for Tech Equity can understand but this is also for people that have been doing this for a while I know there's plenty of professionals out there mid-career Executives that actually are holding equity and and maybe even large amounts seven multiple seven figures but they're trying to understand okay where do they go next what is their next transition and how do they repeat what they maybe accidentally fell into the first time so let's break down the fundamentals how does somebody transition from a paycheck mindset into understanding how to trade your time and talent for Equity well you start with the fundamentals of how do we build wealth the majority of wealth is built by owning high value assets and in this case what we're talking about is owning portions of technology companies technology companies in the last 30 40 years have built a phenomenal reputation of being able to grow rapidly uh create value for customers and then also increase the value of their share price whether that's publicly or privately owned to be able to increase wealth very rapidly it's also not tied to your time right when you own an asset it can grow in value and it's not dependent on the amount of hours that you work so let's start with the fundamental principle that owning pieces of these companies is able to increase your net worth very quickly and what we usually talk about is owning shares so you're owning portions of those companies and so Robert Kaki talked about this in in his seminal book Rich Dad Poor Dad he drew out this cash flow quadrant and he talked about the fact that if you are a business owner if you build equity meaning there's nothing and you start you come up with a concept you get some investment you get some developers together you start building right the startup story you can build value that will then scale beyond the amount of time that you put into it you're bringing other people to work for you that will scale and generate wealth so building Equity is one of his primary ways that he talks about Building Wealth the other one is buying Equity is when you get to a point where you make you know enough money that you start investing you're you're then going and you can buy Equity shares both of those are very viable ways to build wealth the second one you think about buying Equity many people trade shares and it's easy to get into the stock market and be able to buy shares of Apple alphabet Microsoft you name it you can buy shares of those companies that can increase in value and you can get involved uh you know with not a lot of money the challenge with building Equity is that it takes a lot of time and a lot of risk because you're starting in an area where there's not you know may not be any type of um Foundation you're spending a lot of time and and people put a lot into that we know the early stage startup story the other way to make money is is buying Equity however then you're constrained by how much money you have to buy equity and you always want more to be able to create a diversified portfolio that one day can be your business that can support you and your family so there's a third way there is a third way that is not always talked about and this is the one that we're going to Deep dive into today which is trading your time and talent tent for equity and this is a way that has been happening for years and years starting back in around the 50s going to dig into that in a second but when you trade your time and talent for Equity it is a trade you have time you have a skill the technology companies want you give that to them for a certain period of time in exchange you get Equity that's the highest level of what we're talking about here today and you may be saying well can people really make money trading for Equity I'm here to tell you yes this is how I was able to build my personal wealth and got it to multiple seven figures by selecting companies that were 12 to 24 months from an IPO and I was right three out of four times that's what worked for me but myself aside you can look out there you can look out in industry and you can see that there are some Traders people that trade for Equity that have done incredibly well and you know many of them Tim Cook Apple CEO never been a Founder he started working early in his career for apple and became an executive developed valuable skills was able to take over for Steve Jobs worth 2.13 billion do because of his skill same thing with SAA nadela again came in early and in but you know as a public company not early when it was private but as a public company 970 million Sundar pichai uh you know CEO at alphabet 600 million then you have Frank slutman who has been a a Serial CEO for multiple companies the ones of note service now and snowflake in which he owns 4% of snowflake and his skill was helping as a CEO helping companies go public in scale it's what he's known for wrote a book about and 2.6 billion he actually has a greater net worth than Tim Cook from from the skills that he was able to flex and then I know Godfrey Sullivan who uh helped hyperion to an acquisition to public you know 495 million all the names on that list are people that weren't Founders I'm sure they're buying Equity now but when they started their careers they were trading their skill to be able to build wealth and essentially what I've done is I study these gentlemen their traits and other women and and people in industry and and really wanted to understand what is this framework that we're operating under that allows us to trade our time and talent for equity and how do I understand the rules so now that you understand the framework that we're looking at this third type of building equity which is trading your time and talent for it let's go a little bit into the history and then let's start really understanding what are the fundamental rules of this game so early on in the 1950s there were uh it was actually chip companies in California were offering scientists and and people starting to work in technology on the East Coast they were offering them Equity to move to California to move to the Silicon Valley because they wanted to not just entice them with money but they knew that if they could make them a part of this company in a part of the future that then they were going to be able to attract and retain great talent and this is essentially the the premise that has been going on to this day is that technology companies know that to be competitive to they have a framework where they are solving very difficult problems in high-speed environments there's a lot of pressure from customers to produce very high quality products they need to attract and retain the best talent so this is the fundamental of this exchange is technology companies want to attract and retain the best talent so let's remember that so the key thing to understand is this is a trade it's not a you know when you build you're able to build something what ever you want out of your own imagination you want to obviously look for a product Market fit but I've I've definitely been uh sent some ideas that somebody's building something they want and it may have nothing tied to reality in buying stocks right there's a buyer and a seller so the seller needs to display value and then the buyer is going to figure out what's the market price for that and they're going to pay a currency whether that's US Dollars euros British pounds you name it a trade occurs when there's a transfer of assets between two parties and it happens when both parties have something of value that the other desires and this is so important to understand and this is where I think people miss and and this is where they struggle is because they don't understand this concept and really dig into to what they're looking to position themselves as is something that is to be desired by the other party and then also to look and understand what do they really want and what is high value that they want to be acquiring so when you think like an investor and this is what I educate people on all the time is that to be successful in this you have to think like an investor this is a business negotiation and you are investing your time time is your most precious resource so when you prepare to sit down at the negotiating table and you're studying this and you realize okay this is a trade and I'm trying to position my value and I'm trying to understand what I want what's the value on the other side you want to understand what are the players who who are the participants in this negotiation and what do they want so the tech company as I've mentioned earlier the tech companies want the best people they want highly skilled individuals where they can invest in invest dollars in invest Equity into that they know will drive Innovation and growth and help them meet their goals that is the desire of the company that has the equity that's their fundamental need if they do not have great employees to drive Innovation then they're they're ultimately not going to be able to grow in this highly competitive environment and technology is definitely a scale or die environment their desired outcome is that they are able to bring in these highly talented employees and retain them for long periods of time achieving multiple goals quarter over quarter year over-year and to do this they are going to provide them with salary possibly bonus equity and benefits so this is when the trade this is what the technology company this is what they're thinking through is they're looking across the table is this a highly skilled employee that's going to help me achieve our goals and can I retain them for a long long period of time and ultimately I'm going to be able to bring to the table I the tech company will be able to bring to the table the salary the bonus the equity and the benefits that's the technology company side of the table so what does the technology employee want well I'll tell you for myself I'll tell you my perspective and I know other people that are doing this successfully is when they sit at the other side of the table I am looking for the maximum value of my time and my talent and I want that compensated with salary bonus and Equity while and this is an and and getting exposure to new projects being able to deliver results and being able to you know potentially get exposed to new technology as well why is that because if I just do the same thing I'm known for and I don't get a chance to grow that then my value as an asset stays static so I want to make sure that I'm getting the maximum compensation I can for right now and the opportunity to grow it's an and statement My outcome is to be a part of a company that is growing is highly valued and the stock is liquid growing highly valued in the stock is liquid what do I have to trade I have to trade is I have proven talents I have skills that I'm able to articulate in the form of results and I can sit there on the other side of the negotiating table I can articulate that I can give references that can validate that and I can describe to them the ways that I am going to use that to help that their company reach their goals that is my role now where do I see people falling short here is many people get don't understand these two roles they don't sit down and dissect how this trade works so they can understand how to negotiate and to position themselves well in this negotiation number one if the company that I am interviewing for if I'm not able to understand when their stock is going to get liquid that decreases its value for me regardless of what they say for me for myself because I know the value is in the liquidity one of my strategies was to position my career in business applications with a specialization in helping companies go through socks audit socks audit is a requirement when you go public so I wanted to position myself to be open for roles for companies that were 12 to 24 months from IPO and if there wasn't that clear line of sight then I knew it wasn't a right fit for me because I was willing to take the risk with one to two years of my time as long as I was able to see that we were going to get to liquidity that was my risk measurement I did not want to go earlier than that because I didn't want the risk I see many people being very successful in going to work for public companies executing this negotiating negotiation very well showing companies where they can deliver Great Value have a breadth of experience and they're negotiating for Equity that's already liquid that they're going to you know potentially get a larger percentage of their salary match their salary or get multiples of their salary every single year those are the people that are negotiating to build wealth the companies on the other hand and this is where I believe that a lot of companies who are just positioning equity and increase the volume they are able to get in people's heads and they see oh I have this percentage of the company or I have a large portion of equity but there's no conversation around the liquidity event or how they're going to get to liquidity event and this is It's a miscon conversation because in this negotiation you don't want to overvalue something that there's not Clarity or an understanding of getting to that liquidity because liquidity is then the key to unlocking your personal wealth don't forget that so now that we understand the players we understand here is the technology company the technology company wants to attract retain employees they have the equity they have the salary and they're they have these shares right they want to be able to position themselves as a company that's growing and line of sight to liquidity on the other side you have the technology employee that wants to position themsel as this you know predictable asset that can come and bring value that wants the ability to work on very impactful projects for the company and the desired outcome is to be able to get a large portion of equity that is growing in value and that is liquid so let's talk about the negotiating table so now you understand the players when they sit down and they're going to have a negotiation and this is this is how it works is there's there's four four phases and this is important to understand how this all works because don't waste your time having you know conversations that you you don't understand your intention I do know many people that have a lot of conversations because they want to ensure that they are uh brushing up on their interviewing skills and they want to just uh make sure that they're out there in the market I'm saying you're going down and having really intense conversations and negotiations when you don't know that um or when you know that this isn't a company that you want to work for I you just want to be careful around that so what are the four faces of negotiation number one is there's displaying common interest so this is truly the phase one when you identify a company that you think has the potential to meet your criteria and again I'm I'm going to be doing another episode I've done one before I'll link to it in the show notes that I talk about risk but this is where you want to be targeting companies that are aligned with your personal financial goals that you want to work for that are going to then be in this risk level so you know maybe you want high risk and you want to go early stage maybe you want low risk and you want just public companies but you want to get clear on that and then as you're looking for companies they're going to then see your resume or somebody is going to recommend you as a potential candidate for a role and you're going to have this common interest then the next phase I I like to describe it as the presentation where then you get on the phone and you get the opportunity to listen and understand this is usually going to be a firstline recruiter where they're going to be describing to you the company what's happening in the company and you get to articulate who you are what's your what are the results that you've delivered before what you see that you could bring forward to this company and why you're interested in this role this is the the presentation and you want to make sure that in that moment that you are focused on positioning positioning means that you are understanding the role and where they want the role to contribute in their organization and you're talking about similar contributions that you've made before you're able to map to some of the things that they're interested in that role so that then during this presentation the goal is that you want to be able to then go to the next level because in in presentation this is truly the interviewing process right when you're going from interview to interview everybody is presenting everybody is positioning and during this phase you need to be clear on what you are looking for in the equity of the other company you have to have a clear idea this is where I see people slip and fall because they're focused on presenting themselves and so they they think that they need to sell themselves to get this offer at all cost at the same time they lose sight of the fact that they need to be getting details on you know H what is what is the product's role in the marketplace right I mean is is it a a leading product is a a new product that is just breaking into the market what's its different differentiation you know what's happening with customers how do customers perceive the product What's the culture of the company who are the leaders a lot of these things and then getting to um you know once you get to presentation when you get to negotiation which is the next phase that's where you want to really start talking about okay what is the plan for liquidity in presentation though it is important that you are understanding the value that they're bringing to you as much as you're bringing to them and this is why I tell technology employees you are the asset you have a lot of value so you need to make sure that on the other side of this Exchange because that's what it is and remember you're looking for Mutual value exchange that you're getting the value that meets the quality of your asset so we've had display common interest then we're at the presentation the interview process then you get to the negotiation so this is where you actually get to In conrete terms the negotiation starts when you receive the offer letter and the offer letter is then going to have described out the details of the salary the bonus and what your Equity is going to be and how you're going to get it so you have the negotiation phase and in the negotiation phase there's also going to be the vesting schedule and this is so important and something that people need to consider is in the investing schedule that is how much Equity you're going to receive for how much time given and this is becoming a very nuanced and new place where people are able to negotiate this year I heard for the first time about a frontloading vesting schedule meaning the standard one is four years where you get 25% for year and there's a one-year Cliff meaning you work for a year with no equity then you get 25% on your Year date then after that it's going to vest monthly or quarterly and you get a portion based on how long um you continue to work there now I've seen this year a 50% in year one 30% in year two 20% in year three why is this to attract and retain the best talent so this is where this is key for negotiation but you in the negotiation phase that's where you want to sit down and you want to really be able to articulate your market value you're you're doing your own analysis and understanding where they're marking you to Market where you've been marked before and having a conversation around the salary the bonus and the equity of where you ultimately need to agree to get this deal done and I just I want to wrap up these four phases because I want to talk through some strategies and then I also want to just continue to drain this process but this negotiation process goes through display common interest presentation you get to the negotiation and then you get to the final agreement and in the final agreement this is where documents are signed right this is a negotiation where you have the tech company you have the tech employee sitting at the negotiating table and they go through this negotiation process and then ultimately they agree upon the offer letter where the offer letter is going to have what is your salary your bonus and your Equity described there the equity needs to also adhere to a stock agreement you're going to have those and then you're also going to have the vesting schedule that is described now it can I've seen it the vesting schedule described in a stock agreement I've seen it described in an offer letter but those are the output of this negotiation those are the contracts that are then signed and so knowing this so now that we walked through this whole procedure it's important to understand that you have leverage and how to really think about where you need to position yourself and where do you have the ability to negotiate so let's think through some some success strategies so preparation is key preparation in understanding and knowing who you are your experience and your market value is critical to getting into a solid negotiation where you're ultimately going to get the package that you want part of that preparation is understanding this process right understand ing that you're going to have an opportunity when you're in this presentation phase it isn't just you presenting to them they need to present to you you need to find something that is of the right value that you want to invest your time in to be able to meet your financial goals so preparation is key performing your due diligence meaning that you want to be in these conversations during the presentation and asking a lot of questions and understanding if this is the right value for you I have helped a number of people recently with a compensation analysis that I call should I stay or should I go and for some people that are at that point in their career where they've been working for public technology companies and they want to go to work for private technology companies they want to go through an IPO it's important to compare what they have on the table right now and what's right in front of them versus what is being proposed by these other technology companies I know in this particular scenario we went and did a you know forward-looking three-year analysis of the current comp package at the public technology company and then we looked through the private technology company that was there it was a a role with with more responsibility so there was a higher salary and then there was stock that was based on a we may go public in three years and so when you look at that up you look at realized gain just like you do in the stock market like what's realized what's cash you can take off the table versus what's an unrealized gain and I know I'm I'm sort of using those terms a little Loosely here but ultimately when in in two out of three of these conversations people selected to say the public technology company because they had line of sight to an additional seven seven plus figures and to meet their financial goals it was just easier to stay where they were not to take the promotion right now and to just keep harvesting the equity that they have that's thinking like an investor with your time and talent and that is doing due diligence on these potential types of moves and you know in in two of those situations I mean they were getting the volume of shares they were getting were very high but it didn't meet their criteria from a risk perspective they wanted to make sure that they could take some dollars off the table that were liquid today to be able to put aside into a diversified portfolio for their family so that they can be accelerating their financial Independence that's when you think like an investor this this is when this becomes a strategy it's not a game because you're thinking about the fundamental rules on the table and part of those rules are when you're an investor you're going to look through a lot of opportunities that don't fit your criteria to find the one that does you're also going to be more conservative sometimes meaning you're going to go for the bird in the hand and not the two in the bush because you know that you can take those dollars off the table a lot of people are not thinking like that but this is where they're now becoming aware of how to how to really execute some of these strategies the third strategy is really understanding your Leverage is understanding that there still is a war on Talent finding great talent that can execute at a high level leadership skills are very very sought sought after here in the tech industry so you do have some leverage and it's important that you understand that and you're able to bring that to the table now on the other side of the table let's look at the company like what what is their Leverage What do they bring to the table well if they're if they're able to understand you and your needs and what's important to you and they can get clear if it's a private company and they understand you're seeing a lot of risk they can bring more cash to the table they can you ensure that you're getting the cash that you need they can have you know I think some companies are doing a great job I think of stripe in particular where it's making sure that it stayed private very long but it's bringing secondary Market liquidity to its employees to make sure that they can start getting liquid and it's not just the founders but they can then retain those people I was hearing that you know figma I don't I don't know what the result is I'll have to look that up at figma after they were not able to merge with Adobe uh earlier they then had to go back and look at you know tender offer secondary Market liquidity what were ways that they were going to take care of their employees and that's so important to understand that the technology companies understand this that they need to take care of their employees with Equity to be competitive in this broader Market this Market is isn't going away the market is growing more and more technology companies are being formed every single day the people are working for Equity so this is your opportunity to understand this framework from the ground up as this trade in this exchange and understand what your value is and what your Leverage is here and so I do want to take a moment and I do want to talk about let's talk about those contract again you have the offer letter so that is going to outline your salary and your bonus your benefits and possibly the the vesting schedule could be called out there especially if it's amended um or you look at your stock agreement and the stock agreement is really really important because in your stock agreement it's important that you make sure that you're looking at what happens to those shares on if the company is sold if an acquisition comes through what happens on those transitions understanding what are your voting rights understanding what are your trading rights as you are in this negotiation you want to really understand this process and in these agreements because this is a valid way to work for Equity going back to the beginning of this conversation you can now understand that all of this process that I'm calling out for you when you think about the Frank slutman the Tim Cooks the SAA nelas all of these people have had these conversations right when they're getting new promotions they're sitting down and they're negotiating this I remember in a conversation in listening in I was listening in on a Q&A with godre Sullivan at one point and he talked about as offers were coming to him he has teams you know a team not teams but a team multiple people that he then relies on to help him do diligence of companies that he wants to invest his time in he was referring to now as board members where this is where you know CEOs when they're no longer active CEOs they sit on Boards of other companies and they usually get the major they usually get all stock compensation but that's part of the vetting process is bringing in people to look at the underlying fundamentals of the company because the goal isn't to just throw away their time the people that do this very very well get very very picky and they just want to work at the best companies they just want to trade their time and talent for the companies that they know are going to have the most potential upside and they're looking to get Equity shares in exchange for that talent and the truth is is this can play down on many different levels this can play down even at an entry level I saw it Splunk I saw fresh out a college candidates starting getting RSU packages as the company grew that you know they started when they were 23 by the time they left when they were 27 or 28 some of these packages were high six low seven figures and so the point I'm trying to make is when you think about this strategically and when you break down the framework of this exchange and you understand your role you understand the company's role you understand everybody outcome that they want at the table what they have to bring to the table and The Leverage you can negotiate to win you can negotiate to win at whatever level you decide to participate Equity is a significant way to build wealth yesterday today and tomorrow my encouragement for you is that you understand this get grounded in it and leverage this to build wealth for you for your family and to be able to accelerate your journey to financial Independence so that you can live a life with impact It's My Hope for you my name is Christopher Nelson thank thank you so much for joining us today see you next time