Hired, no paycheck

Entrepreneur trade in employees, who work for equity

Reynaldo Gill and Ken Crittendon, founders of a Fremont startup called Commendo Software, were in a common catch-22. They hoped to get venture capital funding. To attract that funding, they needed a team of experienced sales and finance executives. But since they didn't yet have funding, they had no money to hire those people.

Many startups founder find themselves at precisely that impasse. But Gill and Crittendon found an unusual solution. They contacted a boutique San Francisco search firm called PeopleConnect, that specializes in placing executives and tech professionals who are willing to work without pay until VC funding comes through. The firm found them a vice president of sales and director of finance who agreed to work for equity. PeopleConnect and its CEO, Max Shapiro, have carved out a small but unique niche in the recruiting world with what they call their "Employees Without Paychecks" program.

Even more notably, Shapiro developed this program as a response to the dot-com bust -- taking what could have been a lethal business slump and instead using it to create a new business model.  And in today’s difficult economic times, it’s still a great option.

"I have not heard of this in my 25 to 30 years in this industry," said Robert Zahra, chairman of the National Association of Executive Recruiters. "It sounds like they are on the cutting edge."

Angel employees

The basic concept of tech executives working for equity isn't new. For years, founders of startups have compensated themselves and a few key employees with stock options instead of cash. Recruiters have occasionally placed executives in such situations and taken their own payment in the form of stock.
But PeopleConnect is the first search firm to market a program of recruiting employees who will work for equity. "A friend of mine calls them 'angel employees,' " Shapiro said, comparing them to angel investors, who fund early-stage companies.

The concept has its roots in the collapse of the Internet bubble. A serial entrepreneur with an eclectic background, Shapiro ran baseball fantasy camps and started a high-profile business buying and selling used Levi's before launching PeopleConnect in 2000 at the height of the dot-com boom.

The company thrived for a year. Then the bubble burst, VC investment and tech hiring ground to a virtual halt, and PeopleConnect found itself struggling to survive. Many recruiters left the field. But Shapiro saw an opportunity: matchmaking for companies that needed employees but didn't have cash, and unemployed tech veterans who wanted to work and didn't need a paycheck right away. 

I saw early-stage companies presenting (to investors), and a lot of the time being told, 'If you had more people on your team, we'd invest,' " Shapiro said. "Meanwhile, there were people out there who loved the startup craze and would rather be employee No. 6 than 60. They're not necessarily wealthy people, but people with some money saved up or a working spouse."

Over the past six years, PeopleConnect has placed about 50 people willing to work for equity rather than pay. It also continues to provide conventional recruiting services.

(image source: images.askmen.com)