This is a very difficult sell at most startups, particularly those who have done A rounds, as it requires legal maneuvering in most cases.

If you want startup stock, I'd think "Charge biggest/most sophisticated companies a LOT of money, reinvest a portion into angel rounds." This does mean that you'll have stock from companies you didn't work for.

Note that angel investing is, for most angel investors, a fun way to lose money. (I have three small angel investments.)

An angel who invests $50k into a startup at a $5 million valuation gets a MUCH better deal than an employee who is offered 1% of the company, by the way. Ask me why if this isn't immediately obvious to you.

Not a bad idea about charging more and then just angel investing. Although then you have to be a competitive angel investor in order to get into the best deals, essentially taking on a new angel investor job in addition to consulting.

Have you successfully got stock as part of your consulting compensation and if so, why do you think you succeeded even though it's a really tough sell?

For the $50k angel investment, I'm guessing that you mean because its preferred stock with no vesting?

Never asked for stock from clients; very happy with that decision.

I wrote up the reasons for angel stock being better than employee stock on Twitter and, as I am on a phone right now, cannot conveniently paste it. Can someone please link that conversation here?

Here it is: https://twitter.com/patio11/status/660953729940635648

According to http://www.kalzumeus.com/2015/05/01/talking-about-money/ you are asking for ~$30k/week when consulting. I just read some of your year-in-briefs, and it seems like the most you ever made consulting was $150k in 2012. Is that correct? How much income are you making per year consulting? Because I'd want to make much more than $150k in order for it to be worth it.

The numbers I'm going through right now show that, even if I can make a lot of income consulting, if I just join the right startup I could earn stock options worth effectively more than I'd ever be able to make consulting (assuming I don't get stock consulting).

Most people who make more than 150k annually consulting do it by managing a team of consultants. An important reason we're always telling people to raise their rates is that --- unless your rates are way too low --- a sole practitioner can almost never extrapolate their rate to figure out what their annual take-home will be.

I'm not so sure. Not this guy anyway. Our partnership makes quite a bit more than that, and its just us chickens doing the work. And we stay as busy as we care to. Caveat: we each have decades of expertise in our field.

Well, let's just say that I speak for my own 10+ years co-running Matasano, plus Patrick (my current cofounder), plus everyone I know personally who has run a contracting firm, including a few besides Patrick that also had nosebleed rates.

Generally, unless you have a team, if you're finding that you can multiply your hourly rate by 2000 and get within shouting distance of your annual gross, that means you're not charging enough.

There are a lot of good things that come from jacking your rates up, beyond just being able to make the same amount of money while doing far less work.

I must be running a public service then. We find it easy to stay 100% busy, and 2000 X rate is well north of the number this thread started with. No need to up the rate; maybe the market would support it. Working less sounds attractive though!

If you back out your hourly rate, is it within $100 of an effective hourly rate you think you could get (maybe with some hustling) as a full time engineer somewhere?

Sadly, no, I could never earn like this as an employee.

Nice. If you're billing over $2k/day, I don't get to be patronizing to you.

A pretty common strategy is to dial your rate to a point where you're consistently between 70-80% utilized, and to raise your rates some % for all new clients annually.

At a consultancy with a team of people, a utilization rate over 85% might be considered overheated, risking burning people out.

(Though if you're running a body shop you don't care about overheating).

If it was just me and a partner consulting, I'd use rates to dial utilization back to 50%.

perhaps that's a reasonable analysis, but you are working from the assumption that you're able to "just join the right startup". i doubt that it is realistic to think that you have much control over it turning out to be "right" or not.

if you are able to earn $150k / year from consulting in a relatively small fraction of your time (incl. the overhead of networking, etc), that frees you up to use the remainder of your time on other activities, perhaps profitable or something else you value.

some ideas: start your own startup, start your own small business, focus your energy on building a diversified investment portfolio, buy and renovate a house to sell, plan and run a series of workshops, start your own hobby farm, spend more time with people whose company you enjoy.

First example: vesting. The thing represented to the employee as "ownership" is actually "ownership contingent on you being here in 4 years"

You don't. Employee options vest; there's no such thing as contractor vesting.

There is a sense in which stock compensation to a contractor is equivalent to raising cash from an investor and exchanging that cash with a contractor for services. During the first dot-com bubble, equipment vendors famously did that with startups; it allowed those vendors to book totally unrealistic sales which juiced their numbers even though they'd never see a return on the stock. It was, in effect, channel stuffing.

Today, though, a company that is willing to, in effect, raise an ad-hoc random funding round in order to get a contractor programming job done is a company whose stock is not going to be worth anything.

I've negotiated stock as part of a contracting deal (in exchange for reduced rack rate). I'm not sure why 'there's no such thing'?

Is that stock liquid now?

There are a lot of people who will trade you stock for things. I'm certainly not saying nobody will offer you stock!

Then you've lost me. I consult; I have option; they vest. It's the same stock that employees would have been vesting.

Liquid meaning, has the company sold or gone public, or is there some internal market available today that will put a cash value on them?

When did this equity compensation deal start? The most important feature of employee options vesting is the cliff; your deal was something like "if I'm still consulting for you 12 months from the start of our first statement of work, I get 1/4 of the promised options"?

How does tax treatment of those options work? Most of the reason that employees are put into a crunch period after they leave where they have to spend real money on shares is that US tax law requires employee options to expire within some number of days after the employee relationship terminates. But you're not an employee at all; how can you have employee stock options?

Ok that's the critical difference - I have warrants. Due to all the reasons you mention. They vest; they have a cliff; they expire 2 years after severing our relationship (which has never happened).

And what startup has liquid stock? I'd love to work there.

I think I'm being too elliptical. I'll be blunt: my prediction is that the overwhelming majority of startups that are willing to offer equity in exchange for contracting work are going to fail, and fail at a higher rate than other startups.

A willingness to pay in equity for consulting would to me be a red flag that the startup I was talking to was poorly managed.

I'm guilty too. To be clear: this startup tried to recruit me as CTO; I insisted on remaining in my partnership. They wanted very much to keep me invested in their idea, and warrants etc were a way of doing that. So not the usual kettle of fish.

Further I too would never consider stock instead of pay for any consulting activity. That's a loser move.

You may ask and decision makers quite often will be happy to grant you N worthless stock options for reduction of your today cash rate.

You may ask for an actual stock but it still won't be a fully vested grant but some conditional trickery promise.

I'd rather take maximum cash squeeze and re-invested [part of] it into some more dependable.

Personally I wouldn't put a lot of effort into getting stock as a contractor/consultant. The chances of being "handsomely rewarded" in terms of future fortunes are very slim and far between. By the time you throw in the cost to exercise and the tax obligations, it may not be as much of a reward as you think.

With that said, you may be able to negotiate to reduce your hourly rate in exchange for earning a equity position. You could also work out a convertible debt type arrangement. But again, I would walk cautiously here. Having $100 today can be worth a lot more than the gamble on possibly having $1000 five years from today. Just because a company is offering employees stock does not mean that the stock will be worth anything or that the employees will be rewarded on an exit.

You may be able to negotiate to be paid in stock versus $$$. Very early stage startups that have not raised a round of funding might go for that deal.

I am working on a startup that is currently bootstrap and am very open to getting work done for shares vs salaries.