As a senior agency recruiter, your employer may offer you the chance to participate in an equity program, putting you on track to cash in if the business is sold to an investor or new owner.
If it works out, it could be the biggest pay-day of your career.
But not all equity plans are equal, and some can tie you in to a long road to nowhere, accompanied by heavy restrictions and an opportunity cost of creating wealth elsewhere.
Is the big moment really coming, is it worth waiting for… and how can you tell?
The best day of your life
The prospect of owning a slice of a high-value asset and potentially benefiting when the whole thing gets sold ‘for millions’ is hugely exciting.
But it’s likely to be a project that absorbs a big chunk of your life – often at a time when you are at (or near) the peak of your energy, enthusiasm and revenue-building abilities.
You’ve probably worked for ~5 years to get into your position, and now plan to hang on for at least 3-5 more to cash in on your hard work.
Before long, it can easily be a decade that’s swallowed up chasing the life-changing pay-out, which comes at the hugely important cost of working on any other wealth-creation project, and can land you with big restrictions as part of your contract agreement.
By committing your career to an equity scheme, you block off all your innovation and graft for one big bet, and – in many cases – simply hope that it pays off.
Road to riches, or seductive daydream?
Analysing your equity package isn’t hard to do – it’s just something that many recruiters overlook amid the excitement of having any kind of equity at all!
It’s extremely important to have a true, honest understanding of exactly what it means – and how likely it is to ever pay out.
If you go through your plan and feel confident that all your efforts and energy are building securely towards a tangible, well-defined pay-out, then great!
You’re in a good spot, with a concrete reward for your hard work ahead.
But, if you scrutinize your deal and don’t feel confident that ‘the dream’ will ever become reality, it’s a wise move to think seriously about why you’re working so hard for something that may never happen.
Getting down to details
To get a clearer idea of whether your equity is really worth hanging on for, there are some simple questions you can ask:
- Do you own shares, or are you on a ‘participation scheme’?
- If you own shares, what does your shareholder agreement say?
- Does the company have a clear exit strategy?
- Do you understand how the company is likely to be valued if and when it is sold?
- Do you have clear visibility into company finances – specifically profits?
- Has the company ever been professionally valued – is it working with a specialist M&A advisor?
- Does the company have a clear vision of who it will sell to – is this discussed and evaluated, has initial dialogue or research been initiated?
If you have strong answers to most of the above, that should build confidence in your plan and help you determine whether all of the time and effort you’re committing is really likely to bear fruit.
However, if on review you come to realise that your company has no clear, time-bound path to exit, is unlikely to command a significant valuation (or you have no idea what a realistic valuation would be) – then it might be time to think about other ways of building your personal wealth.
What if you did it yourself?
The company owners of today were often the senior recruiters of yesterday, and it’s a normal and natural part of business that the most ambitious employees branch off to build their own entities.
Mathematically, it’s easy to see why:
- To earn £500,000 by owning 5% of a company, that company needs to be sold for £10m.
- Valued at a multiple of 4x EBITDA, that means an agency running annual profits (net profit, not GP) of £2.5m.
- To earn the same sum by building your own agency and owning 100% of the shares, you need to sell (at the same valuation) for £500,000 with profits of £125,000.
Which is more realistic in your scenario?
Most recruiters will be able to quickly work out how likely it is that:
- their current company will ever reach a profit point that makes their equity truly valuable (and will sustain it, and will sell!), or
- whether there’s a quicker and more secure route to the same sum by building something themselves.
Something they own, fully control, and which could never slip through their fingers on a contract technicality.
Making the right call
Are all equity programs sinister, illusory daydreams designed to trap key employees into staying with their companies?
Definitely not.
Most plans are designed and implemented with the firm goal of sharing the benefits of building a valuable business entity together, and rewarding key personnel for their contributions.
However, even the best laid plans can have faults.
If you are truly committed to building personal wealth, you owe it to yourself to examine the fine print of your deal and determine how the future is likely to play out.
You may feel secure, confident and committed.
But – if you want a firmer grip on your future rewards – a mirage on the horizon may not be enough.
