Leveraging Fractional Hiring with Cash and Equity

April 20, 2023
Startup Hiring

📊 Lay-Proof Staffing for 2023

The recent layoffs at major tech companies and startups should serve as a cautionary tale about the potential consequences of aggressive hiring practices and inefficiency. By examining the layoff messaging from CEOs of Stripe, Meta, and Apple, a common theme emerges: they expanded their workforce too quickly during the economic boom, resulting in layoffs. Perhaps a better approach would have been to maintain a smaller core team of full-time employees and supplement them with additional fractional hires based on specific initiatives. Who knows? The outcomes might have been different.

Despite the recent layoffs in the tech industry, the demand for top-tier product and engineering talent remains high. Startups, in particular, are eager to tap into this talent pool. However, due to the current economic downturn, it has been challenging to convince professionals to accept roles with less established brands. Fortunately, fractional hiring provides a solution that enables companies to access top talent without the overhead costs of full-time hiring, while also reducing the risk for professionals working with early-stage startups: fractional hiring.

In 2023, fractional teams and hiring could be the key to layoff-proof staffing.

💼 What is Fractional Hiring?

Fractional hiring is a work arrangement that allows skilled talent to work for multiple companies either part-time, full-time, or a combination of both, similar to being a plate-spinner at a carnival, but with more money and less cotton candy. With the reality of remote work, top talent now has the freedom to engage with multiple companies, either in transition or permanently, providing more flexibility in their life choices and opening doors to personal growth. They can even give the startup life a try, fractionally.

There are several ways to hire top fractional tech talent:

  1. Elite Talent Marketplaces: Top tech talent is unlikely to be found on freelancer websites like Upwork, Fiverr, or Freelancer. To find the best fractional talent, target elite talent marketplaces such as TalentFund that cater to top tech talent.
  2. Staffing Agencies: Consider staffing agencies that specialize in providing fractional or part-time employees, keeping in mind that they can be expensive.
  3. Social Media: Professional social media platforms, such as LinkedIn, can be great resources for finding fractional employees. However, reaching out to top tech talent on LinkedIn can be challenging due to the high volume of unsolicited requests. Therefore, it is important to be as personal as possible when reaching out, making sure to outline why you believe the talent is the right fit for your role.
  4. Tech Meetups and Conferences: Attending tech meetups and conferences can also be a way to meet top tech professionals. To improve your success rate, make sure to select tech meetups that cater to co-founder matching and tech hiring.
  5. Referrals: Additionally, consider asking for referrals from accelerators, VCs, other founders, or colleagues who may know of professionals who offer fractional services.
  6. Job Boards: Finally, job boards can also be effective, but keep in mind that you'll want to target elite tech talent rather than low-hanging fruit. Therefore, you should consider using more expensive platforms such as LinkedIn and Wellfound.

The popularity of fractional hiring is on the rise and is set to become what freelancing was two decades ago. While some top talent may only accept cash as payment, working with startups on the side can be less risky, and they may be more likely to accept a payment that includes a combination of cash and equity, co-creating startups that would not normally have access to this level of talent.

🙌 Advantages of Hiring for Cash and Equity

Hiring top fractional talent for both cash and equity compensation offers several benefits that go beyond reducing overhead costs and derisking your venture. Firstly, offering equity compensation can motivate talented individuals to work harder and become more invested in the success of your startup. This can lead to better product development and improved outcomes. Secondly, hiring at discounted cash and equity rates can significantly extend your runway, enabling you to allocate resources more strategically. Finally, building a relationship with highly-skilled talent through fractional hiring can create a pathway for them to become full-time employees or even co-founders. This can bring valuable knowledge and expertise to your team, which is highly sought-after by investors in today's market.

Factors to be Considered

Fractional hiring is a relatively new concept so it's crucial for both the startup and the talent to have a clear understanding of the terms of the agreement, including compensation, working hours, availability, services to be performed, contract term, and possibility of renewal.

Including intellectual property assignment, non-disclosure, and confidentiality clauses in the agreement is crucial to protect the company's intellectual property. Intellectual property assignment clauses ensure that any work created by the employee or contractor during their tenure with the startup is owned by the company. Non-disclosure and confidentiality clauses prohibit the employee or contractor from disclosing confidential information to third parties, and from using the company's confidential information for their own benefit or for the benefit of competitors. These clauses can prevent any potential infringement or misappropriation of the company's assets, which could have a significant impact on the company's success and competitiveness.

It's important to remember that fractional hires are not freelancers and should be treated as new employees. This means announcing their hiring to the team, including them in company-wide meetings, and engaging them on collaboration platforms. Startups should also be mindful of the agreed-upon hours to prevent employee burnout. Regular check-ins should be set up to ensure that the workload is manageable, and progress updates should be provided and timelines adjusted as necessary.

As fractional hires may work remotely, startups should ensure compliance with local labor laws and regulations by connecting with local embassies and associated business organizations. This will help them understand any particular laws around contract term limits, tax payments, or other legal requirements that may apply to the employment arrangement. By doing so, startups can avoid legal issues and ensure a smooth working relationship with their fractional hires.

📄 Structuring Cash and Equity Agreements

The structure of compensation packages for independent contractors that include cash and equity can be quite complex, and this topic is further elaborated on in the next article. To ensure tax efficiency, companies should consider several options, such as setting the strike price of warrants at the company's fair market value, issuing actual stock instead of options in the early startup stage when the value is still speculative, and utilizing a special provision in the US that allows contractors to receive equity equivalent to 85% of their cash compensation. Additionally, companies should regularly review and update their ESOP to reflect changes in the company's valuation. An alternative approach called reversed vesting is also available, but it requires complex legal considerations. It is crucial for startups to seek the advice of tax and legal professionals to ensure compliance and avoid any potential legal and financial consequences.

👉 In Conclusion

Fractional hiring could be a game changer for startups to expand their team while keeping costs under control. This hiring model offers access to high-quality talent without committing to a full-time hire, allowing startups to extend their runway, reduce cash burn, and minimize layoffs. Additionally, fractional hiring provides professionals with the flexibility to work on projects they're passionate about and offers a level of freedom not typically found in traditional full-time roles. By structuring compensation packages that include both cash and equity, startups can attract top talent while maintaining their motivation to achieve company goals. If you're a startup looking for a cost-effective way to build your team, fractional hiring is an option worth exploring.

💥 Why TalentFund?

TalentFund is a marketplace that connects early-stage startups with top-tier product engineers, managers, designers, and marketers who offer their expertise on a fractional basis, with options for compensation in both cash and equity. In addition to matching startups with talented professionals, TalentFund also provides access to industry-specific advisors and resources, as well as pre-vetted consultants to access non-dilutive funding.

The platform offers two ways to build products, either by filling talent gaps on an existing team through team augmentation, or by assembling a full fractional product team through Team Squad.

TalentFund takes care of legal paperwork, matches talent with startups, and facilitates contract negotiations, allowing teams to focus on building winning products.

Sign up today!

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