Ask yourself one question - why?The way I look at this is simple. You're being offered the chance to buy a minority stake in a closely held company, probably using your cash bonus - which effectively isn't paid out. So you have to value that company, you have to know who all the shareholders and debtholders are, and you have to be able to sell at a price above what you buy. You also have to be sure that by holding shares, this doesn't affect your future pay progression.What are the possible outcomes?1. You leave the company.Your shares will have a token value. Why? Because the value will be low at that point. Who is going to adjudicate on the earnings, let alone the multiple of earnings? Is it 2, 4, or 8? Its usually 8 when you buy in and 2 when you leave.2. You stay and build a great company which achieves a trade sale.Look carefully at the structure of the company. There will be debt in the company that converts to equity on sale. And in the interim period, if times get bad and there is a cashflow issue, will one of the shareholders have the financial capacity to dilute you at a very cheap price? And how much say will you have over the direction of your investment, the strategy, the decisions taken, probably very little.
