If the idea of working without pay at a startup without revenue, funding, or even a fully formed business plan in exchange for what basically amounts to a lottery ticket sounds appealing, talk to Max Shapiro.

Mr. Shapiro’s firm, PeopleConnect, recruits executives to work at pre-funding startups, the sort of small, high-growth tech companies that could either dissolve into obscurity or be the next Google.

They’re angel employees, willing to invest their labor in exchange for an equity stake in much the same way an angel investor would invest cash.

Mr. Shapiro and his three recruiters look to connect these pre-funding companies with the executives they need to score the first sale and secure commitments from other investors.

“I know there’s a lot of good people out of work and there are enough people who are entrepreneurial enough and love that 70-hour a week startup environment and wouldn’t mind working for options until it got funding,” said Mr. Shapiro.

‘I know there’s a lot of good people out of work and…love that 70-hour a week startup environment.’  - Max Shapiro  PeopleConnect

Of course, founders have been toiling away in Silicon Valley startups without paychecks for years. But PeopleConnect is taking that trend to middle management. The firm has 15 clients and looks to fill two or three positions for each client at any given time.

The outfit sometimes has to wait to get its fee. Once the managers goes on payroll, PeopleConnect collects 25 percent of the first-year salary of the managers it places as a finder’s fee. It also negotiates for a certain percentage of the startup’s options when it closes a financing round and sets a company valuation. Mr. Shapiro said that percentage was usually less than 1 percent.

Recruiting Industry Blues

The recruiting industry took a hit when the bubble burst. Something like 60 percent of Silicon Valley recruiters got out of the business, Mr. Shapiro said.

But PeopleConnect pursued a high-risk, high-reward strategy to help innovative young companies survive the downturn.

Instead of burning through $50,000 to $100,000 per month in personnel expenses, a startup can keep its burn-rate low by offering options instead of cash payouts.

This strategy is not new. Venture capitalists give up cash for stock options. Founders usually give up jobs, time, and sometimes even their credit rating for the promise of a future payoff.

Mr. Shapiro concedes that his idea is not exactly unique: “When I talk to CEOs, they smile and say: ‘That’s what I’m doing.’”

Still, Mr. Shapiro no-paycheck program comes as high-tech executives are taking more money and the least amount of equity at any point in the last two years.

CEOs earn a median of $10,000 more today than they did a year ago, and $35,000 more than in 2003, according to a study by VentureOne. At the same time, CEO ownership in companies fell to a median of 4.64 percent, down from 5 percent in 2004 (see CEOs Get More Cash, Less Stock).

Vice presidents and directors also got modest pay increases and declining equity stakes, the study said.

Nine Months, No Pay

Longtime tech exec Erik Hoogerhuis signed up with a struggling startup in February after Mr. Shapiro set him up with the opportunity.

Mr. Hoogerhuis joined Commendo Software, as vice president of marketing. The company makes a software server that resides on a user’s PC and it has the ability to record any live, or personalized web content.

He’s been working without pay for nine months, racking up stock options as the company retools its sales strategy.

How does his family take it? “Nobody’s happy,” Mr. Hoogerhuis said. “I’ve had to re-mortgage the house.”

Despite the cash drain of two kids in college, Mr. Hoogerhuis is still optimistic. “The glimpses I got of the technology made me say it was worth the risk.”

He pushed the four-year-old startup to change its strategy and focus on selling to consumers instead of big businesses. It’s a move that postponed his payday even further.

“Everyone was very enthusiastic about the product, but when we got deeper into the sales cycle, we saw the reluctance of IT managers to make a purchase. It’s the kind of crap that’s been screwing startups for the past four years,” Mr. Hoogerhuis said.

Commendo has a corporate customer, but it needs more than that to impress venture capitalists and angel investors. “We could have been funded doing the old stuff, but we would have been up against the wall,” Mr. Hoogerhuis said.

But the further Commendo puts off its financing, the longer Mr. Hoogerhuis lives off his mortgage, and the further his back gets pushed up against the wall.