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With a team of 2, we have been busy building a new e-commerce business for the last 4 months. Hopefully we will launch the project in the next 2 months.

We are trying a new concept sales model based on mass customization, and I feel that our budget is ok to do some marketing and cover fixed costs for the first 4 - 5 months after launch. However, marketing and running of daily operations will not be very easy with 2 people, and we will have to hire part time employees or interns to help the operations.

I am thinking of adding another partner who will spend 100% time with the team to beef up the budget, and get more aggresive in marketing.

Our current budget is around 60K

The new guy can add around 20K

Our current share structure is 60% to 40%

What would be an ideal share structure when moving from 2 to 3 ?

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3 Answers

up vote 3 down vote

There are clear accounting guidelines to work this out.

The cash that a new partner brings in should be based on what the company needs.

The amount of equity he or she owns is based on the valuation of the company at the time and the amount of cash they contibute.

In addition, a new partner should have enough equity to motivate them to give their best to the business.

Have a talk to your accountant about how to structure this. You want to make sure it is fair from the beginning for all parties involved to avoid resentment later.

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Well stated susan, got my vote up! – Frank Nov 14 '10 at 13:28
:) Thanks Franky – Susan Jones Nov 26 '10 at 10:47
up vote 1 down vote

These things usually work on a sliding scale and also with respect of how much value a new partner brings to the company.

lets say you and your buddy each had 50% equity in a company. Each invested 20k. Each worked on the product for 4 mos.

The next guy that comes along, should put in more than 20k, because you have inheritly built some value in those 4 months of work.

Every situation, partner is different. But without much detail I would think that 16.5% equity for another $40k would be fair (i am assuming 40k is what you and your partner put in). Also another 16.5% for the role he will play, vested over time, and based on performance. So if he performs, he will own 1/3 of the comapny and be a real partner.

If he doesnt perform he can revert back to a silent investor and keep his 16.5% plus whatever he earned in vested efforts, or he can be bought out based on a current valuation or whatever term you guys stipulate in your contract.

I personally think, dont bring too many people in unless if they are really passionate about moving forward, bring a lot to the team, and play well with the existing partners in terms of vision, ethics, personality and goals.

Best of luck!

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up vote 1 down vote

Why partner? Are you looking for extra $20K in funding? Can you outsource marketing? These are alternatives.

It is easier to pay off a loan, than getting rid of a wrong partner. And in terms of marketing -- pay for actual results and not the promise of those.

Best of luck!

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+1 for asking WHY a partner. If the guy is really good then that's one thing, but if it's just for the funding and he doesn't seem great then it's probably not worth it. – Davy8 Nov 23 '10 at 2:35

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