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We have a group of 6 individuals in a med tech start up. The main focus is sales and marketing. 5 of the team are sales and tech. 1 is business acumen and investment. How much should the biz/investment guy get as equity share of the company?

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This isn't something other people are going to be able to answer for you without knowing more about the contribution of each of the six people involved in the company. Basing this completely on job title is folly; what matters is the value of the contribution each founding member is bringing to the new company. – Shaun Jan 31 '11 at 4:28

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Where are you incorporated? With so many founders, I would consider spending for a top-flight vesting schedule that at least considers a few of the most common potential issues.

I think that, to really answer this question, you need to define his role. If he's handling all of your accounting, and managing all of your strategic relationships, that's value that doesn't require him proving anything.

If there are some big promises being made about investors [!] and networks [!] it may make some sense to tie an equity stake to a deliverable. There's not quite enough information here. A good corporate lawyer might have some ideas.

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One way I seem to recall reading in a truly fantastic book, The Entrepreneur's Manual, runs like this:

  1. Figure out how much each of your time would be worth if you weren't working on the start-up. For instance, let's assume you could make $100K, so that's $50/hour.
  2. Figure out how much of that you're "giving" to the company. If you're working gratis, that would be $50/hour. If you're getting $80K salary from the start-up for 40 hours/week effort, that would be $10/hour for "regular time" and $50/hour for "overtime".
  3. Figure out a basis price for a share in the company.
  4. Keep track of how much everybody is "giving" to the company, whether in time or money, translate that into shares at the basis price, and hand those out at a regular interval that works for you.
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That doesn't sound like a good practice, especially part 4. Very quickly, tracking and issuing more shares becomes impossible and totally subjective. I'm more for a "bus factor" approach. – Alain Raynaud Jan 31 '11 at 5:55
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What's the "bus factor" approach? – Henry the Hengineer Jan 31 '11 at 7:00
@Alain: I trust somebody's keeping track of the money. If everybody also keeps track of their time, how is this not a good practice? It's no different than time-and-materials consulting; you just get shares rather than money. And if you've authorized a ton of shares, like ten million, it's not like you'll run out. People will earn a portion of the business relative to their contribution. – Bob Murphy Jan 31 '11 at 23:44
The "bus factor" is the notion of who is critical (if you got hit by a bus today, would the company die?). That has a lot of impact in practice on how equity is spread. Are you critical, or can your job be replaced easily? – Alain Raynaud Feb 1 '11 at 21:35
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If you are just starting out, spread the vested equity equally.

If you don't vest, you'll regret it when 2 people decide to leave.

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