Having read so much on how equity has to be split, i am still confused and am unable to come to any conclusion. I Would highly appreciate if you could fill in the gap as its making life difficult.
Scenario :-
Three people are involved in this start up.The company is a system integrator and provides automation solutions.
People Involved
Guy 1 : Sales person [He was part of a venture that blew up, so when he had contacted me for this venture he was already jobless :), Currently he is working full time as a sales agent.
Me : Technical person. Involved in the design, development and execution of the project. Currently working part time and assisting Guy 1 with technical specification to projects and preparing presentation on the systems which he presents. Later would be involved in sales and marketing.
Guy 2 : Technical person. Had joined in late. Would also be involved in design, development and execution of the project. Currently working part time.
The expense for 1st year : 90000$
Expense Breakup
Salary Guy 1 : 4000
Pf for Guy 1 : 1420 { 35% of his salary has to be paid as pf }
travel,telephone etc : 2080
As per GUY1 the equity distribution should be.
Guy 1 : 55% [ 49500$ invested plus effort. getting paid 5420/ month ]
Me : 35% [ 31500$ invested by me plus my effort (currently not being paid anything, salary would be paid once working full time) ]
Guy 2 : 10% { had joined in late } [ 9000$ plus effort (currently not being paid anything, salary would be paid once working full time)]
My Question's :
1) Guy1 says he is taking more risk and cannot go below 55%, is it justified ? As we both will be doing all the technical work. Based on the working capital the major share is the salary we have to pay for Guy1. When i calculate the amount of money all of us have put in at year end
% of W.C money returned year end
Guy1 : 49500 - 65040(5420*12) = -15540$
Me : 31500 - 0 = 31500$
Guy2 : 9000 - 0 = 9000$
2) According to Guy1 the profit sharing should be 55:35:10, I am not convinced with this either as the amount of work we put in is also critical, to finish the project.
3) I am not convinced with such a high salary, as currently we do not have any revenue at all. Moreover when being asked if once fully employed will we be getting the same the answer is it depends on what we make.
